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Multi Commodity Exchange

‘Future’ rests on ‘Option’ality

5 July 2021

SANKETH GODHA
 [email protected]
 +91 22 6176 6821
ARJUN N
 [email protected]
 +91 44 4344 0081

 Analyst Certification and Required Disclosures begin on last two pages – Click here
 Multi Commodity Exchange CMP Target Price Rating
Rs. 1,515 Rs. 1,365 SELL
‘Future’ rests on ‘Option’ality
Multi Commodity Exchange (MCX) is the dominant exchange in commodity derivates in India with a 96% market share. Commodity exchange has gone through a lot of regulatory flux
in the recent past and we expect the pressure on them to continue due to 1) Peak margin rules would have a negative impact on FY22 average daily turnover (ADTO) 2) Higher
margins resulted in participants exiting the counter or moving to options; which is not revenue accretive and is cannibalizing future contracts that have higher realizations 3) New INITIATING COVERAGE
products like index futures did not witness significant traction and also cannibalized future contracts ADTO 4) Hedgers remain elusive from Indian commodity exchange, reflected in 05 July 2021
less liquidity in far month contracts, till it does not pick up we don’t fore see structural increase in ADTO and 5) Product concentration risk is higher in MCX vs. Global exchanges.
Further, over the last few years, growth in equity derivatives have been higher than commodity both in global and India market. Given investors/traders preference for equity over Industry EXCHANGES
commodity as an asset class will continue to impact MCX volumes. However, regulatory approval for FII Participation, New products such as Electricity Derivative, Index Option and Key Stock Data
Domestic Spot Gold & Coal exchange could potentially surprise positively. Given the challenges and no near-term positive trigger to the commodity exchanges, we initiate coverage Bloomberg MCX IN
on MCX with a SELL rating and a TP of Rs. 1365 - 30x FY23 EPS. We ascribe a higher multiple for its capital light business model and potential operating leverage play.
MCX still remains in regulatory flux which shall impact the turnover in near future: MCX’s turnover last couple of years was impacted by series of regulatory changes viz. 1) Shares o/s 51mn
Discontinuation of Mini contracts in base metal and crude, which were active contracts among arbitrageurs and contributed ~25-30% of total turnover 2) Compulsory delivery in base Market Cap Rs. 77bn
metal contracts reduced participation and also made participation of DIIs in these contracts difficult (GST, warehousing issues) 3) Sharp increase in margins on flagship crude contracts
(100% margin for most of FY21) due to negative pricing witnessed in 1QFY21. With margin requirement in crude has been gradually reduced to 20% and new normal settling for base 52-wk High-Low Rs. 1,875-1,263
metals, we expected growth to bounce back on a low base. But with the implementation of peak margin rules (1st Phase - 25% compliance from Dec’20 to Feb’21, 2nd Phase - 50% from 3m Avg. Daily
Rs. 294mn
Mar’21 to May’21, 3rd Phase - 75% from Jun’21 to Aug’21 and 4th phase – 100% from Sep’21 onwards), we expect MCX’s ADTO to be lower in FY22 vs. last year (2-3% decline). Any Vol
change in SEBI’s stance on margin requirement for intraday trading (where MCX is making a representation) could moderate this impact. Index BANKNIFTY
Participants left the counter or moved to options due to higher margin requirements: With higher margin for the crude and peak margin rules, many active participants exited the
F&O NO
counter or moved to options where MCX still does not charge. Given MCX articulated that it shall start charging for options after its ADTO crosses Rs50bn (currently at ~Rs. 20bn) shall
not lead to revenue realization. However, increase in option trading at the expense of future contracts, is revenue and margin dilutive even if MCX starts charging. Latest Shareholding (%)
New products, Index Futures, Options did not see significant traction: MCX introduced Options in FY18 and Index Futures in Aug’20. Option as % of Futures ADTO is <5% and did not
Promoters 0.0
witness significant traction. While Index Futures is ~1% of total Futures ADTO. MCX has started charging for index futures, hence we don’t foresee immediate traction in Index Futures.
Even if it increases, it shall not lead to ADTO expansion as it shall cannibalize existing commodity contracts. MCX is betting on SEBI’s approval on cross margin benefit to see traction. Institutions 77.4
Hedger remain elusive from MCX: Hedger contribute ~3% of MCX ADTO. Given industrial houses usually look for long term contract for hedging, the liquidity in the far month contract at Public 22.6
MCX (more than 2months) is poor thus leading industrial houses to hedge on global exchanges. RBI in Mar’18 removed gold as an eligible commodity whose price risk could be hedged
overseas, had a positive impact on gold volumes. Any such measure in other commodities could attract industry houses and improve liquidity in far months contracts. Stock Performance (%)
Commodity as an asset class for traders is losing sheen to equity – Indian & Global: Since CY16, growth in commodity derivatives globally has been substantially lower vs. equity 1m 3m 12m
derivative. We believe, commodity as an asset class is losing sheen to equities. In India, equity derivatives witnessed 63% CAGR over CY17-20 while commodity saw a meagre 3% CAGR.
MCX -3% 0% 18%
NSE active clients grew from ~9mn (FY19) to 19mn (FY21), while commodity participants grew from 0.31mn to 0.46mn. Even on Future Contracts, commodity ADTO is just ~30% of Equity
Futures ADTO and almost zilch on Equity Options. Given the depth of the equity market, we don’t see any immediate trigger for higher participation in commodity exchange. Sensex 1% 7% 46%
MCX has higher product concentration risk vs. global exchanges’ stable product mix: Global commodity exchanges are well diversified and have stable product mix and seen secular
growth. MCX had volatile trend in product mix and higher concentration risk. Bullion was ~56% of FY21 ADTO, low bullion volatility shall have significant impact on ADTO. RESEARCH ANALYSTS
Optionality to revenue remain but regulatory approvals are pending: FII Participation, higher DII participation, New products - Electricity Derivative, Energy Index Futures, Index options, SANKETH GODHA
Domestic Gold & Coal and GIFT bullion exchange are pending with regulators. Quick approval shall bring additional optionality to revenue which are not baked in our estimates. [email protected]
Change in technology vendor could be EBIDTA Margin accretive: MCX’s current technology vendor is 63 moons where it pays fixed cost of Rs 13mn/month and 10.3% of transaction +91 22 6176 6821
income (valid till Aug’22). Now MCX has rewarded this contract to TCS, which shall be capex amortized over 5-6 year and does not have any annual obligation fees to be paid to TCS ARJUN N
(except for AMC charges). This change in technology cost shall be EBIDTA and PAT accretive. However, we have not baked in this benefit in our estimates till details on cost are known. [email protected]
Key risks: 1) Increase in global commodity volatility and prices could lead to higher-than-expected ADTO 2) New products could witness traction and expand ADTO 3) Roll Back of CTT +91 44 4344 0081

find SPARK RESEARCH on Bloomberg [RESP SPAK <go>] | FACTSET | REFINITIV EIKON Page 2
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Company Factsheet

▪ The Multi Commodity Exchange of India Limited (MCX), India’s first listed exchange, is a commodity derivatives exchange that facilitates online trading of commodity derivatives transactions,
thereby providing a platform for price discovery and risk management. The Exchange started operations in November 2003.
Company
Background
▪ The Exchange has an extensive national reach, with 636 registered members and 52,777 Authorized Persons with its presence in around 1016 cities and towns across India as of Mar’21. MCX is
India’s leading commodity derivatives exchange with a market share of 96% in terms of the value of commodity futures contracts traded in FY21
▪ Mr. P. S. Reddy, Managing Director & CEO, Mr. P. S. Reddy was appointed as the Managing Director & CEO with effect from May 10, 2019. Has held position of Managing Director & CEO of Central
Depository Services (India) Limited for 12 years. He worked with BSE Limited for 18 years. He was in charge of various departments and represented in various Committees of the Exchange. He has
over 31 years of diverse experience in Indian capital market, especially in Stock Exchange, Clearing Corporation and its eco system.
Management
Depth
▪ Mr. Satyajeet Bolar - CFO, he has been appointed as the Chief Financial Officer of the Company on May 30, 2020.

