26 October 2016
2QFY17 Results Update | Sector:
Others
BSE SENSEX
27,837
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
8,615
MCX IN
51.0
66.1/1.0
1,420/726
27/39/41
341
100
MCX
CMP: INR1,297
TP: INR1,450 (+12%)
Buy
All-round beat; market share up to 89.5%
6% revenue beat, higher profit beat on lower costs
MCX’s 2QFY17 revenue grew 2.3% QoQ and 5.7% YoY to INR596m, above our
estimate of INR562m. This was in line with volume growth of 2.3% QoQ and
10.3% YoY. The revenue beat was led by realization beat (INR1.77/100k).
EBITDA margin expanded 280bp QoQ to 32.7%, well above our estimate of
26.6%. EBITDA was INR195m, 30% beat to our estimate of INR149m. Total
costs at INR401m were marginally below our estimate of INR412m, driving
margin beat from operating leverage.
PAT was INR376.5m, +21% YoY, above our estimate of INR311.5m, led by
operating profit beat and higher other income (INR359m v/s estimate of
INR315m – we factor “other operating income” line item in our other income).
Silver-led volume uptick:
For the second consecutive quarter, Silver drove
volumes, +20% QoQ (18% concentration; 26.6% growth in 1Q). Gold declined 14%
QoQ (21% concentration), and Crude was flat QoQ (27% concentration).
Cost base may go up in 4Q; options cannibalization to be limited:
Launch of
options will accompany investment in education and training programs along with
marketing, which will drive higher costs in 4QFY17. Number of commodities on
which options can be traded will only go up gradually, and so cannibalization from
low yielding options will be limited, as markets will continue to grow meanwhile.
Expect profits to rise next quarter:
We expect revenues and margins to bump up
further in 3Q, as price hikes of 24-25% become effective. Options launch in
4QFY17 will be a key trigger for volumes. Also, SEBI favors chronology of new
participants, followed by new exchanges, which should keep competition at bay
for the time being. With reforms underway, our base case assumes return to pre-
CTT daily turnover (ADT) of INR500b by FY18-end. This compares with current ADT
of INR250b. Our revised price target of INR1,450 discounts FY18E EPS by 30x.
Buy.
Financials & Valuation (INR Billion)
Y/E March
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%
RoCE (%)
P/E (x)
EV/EBITDA(x)
2016 2017E 2018E
2.1
0.6
0.4
23.4
-5.0
3.5
8.8
55.5
95.7
2.6
1.0
1.6
30.4
30.2
12.2
12.0
42.6
55.3
4.0
2.1
2.5
47.5
56.2
284.5
17.4
17.2
27.3
25.2
236.1 260.3
Estimate change
TP change
Rating change
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and
S&P Capital.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585

MCX
Takeaways from management commentary
Reforms visible; execution over the long term:
SEBI has already flagged the go-
ahead for trading options, and also cited that new participants will be allowed
on the exchange, starting most likely with domestic mutual funds. The process
of reforms is well and truly under way, but as SEBI will approach this in a step-
by-step fashion, all of these may only become effective over the long term.
Maintains expectation of options commencing in 4QFY17:
MCX reiterated that
options should see some trading in 4QFY17. That said, it may not start from
January 1
st
, nor does MCX expect the proportion to be significant, given that
only a couple of commodities will be allowed to start with, and many more will
be brought under the fold gradually later. The CDAC committee continues to
iron out the details in terms of settlement, type of options etc.
Price increase is not having an impact:
Thus far, things in terms of volumes have
been status quo after the recent announcement of price hikes by MCX. There
has not been any change in the behavior on volumes or in the list of its top
25/50/100 brokers on the exchange
Do not see significant cannibalization from Options:
Options may likely have a
hockey-stick impact on growth, with gradual growth in the market volumes
driving performance slightly later.
Cost base will see some uptick in 4Q:
While the advertisement expenses were
significantly low in 2Q, there will be investments in 4Q alongside options and
along with education and training drives.
No plans for a big payout just yet:
MCX’s dividend policy remains as-is and
there is no plan of any big-bang payout, given potential need for cash over the
near-to-medium term for: [1] market development to increase the number of
members, product development for new categories, [3] capitalization of
Clearing corporation, and [4] keep the ammunition dry for potentially enhanced
competition going forward.
Exhibit 1: Volumes during the quarter grew 2.3% QoQ…
Volumes (INR t)
6.3
7.8
9.2
-3.5
-12.0
-20.8
11.8
12.5
13.5
14.1
13.6
14.8
13.0
14.9
16.0
16.4
QoQ (%)
14.3
7.3
2.3
4.4
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17
Source: Company, MOSL
26 October 2016
2