▪ Mr. Manav Jain - Chief Technology Officer – New Projects: He has ~28 years of experience

Distribution
▪ 636 Members, 52.8K Authorized persons, 3.9mn terminals, 1016 cities and 6mn Unique Client Code (UCC) and 457K active UCC
footprint

Revenue Mix
▪ Transaction income – 66%, Treasury income – 21%, Income on Margin money – 6%, Data Feed - 1%, Warehousing income -2%, Connectivity income -2% and others – 1%
(FY21)

Turnover Mix
▪ Bullion - 52%, Energy - 21%, Base Metal – 18%, Agri – 1%, Index Futures – 1%, Options -6%
(FY21)

Market Share
▪ MCX has a market share of 96% in terms of the value of commodity futures contracts traded in FY21
(FY21)

Auditors ▪ M/s. Shah Gupta & Co., Chartered Accountants

Financial Summary

Year Revenue (Rs mn) EBIDTA (Rs mn) PAT (Rs mn) EPS (Rs) P/E (x) EV / EBIDTA (x) ROE (%)

FY20 5,031 2,655 2,365 46.4 32.7 24.6 18.1%

FY21 4,943 2,669 2,251 44.2 34.3 25.3 16.2%
FY22E 4,890 2,498 2,048 40.2 37.7 25.8 14.1%
FY23E 5,397 2,828 2,319 45.5 33.3 22.6 15.2%

Page 3
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Products offered by MCX

Futures Index Futures Option Futures Option Commodity

Energy Base Metal Bullion Agri METLDEX BULLDEX Bullion

Energy Base Metal Energy Gold

Crude Oil Aluminium Gold Cotton Gold Copper Crude

Crude Palm
Natural Gas Nickel Silver Silver Zinc
Oil

Lead Mentha Oil

Copper Rubber
Products pending for regulatory approvals

Zinc Kapas ▪ Electricity (Pending with Supreme Court)

Futures ▪ Aluminum Alloy
▪ Steel Bar
Index Futures ▪ Energy Index
Options ▪ Index Options
▪ Coal
Spot exchange
▪ Gold

Page 4
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Investment Thesis on MCX

MCX still remains in regulatory flux which shall impact the turnover in near future

01 Participant left the counter or moved to options due to higher margin requirements
02

03 New products such as Index Futures, Options did not see significant traction

Investment 04 Hedger remain elusive from MCX

thesis

05 Commodity as an asset class for traders is losing sheen to equity – India & Globally

06
07 MCX has higher product concentration risk vs. global exchanges

Optionality to revenue remain but function of regulatory approvals

Page 5
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Table of Contents

7 Global vs. India Commodity Market

10 Commodity vs. Equity Derivative market

13 India Commodity Market

22 Trends in Bullion, Energy and Base Metal

26 Commodity Options really an opportunity?

30 MCX – Company Section

Page 6
Global vs. India Commodity Market
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#1. MCX : India’s commodity market is less diversified and more volatile than global commodity market
Global commodity market is more diversified compared to India & MCX and has a stable contribution across the segments

Global Commodity Mix - No of contracts (%)

100%
15% 9% 8% 8% 12% 15%
4% 5% 5%
80% 6% 8%
10%
27% 29% 25%
23% 20% 15%
60%

40% 26% 32% 36% 37% 35% 33%

20%
30% 28% 25% 24% 27%
22%
0%
CY15 CY16 CY17 CY18 CY19 CY20

Agriculture Energy Non-Precious Metals Precious Metals Other

Source FIA, WFE, Spark Capital

India’s commodity market is more concentrated in bullion & energy and contribution across years has been more volatile compared to global market

India Commodity Mix - No of contracts (%) India Commodity Mix - Notional Turnover (%)
100% 100%
16% 15% 15% 23%
26% 27% 23%
33% 36% 31% 31% 34%
80% 80%
24% 27% 29% 56% 58%
60% 27% 25% 10% 60% 35% 34%
22% 27% 17%
21%
40% 6% 40%
29% 47% 49% 17%
46% 53% 27% 29%
43% 30% 30% 34% 43%
20% 33% 20%
20%
18% 13% 16% 17% 12% 13%
9% 9% 5% 4% 5% 9% 6% 5%
0% 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Agriculture Energy Non-Precious Metals Precious Metals Index Agriculture Energy Non-Precious Metals Precious Metals Index

Source SEBI, Spark Capital

Page 8
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#2. MCX – Global commodity market has seen a secular growth trend, while it has been volatile with MCX due to multiple regulatory changes
Number of contracts in global commodity segment has seen secular growth (which drives the revenue unlike India where it is linked to turnover value)

Global - No of F&O contracts in Commodity (mn) Global - Notional Turnover F&O contracts in Commodity (USD tn)
12,000 40% 150 21% 25%
32% 33%
27% 20%
10,000 30% 120 11% 15%
21% 19% 9%
17% 10%
8,000 20% 3%
90 1% 5%
-2%
6,000 4% 10% -7% 0%
1%
60 -5%
4,000 -6% 0% -10%
-14% 30 -19% -15%
2,000 -10%
2,819 3,306 3,997 4,148 5,468 6,952 5,977 6,056 7,221 9,586 122 136 127 102 112 110 133 137 139 -20%
0 -20% 0 -25%
CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20

Global - No of contracts YoY (%, RHS) Global - Notional Turnover (USD tn) YoY (%, RHS)

Source: FIA, WFE, Company, Spark Capital

India’s volumes and ADTO growth for most of the period in last decade has been lower than global average due to regulatory changes (CTT, SEBI regulating commodities)

MCX - No of F&O contracts in Commodity (mn) MCX - Notional Turnover F&O contracts in Commodity (USD tn)
450 100% 3.0 2.79 20% 30%
76% 18%
400 62% 80%
2.5 5% 5% 15%
350 60% 1%
33% 1.87
300 2.0 -13% 0%
40%
250 12% 13% 16%
20% 1.5 1.18 -15%
200 1.12
0% -33% 0.87 0.91 0.95
-19% 0.86 0.79
150 -28% 1.0 -30%
-32% -20%
100
-49% 0.5 -54% -45%
50 -40%
346 389 265 134 216 245 199 230 307 221
0 -60% 0.0 -60%
CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20

MCX - No of contracts (mn, LHS) YoY (%, RHS) MCX - Notional Turnover (USD tn) YoY (%, RHS)

Source: SEBI, Company, Spark Capital

Page 9
Commodity vs. Equity Derivative market
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#1. MCX – In Global and Indian Capital Markets, Equities are preferred instruments over commodities in derivative segment

Global market - Since FY15 growth in volumes in commodity derivative market globally have been lower than equity derivatives
Global - Commodity % of Equity derivatives (no of Global - F&O Volume (no of Global - Commodity % of Equity derivatives Global - F&O Volume (Notional
contracts) contracts) - Commodity vs. Equity (Notional Turnover) Turnover) - Commodity vs. Equity
70% 32% 80%
60% 68%
60% 19%
70%
49% 58%
50% 60% 50%
41% 49%
38% 39% 17% 44%
34% 34% 34% 16% 50% 40% 42%
40%
12% 12% 8%
26% 40% 33% 6% 6%
30% 22% 30%
8% 4%
18% 30%
20% 2%
20%
10%
10% CY10-20 CY15-20 CY17-20
CY10-20 CY15-20 CY17-20
0% 0%
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 Commodity CAGR Equity CAGR Commodity CAGR Equity CAGR
CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20
Source FIA, WFE, Spark Capital

In India, preference over equity derivative is higher than commodity over last one decade