MCX
Exhibit 2: … and revenue growth mirrored volumes on flattish realization
Revenue (INR m)
5.6
(20.8)
474
500
527
537
5.3
QoQ Growth (%)
8.8
(11.6)
(3.6)
11.6
4.7
2.3
1.9
518
563
498
556
582
596
Source: Company, MOSL
Exhibit 3: Higher revenues and marginally lower costs drove significant margin beat
EBITDA (INR m)
52.3
38.6
26.5
15.3
72
132
204
281
146
28.2
24.1
136
26.9
134
24.6
137
29.9
32.7
EBITDA %
174
195
Source: Company, MOSL
Exhibit 4: YoY growth in PAT remained strong, led by operating leverage from top-line
PAT (INR m)
8.6
5.1
12.7
7.4
5.6
-21.8
-45.0
-61.1
234
294
230
493
251
310
180
271
328
376
YoY (%)
30.5
21.3
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17
Source: Company, MOSL
26 October 2016
3

MCX
Exhibit 5: Silver drove volumes during the quarter like in 1QFY17…
Gold (INR t)
3.3
2.5
4.1
3.2
2.7
4.0
3.5
2.4
2.5
2.4
Silver (INR t)
2.3
2.4
2.9
2.8
3.1
3.0
2.0
2.2
1.8
1.9
Source: Company, MOSL
Exhibit 6: …while crude remains the largest traded commodity by value
Crude (INR t)
3.6
2.3
2.8
4.0
4.2
4.3
3.9
4.5
4.4
4.4
0.9
0.8
0.8
Copper (INR t)
1.3
1.2
1.1
1.0
1.0
1.2
1.0
Source: Company, MOSL
Valuation and view
Market leadership in winner-takes-all business:
MCX has retained its market
leadership position, with a share of 80-90% over FY09-16. Even in the most
turbulent of months during FY13-14, when the parent’s existence was in deep
waters on issues of fraud around National Spot Exchange (NSEL), the exchange
managed to retain its share. Additionally, it has remained without a fulltime MD
& CEO since May 2014 when Mr Manoj Vaish resigned after just three months.
This is a reflection of the winner-takes-all nature of the business model.
Monopoly share in multiple commodities takes care of concentration risk:
MCX’s golden run in terms of volumes came at the time of significant run-up in
gold and silver prices in FY12 and FY13. That was also perceived to be a risk,
given that the share of volumes from these two commodities had exceeded
70%. However, presence in multiple commodities helps avert the concentration
risk, and this was evidenced in FY15, when action in oil prices drove energy to
exceed gold as the largest traded commodity at MCX by value.
All eyes on reforms, as SEBI-FMC merger is complete:
SEBI’s merger with FMC
is now complete, paving the way for much awaited reforms in the ecosystem.
The upside for MCX may yet be partly a function of reports around approvals to
competition and entry of a credible global exchange materializing. We don’t
expect these at one-go or immediately, but rather in a gradual, phased manner
over the course of the next calendar year. In the interim, reports suggest that
competitive intensity may take a while, given the regulatory norms. Meanwhile,
4
26 October 2016

MCX
MCX could: [1] get a head start, and [2] strengthen itself with investment from
CME.
Volume reversal to pre-CTT levels is our base case:
Our base case assumes
return to pre-commodities transaction tax (CTT) average daily turnover of
INR450b-500b by FY18. This compares with current ADT of INR200b-250b.
Multiplier effect on operational earnings from operating leverage, Buy:
We
expect the revenues and margins to bump up further in 3Q when the price hikes
of 24-25% become effective. From 4QFY17, Options will also be launched, a key
trigger for volumes. Additionally, SEBI reportedly favors chronology of new
participants followed by exchanges, which should keep competition at bay for
the time being. With reforms underway, our base case assumes return to pre-
commodities transaction tax (CTT) daily turnover (ADT) of INR500b by FY18 end.
This compares with current ADT of INR250b. Our revised price target is
INR1,450, which discounts forward earnings by 30x. Buy.
Key triggers
Introduction of new products like Options / Indices
Introduction of new participants like Banks / FIs
High volatility in key commodities like Bullion / Crude
Key risk – increased competition from equity exchanges
One of the implications of FMC’s merger with SEBI is that stock exchanges will be
able to become universal exchanges, where equities, debt instruments and
currencies are traded under the same roof as commodity derivatives. Stock
exchanges already have depositories and clearing corporations that will cater to the
needs of commodity traders as well. If NSE enters the commodities segment, MCX
could see stiff competition, which may impair both market share and profit margins
26 October 2016
5

MCX
Financials and Valuations
Income statement
Y/E March
Sales
Change (%)
Cost of Services
SG&A Expenses
Provisions
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
EO Item (net)
PBT
Tax
Rate (%)
PAT
Extraordinary
Net Income
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
SGF
Loan & other long term liab.
Capital Employed
Net Block
CWIP
Other LT Assets
Investments
Curr. Assets
Current Investments
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Assets
Current Liab. & Prov
Net Current Assets
Application of Funds
E: MOSL Estimates
FY12
5,262
42.6
1,036
879
FY13
4,992
(5.1)
1,072
987
FY14
3,197
(35.9)
935
1,014
FY15
2,038
(36.3)
733
616
FY16
2,135
4.8
779
804
FY17E
2,633
23.3
1,030
643
(INR Million)
FY18E
4,014
52.5
1,210
732
3,347
63.6
272
0
1,027
142
3,960
1,098
27.7
2,862
2,862
65.6
2,932
58.7
307
0
1,427
-
4,051
1,065
26.3
2,986
2,986
4.4
1,248
39.0
343
11
1,202
-
2,097
569
27.1
1,528
1,528
(48.8)
689
33.8
259
14
1,285
-
1,701
450
26.5
1,251
1,251
(18.1)
553
25.9
246
0
1,191
667
831
413
49.7
418
418
(66.6)
960
36.5
177
2
1,346
-
2,127
568
26.7
1,560
1,560
272.9
2,073
51.6
176
2
1,396
-
3,291
808
24.6
2,483
2,483
59.2
(INR Million)
FY12
508
9,461
9,969
432
10,401
1,369
1
1,907
2,208
13,274
9,294
514
3,124
283
59
8,358
4,916
10,401
FY13
510
11,058
11,567
569
12,136
2,044
-
531
1,481
13,802
9,201
69
3,475
530
525
5,721
8,080
12,136
FY14
510
10,931
11,441
1,720
449
13,610
1,735
-
281
132
15,267
10,766
90
3,417
676
319
3,805
11,462
13,610
FY15
510
11,512
12,022
1,871
343
14,236
1,552
-
281
132
16,278
12,795
107
2,655
456
265
4,007
12,271
14,236
FY16
510
11,529
12,039
1,879
282
14,201
3,528
-
281
132
14,227
8,511
42
5,003
268
404
3,967
10,260
14,201
FY17E
510
12,764
13,274
1,864
229
15,368
4,382
-
281
132
15,380
8,364
145
5,544
642
685
4,807
10,573
15,368
FY18E
510
13,998
14,508
1,864
229
16,601
4,448
-
281
132
17,945
8,364
224
7,297
997
1,063
6,205
11,740
16,601
26 October 2016
6