India - Commodity % of Equity derivatives (no of India - F&O Volume (no of India - Commodity % of Equity derivatives India - F&O Volume (Notional
contracts) contracts) - Commodity vs. Equity (Notional Turnover) Turnover) - Commodity vs. Equity
28% 28%
30% 63% 60% 53%
51.8% 48%
25% 22% 50% 44.7%
35%
19% 38.9%
20% 17% 40%
24% 17%
12% 24% 25.4%
15% 30%
7%
8% 9%
10% 7% 7% 20%
2% 1% 3%
9.1% 9.3% 7.9%
3% -1%
5% 10% 4.0% 3.2% 2.7%
CY10-20 CY15-20 CY17-20 1.8% CY10-20 CY15-20 CY17-20
0% 0%
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 Commodity CAGR Equity CAGR CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 Commodity CAGR Equity CAGR

Source: SEBI, Company, Spark Capital

Page 11
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#2. MCX – In all major parameters, the growth in commodity derivatives is substantially lower than the equity derivative market in India

MCX active investors in the commodity market is just 2% of NSE active clients. Growth in MCX active clients is lower than NSE active clients

No of active clients ('000) Active Clients - FY19-21 Demat Accounts vs. UCC with MCX (mn) FY19-21 CAGR Activation rate (%)
18,894 CAGR
20,000 4% 60 55.1 12% 40%
4% 34.3%
4% 4% 11% 35%
50 10%
15,000 3% 40.9 UCC with 30% 26.4%
35.9 8% 50% 24.5%
10,796 3% MCX 40 8% MCX 25%
2% 22% 7%
10,000 8,782 2% 30 6% 20%
2% 15% 11.5% 11.8%
20 4% 7.6%
5,000 1% 10%
10 3.4 6.0 2%
309 400 457 1% 2.7 5%
NSE 47% Demat ACs 24%
0 0% 0 0% 0%
FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21
NSE MCX % of NSE (RHS) Demat ACs UCC with MCX
0% 20% 40% 60% % of Demat Acs (RHS) 0% 20% 40% 60% Activation Rate - Equity Activation Rate - Commodity

Source: MCX, NSE, Spark Capital

Equity derivative segment is much bigger and grown faster than the commodity derivative segment in recent past

Future ADTO (Rs bn) Options ADTO (Rs bn) FY15-21 - F&O ADTO CAGR (%)

1,200 1,090 40% 30,000 60% 55.1%

37% 24,758
35%
1,000 876 875 25,000 50%
29% 29% 30%
800 20,000 40%
25%
600 20% 15,000 13,108 30%
15% 8,705 19.0%
400 324 315 10,000 20%
256 13.5%
10%
200 7.6%
5% 5,000 10%
14 23 20
0 0% 0 0%
FY19 FY20 FY21 FY19 FY20 FY21 Futures Options

NSE- Equity MCX - Commodity % of NSE NSE - Equity Option Turnover MCX - Commodity Option Turnover NSE MCX

Source: MCX, NSE, Spark Capital

Page 12
India Commodity Market
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#1. MCX : Series of regulatory changes impacted ADTO growth and led change in product Mix

Series of regulatory changes impacted last 2 years ADTO at MCX

600 80%
57%
Impact of CTT* SEBI regulator Last 2-3 years MCX turnover is
53% and NSEL scam since Sep’15
500 41%
60% impacted by flux of regulatory
Global
40%
changes
Commodity 21%
26%
400
market rally 11% ✓ Compulsory delivery in Base
8% 20%
300 -3% -3% Metals (FY20)
-13% -11% 0%
✓ Discontinuation of Mini
200 -27%
-20% Contracts (FY19/FY20) in base
-43% metal and crude
100 -40%
149 210 321 503 488 278 203 219 242 212 256 324 315 280 ✓ Negative pricing and high margin
0 -60%
requirement in Crude (FY21)
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22
✓ Peak Margin Rules (FY21/22)
ADTO (Futures) (Rs bn) YoY (%, RHS)

Source: Company, Spark Capital. *CTT = Commodity Transaction Cost, NSEL: National Spot Exchange Ltd

Regulatory changes led to reduction in the contribution of Base metal and Energy and Bullion contribution increased (thanks to higher volatility in FY21)
ADTIO Futures Mix (%)
100%
22% 24% 21% 17% 25% 23%
28% 32% 34% 33% 33% 29%
80% 37%
45%

60%
48% 53% 64% 25% 23%
64% 52% 50% 42% 37% 35% 56% 43%
40% 35%

20% 39% 38%

27% 25% 25% 27% 30% 25%
17% 21% 20% 19% 19%
13%
0%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22

Agri Base Metal Bullion Energy Index

Source: Company, Spark Capital.

Page 14
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#2. MCX : Base Metal ADTO though improved remain lower than ADTO witnessed during FY17-19

Discontinuation of Mini contracts and compulsory delivery-based settlement led to decline in base metal ADTO

Base Metal - ADTO (Rs bn)

Gradual Pick up in ADTO in FY21
140 120 Gradual discontinuation of Mini contracts
113 110
but remain lower vs FY17-19
120
109 104 and introduction of compulsory delivery
100 99 101
90 93 93 94 impacted Base Metal ADTO in FY20
100 85 86 85 86
80 78 72 69 71 67 73 67 70 67 70 69
80 63 65 63 60
51 54 52 49 52 53
60 46 48
38
40 24
20
0
Aug-18

Nov-18

Nov-20
Apr-18

Apr-19

Aug-19

Nov-19

Aug-20
Apr-20

Apr-21
Mar-20
Feb-18

Mar-18

Sep-18

Feb-19

Mar-19

Sep-19

Feb-20

Sep-20

Feb-21

Mar-21
May-18

Dec-18

May-19

Dec-19

May-20

Dec-20

May-21
Jun-18

Oct-18

Jun-19

Oct-19

Jun-20

Oct-20

Jun-21
Jan-18

Jul-18

Jan-19

Jul-19

Jan-20

Jul-20

Jan-21
Aluminium Copper Lead Nickel Zinc Total

Source: Company, Spark Capital.

Mini contracts (provided arbitrage opportunities) contributed ~25% to based metal ADTO; consequently, the based metal contribution to total ADTO reduced from ~40% to ~20%

Mini contracts Base metal % of total ADTO

Mini contract ADTO % of Total Base Metal ADTO

46%
45%

45%
provided arbitrage

43%
50%
27%

41%
41%
41%
40%
40%

40%
26%

opportunities to
25%

30%
25%

25%

45%
24%
24%
24%
23%

23%
23%

23%

34%
23%

34%
22%

22%

traders
22%
22%

33%
40%

32%
31%
25%

30%
35%

27%
19%

26%
24%

23%
23%

23%
30%

22%

22%
21%
20%

21%
20%

19%
18%
18%
18%

18%
25%

17%
17%

17%
16%
12%

15%
14%
11%

11%

14%
11%

13%
11%

13%
20%
10%

15%
15%
10% 10%
5%
5%
0%
Aug-18

Nov-18

Aug-19

Nov-19
Apr-18

Apr-19
Feb-18

Mar-18

Sep-18

Feb-19

Mar-19

Sep-19
May-18

Dec-18

May-19

Dec-19
Jun-18

Oct-18

Jun-19

Oct-19
Jan-18

Jul-18

Jan-19

Jul-19

Aug-18

Nov-18

Aug-19

Nov-19

Aug-20

Nov-20
Apr-18

Apr-19

Apr-20

Apr-21
Sep-19

Feb-21
Feb-18
Mar-18

Sep-18

Feb-19
Mar-19

Feb-20
Mar-20

Sep-20

Mar-21
May-18

Dec-18

May-19

Dec-19

May-20

Dec-20

May-21
Jun-18

Oct-18

Jun-19

Oct-19

Jun-20

Oct-20
Jan-18

Jul-18

Jan-19

Jul-19

Jan-20

Jul-20

Jan-21
Source: Company, Spark Capital.

Page 15
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#3. MCX : High margin requirement in FY21 and discontinuation of mini contracts impacted crude ADTO
Higher margin requirement despite reduction in volatility impacted crude ADTO since Apr’20 Mini contracts contributed ~18-20% of Crude Oil ADTO
Crude Oil - ADTO(Rs bn)

172
200 Mini contract ADTO % of Crude Oil ADTO

153

20%
19%
144

19%
19%
139
135

19%
131

18%
18%
18%
18%

18%
21%

18%
121

18%
116
116
150

113
113

17%
17%
17%
16%
101

16%
19%

16%
16%
99
97

97

15%
95

15%
15%
82
81

78

14%
77
76

100 17%
73

73
71
69

65
53

47
46
15%

12%
41
38

37
33

31
29

29
28

25
50

24
23
13%

13
9
11%
0
9%
Aug-18

Nov-18

Aug-19

Nov-19

Aug-20

Nov-20
Apr-18

Apr-19

Apr-20

Apr-21
Feb-20
Mar-20
Feb-18
Mar-18

Sep-18

Feb-19
Mar-19

Sep-19

Sep-20

Feb-21
Mar-21
May-18

Dec-18

May-19

Dec-19

May-20

Dec-20

May-21
Jun-18

Oct-18

Jun-19

Oct-19

Jun-20

Oct-20

Jun-21
Jan-18

Jul-18

Jan-19

Jul-19

Jan-20

Jul-20

Jan-21
7%
5%

Aug-18

Nov-18

Aug-19

Nov-19
Apr-18

Apr-19
Feb-18
Mar-18

Sep-18

Feb-19
Mar-19

Sep-19
May-18

Dec-18

May-19

Dec-19
Jun-18

Oct-18

Jun-19

Oct-19
Jan-18

Jul-18

Jan-19

Jul-19
Crude Oil - Inital Margin & Annualzied volatility (%)
150% 200% Source: Company, Spark Capital.
150%
100%
100% Crude Oil contribution to total ADTO reduced to <10% in FY21
50%
50%
0% 0% Crude % of total ADTO
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21

46%
44%

43%
42%
42%
50%

40%
39%
39%
38%
38%
37%

37%
37%
Initial Margin on Crude oil (%, LHS) Annualized Volatility of Crude oil (%, RHS) 45%

36%
35%
40%

32%
32%

31%
31%

30%
30%

30%
30%
29%
28%

28%
35%

24%
30%

21%
May'21 - Initial Margin vs. Volatility

18%
17%
25%

13%

13%
12%
20%

10%
30% 60%

10%
9%
39% 38% 15%

8%

8%
7%
32%

5%
30%

4%
20% 26% 40% 10%

3%
24% 21% 24% 22%
19% 15% 5%
10% 4% 7% 7% 6% 20% 0%
20% 16% 13% 12% 12% 11% 10% 10% 10% 10% 10% 8% 8% 8% 6%

Aug-18

Nov-18

Aug-19

Nov-19

Aug-20

Nov-20
Apr-18

Apr-19

Apr-20

Apr-21
Feb-19
Feb-18
Mar-18

Sep-18

Mar-19

Sep-19

Feb-20
Mar-20

Sep-20

Feb-21
Mar-21
May-18

Dec-18

May-19

Dec-19

May-20

Dec-20

May-21
Jun-18

Oct-18

Jun-19

Oct-19

Jun-20

Oct-20

Jun-21
Jan-18

Jul-18

Jan-19

Jul-19

Jan-20

Jul-20

Jan-21
0% 0%
Crude Nickel Lead C'Mom Mentha Alum NG ZINC Rubber Silver CPO Copper Cott Kapas Gold

Intial Margin (%, LHS) Annualized Volatility (%. RHS) Crude % of total ADTO

Source: Company, Spark Capital.

Source: Company, Spark Capital.

Page 16
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#4. MCX : Peak margin compliance will keep ADTO under pressure; option though picked up does not contribute to top –line as it is not charged yet
Peak Margin compliance led to 16% decline in ADTO in 1QFY22 vs FY21

ADTO - Futures (Rs bn)

500 52% 60%
25% Peak Margin
compliance 50% Peak Margin 75% Peak Margin
400 30% compliance compliance 40%
20% 24%
17% 16%
300 7% 20%
-3% 0%
-4%
200 -10% 0%
-14% 100% Peak Margin
-21%
100 -28% compliance from -20%
157 238 286 371 434 342 333 333 300 322 372 268 256 318 267 Sep’21
0 -40%
Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Sep-21

ADTO - Futures MoM

Source SEBI, Company, Spark Capital

No margin in buying options, led to increase in option ADTO We are in 3rd phase; the ultimate impact of peak margin rules will be seen in Sep’21
ADTO - Options (Rs bn) From Sep’21
25 MCX still does not 23 Till Jun’21
Phase IV
charges for options 20
20 Till Mar’21
(which they will start at Phase III
Rs 50bn ADTO) 14 14 Till Dec’20 Phase 4 (subsequently)- 100%
15 12 13 13
12 Phase II of peak margin obligation of
9 9 Phase 3 (for subsequent 3 the client across the
10 8 7 7
Phase I
months)- 75% of peak margin snapshots shall be compared
5 5 For subsequent 3 months, 50% obligation of the client across the with respective client peak
5 of Peak margin obligation of the snapshots shall be compared
For 3 months from the date of margin available with the
implementation, 25% of Peak client across the snapshots shall with respective client peak TM/CM during the day
0 margin obligation of the client be compared with respective margin available with the
Aug-20

Nov-20
Apr-20

Apr-21
Mar-21
Sep-20

Feb-21
May-20

Dec-20

May-21
Jun-20

Oct-20

Jun-21
Jul-20

Jan-21

across the snapshots shall be client peak margin available with TM/CM during the day
compared with respective client the TM/CM during the day.
peak margin available with the
TM/CM during the day.

Source: SEBI, Company, Spark Capital

Page 17
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#5. MCX : Product diversification aided MCX to hold up their ADTOs

Post CTT led decline in FY14/15 – Product diversification played a significant role for MCX in reporting stable ADTO in turbulent times
Base Metal ADTO - Rs bn Base Metal - ADTO Mix (%)
120
98 13% 20% 17% 15%
26% 28%
100 11% 37% 37% 36%
83 28%
72 21% 15%
80 69 23% 37%
61 61 11% 13% 13% 27% 5%
56 59 16%
60 50 19%
19% 19% 16% 5%
11%
45% 46% MCX Futures ADTO (Rs bn)
40 30% 29% 24%
25% 22% 29% 39%
350 324 315
20 13% 10% 11%
8% 8% 9% 5% 3% 7% 278 280
300 256
0 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22 242
250 219 212
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22 Aluminium Copper Lead Nickel Zinc 203
200
150
Bullion ADTO - Rs bn Bullion - ADTO Mix (%)
100
200 176 50
42% 43% 40% 43% 46% 42% 39%
138 54% 57% 0
150
113 120 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22

100 84 81 84
54 59 58% 57% 60% 57% 58% 61%
54% 46% MCX (Futures) - ADTO Mix (%)
50 43%

28% 32% 34% 33% 33% 23% 29%

0 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22 37% 45%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22 Gold Silver
35% 25% 23% 56%
50% 42% 37% 43%
35%
Energy ADTO - Rs bn Energy - ADTO Mix (%)
30% 39% 38%
20% 25% 27% 19% 19% 25%
160 147
13% 19% 11% 14% 12%
140 27% 23%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22
61% 52%
120
95 Agri Base Metal Bullion Energy Index
100 79 80 82
75 72 87% 81% 89% 86% 88%
80 65 71 73% 77%
39% 48%
60
40
20 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1QFY22 Crude Natural Gas
Source: SEBI, Company, Spark Capital

Page 18
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#6. MCX: New products such as Index Futures, Options did not see significant traction
Since 1st Apr 2021, MCX started charging for Futures on Indices, but its contribution is ~1% of total future ADTO