MCX
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios
Debtors (Days)
Fixed Asset Turnover (x)
FY12
56.1
61.4
195.5
24.0
50.0
FY13
58.6
64.6
226.8
0.5
0.9
FY14
30.0
36.9
225.4
10.2
39.0
FY15
24.6
29.6
235.8
10.2
48.5
FY16
23.4
13.0
236.1
-
-
FY17E
30.4
33.8
260.3
15.3
59.7
FY18E
47.5
51.0
284.5
20.4
50.9
23.1
21.1
16.1
10.3
6.6
2.2
22.2
20.1
18.4
10.8
5.7
0.0
43.2
35.2
41.6
16.2
5.8
0.9
52.8
43.8
73.9
25.0
5.5
0.9
55.5
99.6
95.7
24.8
5.5
-
42.6
38.3
55.3
19.9
5.0
1.4
27.3
25.5
25.2
12.6
4.6
1.9
31.0
24.8
(89.8)
35.7
31.2
27.7
26.5
(151.3)
5.1
27.3
13.3
12.8
(118.5)
10.3
18.1
10.7
10.4
(35.4)
19.1
11.4
3.5
8.8
(58.6)
7.2
11.7
12.2
12.0
52.6
20.0
13.7
17.4
17.2
20.4
18.7
Cash Flow Statement
Y/E March
CF from Operations
Cash for Working Capital
Net Operating CF
Net Purchase of FA
Free Cash Flow
Net Purchase of Invest.
Net Cash from Invest.
Proc. from equity issues
Proceeds from LTB/STB
Dividend Payments
Cash Flow from Fin.
Others
Net Cash Flow
Opening Cash Bal.
Add: Net Cash
Closing Cash Bal.
E: MOSL Estimates
FY12
1,600
1,160
2,760
(200)
2,561
(2,723)
(2,923)
-
-
(296)
(296)
273
(186)
3,310
(186)
3,124
FY13
2,470
(1,941)
529
(462)
68
1,910
1,448
-
-
(2,134)
(2,134)
(156)
3,124
(156)
2,968
FY14
1,949
(1,565)
385
(59)
325
586
527
-
-
(1,133)
(1,133)
-
(221)
3,475
(221)
3,255
FY15
469
503
972
(9)
963
(1,080)
(1,089)
-
-
-
-
-
(117)
3,417
(117)
3,300
FY16
512
22
533
(200)
333
5,367
5,167
-
-
-
-
5,701
2,655
5,701
8,356
FY17E
771
13
784
(220)
564
1,001
781
-
-
(715)
(715)
851
5,003
851
5,853
(INR Million)
FY18E
1,588
586
2,174
(242)
1,932
1,012
770
-
-
(1,191)
(1,191)
1,753
5,544
1,753
7,297
26 October 2016
7

MCX
Corporate profile
Company description
MCX, India’s largest and only listed exchange,
commenced operations on 10 November 2003. It is
an electronic commodity futures exchange, with a
scalable technology framework and disaster
recovery site (DRS) for end-to-end functioning of
systems and network. MCX had 84% market share
in terms of the value of commodities traded in the
futures market in FY15. MCX has a pan India
presence, with over 2,000 members, and
operations through 486,700+ terminals, across
1,879 cities and towns.
Exhibit 8: Shareholding pattern (%)
Sep-16
Promoter
DII
FII
0.0
39.8
19.6
Jun-16
0.0
40.6
18.2
Sep-15
0.0
41.1
15.3
43.6
Exhibit 7: Sensex rebased
1,450
1,250
1,050
850
650
Oct-15
Multi Comm. Exc.
Sensex - Rebased
Jan-16
Apr-16
Jul-16
Oct-16
Exhibit 9: Top holders
Holder Name
Kotak Mahindra Bank Limited
Blackstone Gpv Capital Partners (Mauritius) Vi Fii Ltd.
Axis Mutual Fund (Holding Under Various Schemes
Jhunjhunwala Rakesh Radheshyam
Reliance Mutual Fund (Holding Under Various
Others
40.6
41.2
Note: FII Includes depository receipts
%
Holding
15.0
4.8
4.6
3.9
3.3
Exhibit 10: Top management
Name
Satyananda Mishra
Mrugank Paranjape
Ajay Puri
Chairman
Managing Director & CEO
Company Secretary
Designation
Exhibit 11: Directors
Name
Satyananda Mishra*
Mrugank Paranjape
Saurabh Chandra
Ajay Kumar
Amit Goela
Hemang Raja
M A K Prabhu
Madhu Jayakumar
*Independent
Name
Padma Raghunathan*
Arun Nanda*
G Anantharaman*
Govinda Rao Marapalli*
Pravin Tripathi*
S K Mitra*
Parveen Kumar Singhal
Exhibit 12: Auditors
Name
Rathi & Associates
Shah Gupta & Co
Type
Secretarial Audit
Statutory
Exhibit 13: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
30.4
47.5
Consensus
forecast
29.7
40.6
Variation
(%)
2.3
16.9
26 October 2016
8

MCX
NOTES
26 October 2016
9

Disclosures
MCX
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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Kadambari Balachandran
kadambari.balachandran@motilaloswal.com
(+65) 68189233 / 65249115
26 October 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
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