Index Futures ADTO (Rs bn) Index Futures ADTO % of total futures ADTO
5 60% 1.4% 1.2% 1.2%
4.2 1.2%
3.7 3.9 1.1%
3.4 51% 40% 1.2% 1.1%
4 3.1 1.0%
2.7 3.0 2.6 0.9%
23% 22% 20% 1.0% 0.9%
3 2.4 13% 14% 2.4 0.8%
8%
0% 0.8% 0.7%
2 -8%
1.0 -20% -20% 0.6%
1 -40%
-43% 0.4% 0.2%
0 -60%
0.2%
Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21
0.0%
BULLDEX METLDEX MoM (%) Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21

Source: SEBI, Company, Spark Capital

Options growth has been volatile, with < 5% contribution; since introduction of peak margin, options ADTO has improved. However, MCX does not charge of options

Option ADTO (Rs bn) Options ADTO % of Total Future ADTO

18.4 19.0
20 8.0% 7.1%
7.0%
15 12.1 11.7 7.5 11.5 11.4 6.0% 4.9% 5.0%
8.4 12.8
1.4 1.3 8.0 5.0%
10 6.4 4.6 6.5 3.5 3.6%
5.5 5.6 5.1 3.4%
1.0 4.0% 2.7% 2.8% 3.0%
5 0.6 10.4 4.3 10.9 1.7 10.2 2.3% 2.5%
2.1 1.9 2.8 7.9 3.0% 2.2% 2.1%
0.5 7.0 6.9 6.2 1.9%
4.6 3.3 2.9 3.4 4.0 4.8
0 -
0.5 2.0%
1.0% 0.2%
4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20

1QFY21

2QFY21

3QFY21

4QFY21

1QFY22

0.0%

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20

1QFY21

2QFY21

3QFY21

4QFY21

1QFY22
Base Metal Bullion Energy Total

Source: SEBI, Company, Spark Capital

Page 19
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#7. MCX: Hedger remain elusive from MCX with less liquidity in far month contracts
Except for bullion, far month contribution to ADTO is less, indicating less liquidity in far month contracts to attract large industrial houses to hedge on MCX

Near month & Far Month contribution to turnover (%) MCX Strategy is bottom up to attract hedger
100%
14% 16%
MCX is not targeting big industrial houses, who have huge capacities and for them the liquidity that
90% 22% 19% 19% 20% 20% 21%
exchange is providing is not sufficient, as they require far month contracts to be very liquid, MCX
80%
52% 46% don't have such kind of depth.
70%
60% 44%
MSMEs and the smaller players within India needs, who cannot go overseas and hedge, and see their
50%
40% 81% 81% 86% 80%
requirements and then build from the bottom. Eg: Crude size is 100 barrels vs. 1000 barrel is CME, so
77% 80% 79%
30%
basically catering to SME which can’t hedge global exchanges. As the smaller players will keep coming
47% 54% in, then the liquidity pool will gradually increase. Then middle level players, then adequate liquidity
20% 40%
10%
will be created for the bigger players to come.
0% 1% 1%
Alum Copper Nickel Lead Zinc Gold Silver Crude Natural Gas Total Unless there is a mandate from the government to force the bigger players to necessarily come onto
domestic exchanges (which happened with Gold), MCX shall grow organically by bottom-up
1st month 2nd Month 3rd Month
approach.
Source: Company, Spark Capital

Hedger and proprietary contribute ~30% of total turnover; domestic financial participation has been week. Increase in contribution of Algo implies higher share of arbitragers

Contribution to Total Turnover Mode of Trading Contribution (%)

Hedger, 3.05% 100%
26% 21% 18%
80% 39% 32%
49% 44%
55% 26%
Proprietary , 30% 12% 20% 27%
60% 6%
2% 3%
1% 20% 16% 12% 12%
40% 19% 21% 22%
19%
20% 37% 37% 40% 43%
26% 30% 31% 33%

Others, 67% DFI, 0.04% 0%

FY15 FY16 FY17 FY18 FY19 FY20 FY21 2MFY22

Algo Internet based Mobile Non Algo

Source: Company, Spark Capital

Page 20
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#8. MCX : Optionality to revenue remain but function of regulatory approvals

Long Term Opportunities

Medium Term Opportunities Events Status Drivers

Events Status Drivers ▪ If MCX is selected

Domestic Gold ▪ Draft proposal to start gold spot
Spot Exchange from SEBI exchange, shall be
▪ Effective from Sep’22
a huge positive
▪ Benefits from year one, as even
Cost saving from 63
▪ 63 moons contract is Rs 13mn amortization cost for initial 5-6 yrs to
Short term Opportunities moons to TCS
per month + 10.3% of impact is lower than costs to 63 moons ▪ Revenue sharing
Events Status and Impact Drivers Transaction income ▪ Collaboration with other
GIFT City Bullion
with NSE, BSE and exchanges and
• Margin reduced Exchange
▪ Equity market Index options has been 2 Depositories depositories
from peak of 100% Launching of options ▪ Regulatory Approval is (Subsidiary)
very successful, could be repeated in
Reduction in to 20%. ▪ Once a flagship on indices pending
Commodity market
Margin in • Crude formed 40% contract, pickup in
Crude of ADTO in FY20 and volume Electricity Derivative ▪ Supreme Court Judgement ▪ MOU with M
9% in FY21 ▪ New source of revenue Junction (50:50 ▪ New source of
(IEX) pending Coal Spot
B2B e-commerce revenue
Exchange
▪ Cross margin benefit to drive growth; JV between SAIL
▪ Cross margin benefit Energy Derivative ▪ Regulatory Approval is and Tata Steel)
Introduction of ▪ Started from 1st Index pending
▪ Should benefit individual contracts too
Apr’21 (esp Crude & Natural Gas)
charges on ▪ Should benefit
Future Index ▪ Forms < 1% of ADTO
individual contracts too ▪ Cross-sell to bank
(esp. base metals & New products: ▪ ISEC, Kotak Sec
Trading customers who
bullion) Futures on ▪ Regulatory Approval is and Axis Sec have
▪ New source of revenue Bank Backed want hedge their
Aluminum Alloy, pending started offering,
Brokers commodity risk
Steel Bar HDFCSEC and SBI
▪ As of now they do not could increase
▪ Need to achieve Rs SEC yet to start
Charging for charge volume
50bn ADTO to start ▪ Restricted Participation ▪ Improve liquidity and depth of the
options ▪ ~6% of Futures ADTO
charging for it Allowed- Foreign entities market.
FII Participation
having exposure to domestic ▪ Separate regulatory framework on FII Govt making it
market are allowed for Agri and Non-Agri Commodities compulsory for
▪ RBI disallowed gold ▪ Short-listed 2 refiners ▪ Will increase depth
industry houses ▪ Nothing is
Measures to hedging outside India, for Gold, working on and liquidity of the
to hedge implemented
attract more Tie-up with refiner to some refiners for lead Participation of DIIS ▪ Allowed by SEBI, but GST / market
▪ Improve liquidity and depth of the domestic
Hedgers deliver domestic ▪ Increase depth in far such as MFs, PMS & compulsory delivery a drag on
market market
▪ <4% of ADTO month contracts AIFs volume pick up

Page 21
Trends in Bullion, Energy and Base Metal
 10
15
20
25

0
5
50

0
100
150
200

1,000
1,200
1,400
1,600
1,800
2,000
2,200

800
Jan-13 Dec-13
Jun-13 Dec-13
Jun-14
Nov-13 May-14
Apr-14 Oct-14 Dec-14
Sep-14 Mar-15 Jun-15
Feb-15 Aug-15
Dec-15
Jul-15 Jan-16
Dec-15 Jun-16
Jun-16
May-16 Dec-16
Nov-16
Oct-16
Apr-17 Jun-17
Mar-17
Sep-17
Aug-17 Dec-17
Feb-18
Jan-18
Gold ADTO (Rs bn)

Jun-18

Gold (180D Volatility)

Jun-18 Jul-18
Dec-18 Dec-18
Nov-18

Gold -Spot Price (USD / ounce)

Apr-19 May-19 Jun-19
Sep-19 Oct-19
Dec-19
Feb-20 Mar-20
Jun-20
Jul-20 Aug-20
Dec-20 Jan-21 Dec-20
May-21 Jun-21 Jun-21

10
20
30
40
50
60

0
10
15
20
25
30
35
50

0
100
150
200

Dec-12 Dec-12 Dec-12

Jun-13 Jun-13 Jun-13
Dec-13 Dec-13 Dec-13
Jun-14 Jun-14 Jun-14
Dec-14 Dec-14 Dec-14
Jun-15 Jun-15 Jun-15
Dec-15 Dec-15 Dec-15
Jun-16 Jun-16 Jun-16
Dec-16 Dec-16 Dec-16
Jun-17 Jun-17 Jun-17
Dec-17 Dec-17 Dec-17
Silver ADTO (Rs bn)

Silver (180D Volatility)

Jun-18 Jun-18 Jun-18

#1. MCX : Less volatility in Gold, Silver and Crude could have impact on near term ADTO

Dec-18
Silver -Spot Price (USD / ounce)

Dec-18 Dec-18
Jun-19 Jun-19 Jun-19
Dec-19 Dec-19 Dec-19
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Jun-20 Jun-20 Jun-20

Reduction in volatility in Gold, Silver and Crude should keep ADTO under for these flagship contracts in near term

Dec-20 Dec-20 Dec-20

Jun-21 Jun-21 Jun-21
20
60
80
50

40

0
0

100
100
150
200

20
40
60
80

0
100
120
140

Dec-12 Dec-12 Dec-12

Jun-13 Jun-13 Jun-13
Dec-13 Dec-13 Dec-13
Jun-14 Jun-14 Jun-14
Dec-14 Dec-14 Dec-14
Jun-15 Jun-15 Jun-15
Dec-15 Dec-15 Dec-15
Jun-16 Jun-16 Jun-16
Dec-16 Dec-16 Dec-16
Jun-17 Jun-17 Jun-17
Dec-17 Dec-17
Crude -Spot Price

Dec-17
Crude ADTO (Rs bn)

Crude (180D Volatility)

Jun-18 Jun-18 Jun-18

Dec-18 Dec-18 Dec-18
Jun-19 Jun-19 Jun-19
Dec-19 Dec-19 Dec-19
Jun-20 Jun-20 Jun-20
Dec-20 Dec-20 Dec-20
Page 23

Jun-21 Jun-21 Jun-21

 1
2
3
4
6
5

20
40
60
80
20
40
60
80

0
0
Dec-12 Dec-12
Dec-12
Jun-13 Jun-13 Jun-13

Dec-13 Dec-13 Dec-13

Jun-14 Jun-14 Jun-14
Dec-14 Dec-14 Dec-14
Jun-15 Jun-15 Jun-15
Dec-15 Dec-15 Dec-15
Jun-16 Jun-16 Jun-16
Dec-16 Dec-16 Dec-16
Jun-17 Jun-17 Jun-17
Dec-17 Dec-17 Dec-17

Natural Gas -Spot Price

Jun-18 Jun-18 Jun-18
Natural Gas ADTO (Rs bn)

Natural Gas (180D Volatility)

Dec-18 Dec-18 Dec-18
Jun-19 Jun-19 Jun-19
Dec-19 Dec-19 Dec-19
Jun-20 Jun-20 Jun-20
Dec-20 Dec-20 Dec-20
Jun-21 Jun-21 Jun-21

10
15
20
25
30
15
20
25
30
35

10

0
5
0
5

1,000
1,500
2,000
2,500
3,000

Dec-12 Dec-12
Dec-12 Jun-13
Jun-13
May-13
Dec-13 Dec-13
Oct-13
Jun-14 Mar-14 Jun-14
Dec-14 Aug-14 Dec-14
Jan-15
Jun-15 Jun-15
Jun-15
Dec-15 Dec-15
Nov-15
Jun-16 Apr-16 Jun-16
Dec-16 Sep-16 Dec-16
Feb-17
Jun-17 Jun-17
Jul-17
Dec-17 Dec-17
Dec-17
Aluminium -Spot Price

Jun-18 May-18 Jun-18

Aluminium ADTO (Rs bn)

Aluminium (180D Volatility)

Dec-18 Oct-18 Dec-18

Mar-19
Jun-19 Jun-19
Aug-19
Increased Volatility and spot price increase in Aluminum, Copper and Natural gas should lead to higher ADTO

Dec-19 Dec-19
Jan-20
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Jun-20 Jun-20 Jun-20

Dec-20 Nov-20 Dec-20
Apr-21
#2. MCX : Higher volatility in base metal and natural gas is positive but they are not flagship contracts

Jun-21 Jun-21
10
15
20
25
30
10
20
30
40
50
60

0
5
0

Dec-12 Dec-12
10,000
11,000

4,000
5,000
6,000
7,000
8,000
9,000

Jun-13 Dec-12 Jun-13

Dec-13 Jun-13 Dec-13

Jun-14 Dec-13 Jun-14
Dec-14 Jun-14 Dec-14
Dec-14 Jun-15
Jun-15
Jun-15
Dec-15 Dec-15
Dec-15
Jun-16 Jun-16
Jun-16
Dec-16 Dec-16
Dec-16
Jun-17 Jun-17
Jun-17
Dec-17 Dec-17
Copper -Spot Price

Dec-17
Copper ADTO (Rs bn)

Jun-18
Copper (180D Volatility)

Jun-18
Jun-18
Dec-18 Dec-18
Dec-18
Jun-19 Jun-19 Jun-19
Dec-19 Dec-19 Dec-19
Jun-20 Jun-20 Jun-20
Dec-20 Dec-20 Dec-20
Page 24

Jun-21 Jun-21 Jun-21

 10
15
20
25
30
35
10
20
30
40
50

0
5
0

1,000
1,500
2,000
2,500
3,000
3,500
4,000
Dec-12 Dec-12
Dec-12 Jun-13
Jun-13
Jun-13
Dec-13 Dec-13
Dec-13
Jun-14 Jun-14
Jun-14
Dec-14 Dec-14
Dec-14
Jun-15 Jun-15
Jun-15
Dec-15 Dec-15
Dec-15
Jun-16 Jun-16
Jun-16
Dec-16 Dec-16
Dec-16
Jun-17 Jun-17
Jun-17

Zinc -Spot Price

Dec-17 Dec-17
Zinc ADTO (Rs bn)

Dec-17

Zinc (180D Volatility)

Jun-18 Jun-18 Jun-18
Dec-18 Dec-18 Dec-18
Jun-19 Jun-19 Jun-19
Dec-19 Dec-19 Dec-19
Jun-20 Jun-20 Jun-20
Dec-20 Dec-20 Dec-20
Jun-21 Jun-21 Jun-21
10
15
20
25
30

0
5

10
15
20
25
30
35
40

0
5
1,000
1,500
2,000
2,500
3,000

Dec-12 Dec-12
Dec-12 Jun-13
Jun-13
Jun-13 Dec-13
Dec-13
Dec-13
Jun-14 Jun-14
Jun-14
Dec-14 Dec-14
Dec-14
Jun-15 Jun-15
Jun-15
Dec-15 Dec-15
Dec-15
Jun-16 Jun-16
Jun-16
Dec-16 Dec-16
Dec-16
Jun-17 Jun-17
Increased Volatility and spot price increase in Zinc, Lead and Nickel should lead to higher ADTO

Jun-17
Lead -Spot Price

Dec-17 Dec-17
Lead ADTO (Rs bn)

Dec-17
Lead (180D Volatility)

Jun-18 Jun-18 Jun-18

Dec-18 Dec-18 Dec-18
Jun-19 Jun-19 Jun-19
Dec-19 Dec-19 Dec-19
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Jun-20 Jun-20 Jun-20

Dec-20 Dec-20 Dec-20
#3. MCX : Higher volatility in Zinc, Lead and Nickel is positive but are not larger contributors to ADTO

Jun-21 Jun-21 Jun-21

10
15
20
25
30

0
5

10
15
20
25
30
35

0
5

Dec-12 Jun-12
11,000
16,000
21,000

1,000
6,000

Jun-13 Dec-12 Dec-12

Dec-13 Jun-13 Jun-13

Jun-14 Dec-13 Dec-13

Jun-14 Jun-14
Dec-14
Dec-14 Dec-14
Jun-15
Jun-15 Jun-15
Dec-15
Dec-15 Dec-15
Jun-16
Jun-16 Jun-16
Dec-16
Dec-16 Dec-16
Jun-17
Jun-17 Jun-17
Dec-17
Nickel -Spot Price

Dec-17 Dec-17
Nickel ADTO (Rs bn)

Nickel (180D Volatility)

Jun-18
Jun-18 Jun-18
Dec-18
Dec-18 Dec-18
Jun-19 Jun-19 Jun-19
Dec-19 Dec-19 Dec-19
Jun-20 Jun-20 Jun-20
Dec-20 Dec-20 Dec-20
Page 25

Jun-21 Jun-21 Jun-21

Commodity Options really an opportunity?
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#1. MCX: Options – Globally across exchanges options contribution is lower to commodity derivative market

Globally option has not seen strong traction over many years; it remain relatively higher for Agri and energy

Global - Options % of total Volumes Global - Commodity Mix ( No of contracts)

10.0% 9% 100% 2.0% 1.8%
2.1% 4.0%
5.4% 5.3%
8% 7% 7% 95%
8.0% 7% 7%
7%
6% 6% 90%
6.0%
85% 98% 98% 98%
6% 95% 95% 96%
4.0% 80%
5% 5%
4%
4% 4% 4% 4% 75%
2.0% 3%
70%
0.0% Agriculture Energy Non-Precious Precious Metals Others Total
CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 Metals

Turnover No of contracrs Futures Options

Source WFE, FIA, Spark Capital

ICE & CME group have ~15% contribution of options to total ADTO
CY20 - Options % of total no of contracts traded CY20 - Options % of total notional turnover
15% 14% 18%
13% 16%

12% 15%
12.5%
12%
9%
7%
9%
6% 5.6%
4% 4% 6% 4.3%
3% 2% 3.3%
3% 1% 1% 3% 1.2%
0% 0.3% 0.0% 0.0% 0.0%
0% 0%

MCX
MCX

Shanghai
ICE Europe
Shanghai

ICE US
ICE US

ICE Europe

LME

World
LME

World

Moscow
Moscow

Dalian
Dalian

ZhengZhou
CME Group
ZhengZhou
CME Group

Source: WFE, Spark Capital

Page 27
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#2. MCX: Options – is a non-starter even after 3 years of introduction

Tough in nascent stage, option has seen some traction in bullion which we believe is due to liquidity enhancement scheme provided by BSE

India- Commodity Mix (No of contracts) India- Commodity Mix (Notional Turnover)
100% 0% 2% 0% 0% 100% 0% 3% 0% 0%
9% 6%
10%
90% 17% 90%

80% 80%
100% 98% 100% 100% 100% 97% 100% 100%
70% 70% 91% 94%
90%
83%
60% 60%

50% 50%
Agriculture Energy Non-Precious Precious Metals Others Total Agriculture Energy Non-Precious Precious Metals Others Total
Metals Metals

Futures Options Futures Options

Source: SEBI, Spark Capital

However, traction of options is lower in case of MCX; limited contribution is from crude contracts
MCX - Commodity Mix (No of contracts) MCX - Commodity Mix (Notional Turnover)
100% 0.0% 1.9% 0.0% 0.5% 0.0% 0.9% 100% 0.0% 2.6% 0.0% 0.0% 2.9%
4.1%
95% 90%
90%
80%
85% 100% 98% 100% 100% 100% 99% 100% 97% 100% 100% 97%
96%
70%
80%
75% 60%

70% 50%
Agriculture Energy Non-Precious Precious Metals Others Total Agriculture Energy Non-Precious Precious Metals Others Total
Metals Metals

Futures Options Futures Options

Source: SEBI, Company, Spark Capital

Page 28
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#3. MCX – Equity derivate market case study on Option contracts

Global Equity Derivative segment is equally contributed by Futures and Options; while in India, driven by Options; Revenue contribution of the same is lower (income is earned
STT impact being lower on options (as it charged on premium) led to higher option contribution on premium)

Global (Equity) - Total F&O Turnover Mix (%) NSE (Equity) – Total F&O Turnover Mix (%) NSE - Transaction Income from F&O Mix (%)
100% 100%

36% 26% 29%

80% 80% 37% 41% 46% 42% 42%
48% 48% 48% 49% 47% 50% 49%
57% 53% 58% 54% 57% 59% 58% 54% 56% 57% 57% 59%
66%
60% 76% 79% 79% 78% 81% 71%
84% 88% 91% 60%
94% 96%
40% 40%
64% 74% 71%
52% 52% 63% 59% 54% 58% 58%
52% 51% 53% 50% 51%
43% 47% 42% 46% 43% 41% 42% 46% 44% 43% 43% 20% 20% 41%
34%
24% 21% 21% 22% 19% 29%
16% 12% 9%
0% 6% 4% 0%
CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 09 FY 10 FY 11 FY 12 FY 13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Futures Options Futures Options Futures Options

Source WFE, FIA, SEBI, Spark Capital

Growth in options was at the expense of futures; hence a strong growth in options shall cannibalize the income from futures which is a higher yielding product
Growth in options vs. Futures

6,165
7,000
6,000 In 2008, STT on options contracts were reduced by changing the tax base from notional value of option contract
to option premium. No. of option contracts on NSE increased exponentially since 2008, thus cannibalizing the
5,000

3,238
growth of futures. Further, the benefit of cross margin given in options in June’20 further catapulted growth in
4,000 FY21. Today, India has one of the highest index option trading.

2,159
3,000

1,446
2,000

789
524
432
302

271
248
237

217

216
204
194

155
124

124
1,000
99
91

85

80
77
70

68
40

0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Futures Options

Source: SEBI, Spark Capital

Page 29
MCX – Company Section
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#1. MCX: Market leader in commodity segment; almost 100% market share in bullion, base metal and crude
Despite addition of new exchange in form NSE and BSE, MCX further consolidated its market share

FY21 - Turnover Market share (%) MCX - Overall Market share (%) Product wise - Market share (%)
98% 96.0% 120%
96% 97% 99% 100% 100%100%100% 100%100%100%
94.0% 100%
94% 91.6%
92% 90.4% 80%
NCDX, 3.8% 89.6%
90% 60%
87.3%
88% 86.0%
84.9% 40%
MCX, 96.0% 86% 84.0% 84.3% 23%
Others, 0.1% 16% 17%
84% 20%
82%
0%
80% Bullion Base Metal Energy Agri
78%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY19 FY20 FY21

Source: SEBI, Company, Spark Capital

MCX is 7th largest exchange globally in terms of no of contracts traded

CY20 - No of F&O contracts (mn) - Market share (%) CY20 - F&O notional turnover (USD bn) - Market share (%)
24%
2,500 23% 25% 60,000 45%
38%
18% 40%
2,000 20% 50,000
35%
40,000 30%
1,500 12% 15%
25%
9% 30,000
16% 20%
1,000 10% 14%
6% 20,000 12% 11% 15%
500 2% 5% 6% 1% 10%
2% 1% 10,000 0%
2,207 2,103 1,701 1,141 860 541 221 155 91 1% 5%
54,593 22,681 19,633 16,731 15,694 9,206 1,995 1,194 374
0 0% 0 0%
Dalian Shanghai ZhengZhou CME Group Moscow ICE Europe MCX LME ICE US CME Group Shanghai ICE Europe Dalian LME ZhengZhou ICE US MCX Moscow

CY20- F&O - No of contracts (mn) Mkt share (%, RHS) CY20 - F&O -Notional Turnover (USD bn) Mkt share (%, RHS)

Source: WFE, FIA, Company, Spark Capital

Page 31
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#2. MCX: Operating revenue of MCX is heavily dependent on transaction vs. Global peers
MCX Operating is higher correlated to ADTO growth; we expect ADTO to decline in FY22 (factoring impact of peak margin rules)

Operting revenue (Rs bn) Operating income vs. ADTO FY21 – Total Income mix (%)
4.7
5.0 30% 5.0 600 Treasury Income, 21.0%
25% 4.2
25% 3.7 3.6 3.6 500
4.0 4.0 3.4 Income on Margin, 5.8%
15% 15% 20% 488 3.0
400
3.0 13% 3.0 2.6 2.6 Annual Subs., 0.4%
10% 15% 2.2 2.3 2.3 398
353 300 Membership fees, 0.3%
2.0 10% 2.0 324 315 307
278 256 200 Terminal charges, 0.1%
0% 0% 5% 242
0% 203 219 212
1.0 1.0 100
-3% 0% Connectivity , 2.2%
2.3 2.6 2.6 3.0 3.7 3.6 3.6 4.2 4.7 Transaction
0.0 0 Fees, 66.4% Other recoveries,
0.0 -5%
Data Feed, 0.4%
FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
1.0%
Operating income YoY Operating Income (Rs bn, LHS) ADTO (Rs bn, RHS) Warehouse, 2.4%

Source: Company, Spark Capital

Compared to larger global peers, contribution of Market feed income substantially lower
Transaction income % of total operating income Market Feed income % of total operating income
100% 94% 18% 16%
91% 16%
90% 14% 13%
14% 13%
81% 80% 11% 11%
79% 12%
80% 74% 10% 9%
69% 71% 69% 7%
68% 8%
70%
6%
60% 4%
1% 1%
2%
50% 0%
CME ICE CBOE LME MCX* CME ICE CBOE LME MCX*

CY19 CY20 CY19 CY20

Source: Company, Spark Capital * MCX is for FY20 & FY21

Page 32
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#3. MCX: Expect Avg realization to remain stable; don’t expect any price increase in near term

MCX increased transaction charges in Oct’16; we don’t expect it revising charges in near future
Avg Realizaton (Rs /mn) ARPU per Active trader (Rs'000) Transaction charges income From Feb'14 From Oct'16 Change
23.0 22.2 10.0
9.7 ADV Rs per mn Rs per mn %
22.0 21.5
21.0 21.0
20.7 20.9 20.9 9.6
9.4 Non Agri
21.0 9.3
19.9 9.2
20.0 Upto Rs 3.5bn 21.0 26.0 24%
8.8
19.0 18.4 8.8
18.0 8.5
17.7 Incremental more than 3.5bn 14.0 17.5 25%
18.0
8.4
17.0 16.2 Price hike Agri
8.0
16.0
Upto Rs 0.2 bn 7.5 17.5 133%
15.0 7.6
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY17 FY18 FY19 FY20 FY21 Incremental more than 0.2bn 5.0 17.5 250%

Source: Company, Spark Capital

Despite significant increase in terminal addition, no of active customers and activation rate remain lower MCX
No of customer with MCX ('000) MCX - No of terminals & Authorized person
7,000 14% 4,500 54.9 54.9 56.0
6,024
6,000 11.8% 12% 4,000 55.0
11.5%
10.5% 10.7% 3,500 52.8 54.0
5,000 10% 52.5
3,000 53.0
4,000 3,400 7.6% 8% 2,500 52.0
2,677 2,749 2,685
3,000 6% 2,000 49.8 51.0
2,000 4% 1,500 50.0
1,000 49.0
1,000 2%
280 295 309 400 457 500 631 1,280 1,630 2,288 3,892 48.0
0 0% 0 47.0
FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21

UCC ('000) Active UCC ('000) Activation Rate (%, RHS) No of Terminal ('000, LHS) Authorized Person ('000, RHS)

Source: Company, Spark Capital

Page 33
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#4. MCX: Decline in contribution of cash to margin shall lead to lower interest income on margin money

Cash Margin has been broadly ~1% of contributing ~10-12% of total margin requirement
Margin - Cash vs. Non Cash % of ADTO Margin - Cash & Non Cash Mix (%)
20.0% 100%
17.3% 16.7%
80%
15.0%
60%
90% 88% 93%
10.0% 8.5%
40%
5.0%
2.2% 20%
1.0% 1.1%
10% 12% 7%
0.0% 0%
FY16 FY20 F21 FY16 FY20 F21

Total Margin % of ADTO Cash Margin % of ADTO Cash Margin Non Cash Margin

Source: Company, Spark Capital

Trade margin in form of cash grew in-line with ADTO (except FY20); peak margin compliance would be in non-cash margin form hence don’t see traction in interest income
Cash Margin Money (Rs mn) Interest Income on Margin money (Rs mn)
8,000 200% 350 7%
6%
7,000 143% 300 6%
150% 5%
6,000 250 5%
4%
100% 200 4%
5,000
33% 150 3%
4,000 50%
3% 6%
100 2%
3,000 -18% 0%
-46% 50 1%
2,000 156 237 287
-50% 0 0%
1,000
2,389 2,473 2,032 2,707 2,868 6,970 3,750 FY16 FY20 F21
0 -100%
FY15 FY16 FY17 FY18 FY19 FY20 FY21 Interest income on margin money % of total Revenue

Source: Company, Spark Capital Source: Company, Spark Capital

Page 34
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#5. MCX: Compared to global exchanges, treasury income is significant contributor to top line & PBT

Expect treasury income to be ~40-45% of PBT for MCX in FY21-24E

Treasury inome % of total revenue & PBT Investment income % of revenue & PBT
80% 70% 50.0%
66% 39.7%
70% 63% 38.9%
56% 40.0%
60% 50% 30.3%
50% 43% 30.0%
40% 39% 40% 20.9% 21.0%
40% 20.0% 14.3% 13.7%
30% 7.1%
10.0%
20% 1.2% 0.4% 2.4% 0.9%
10% 0.0%
33% 31% 26% 25% 21% 21% 26% 23% 21%
0% CY19 CY20 CY19 CY20
FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E Investment income % of total revenue Investment income % of PBT

Treasury income % of total Revenue Treasury income % of total PBT CME LME MCX*

Source: Company, Spark Capital * MCX is for FY20 & FY21

Compared to larger global peers, contribution of Market feed income substantially lower;
MCX: Investments, Cash & Bank Balance MCX: Investments, Cash & Bank Balance
32.0 28.1 50% 90%
76% 77% 76% 76%
25.5 80% 72%
23.9 23.3 40% 67% 67% 67% 67% 67%
24.0 21.3 6.8 70%
4.1 6.1 30%
17.2 38% 5.3 60%
15.9 16.2 15.9 16.7 4.7 20% 50%
16.0 1.9 1.7 1.8 3.3
1.9
11% 10% 40%
9% 10% 10%
5% 3% 30% 19% 20% 21% 22%
2% 0% 16% 15%
8.0 -2% 20% 10% 10% 9% 9%
-11%
-10% 10%
14.0 14.3 14.2 14.9 13.9 19.8 16.6 17.9 19.5 21.2
0.0 -20% 0%
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E

Investments (Ex SGF) SGF Investments, Cash & Bank Balance (Rs bn) YoY (%, RHS) Investments (Ex SGF) % of total assets SGF % of total Assets

Source: Company, Spark Capital

Page 35
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#6. MCX: Moving technology cost from 63 moon to TCS is a long-term positive and EBIDTA accretive

Expect Cost to Income ratio to improve; however, we have not backed in positive impact of new technology platform cost in our estimates

Cost to income ratio (%) Opex Mix (%)

76.3%
80% 71.0% 100%
68.2%
60.8% 62.6% 22% 22% 20% 20% 20%
57.2% 29% 23% 23%
55.7% 54.3% 31%
60% 33.4% 51.9% 80%
22.9% 9% 8% 7% 8% 10% 8% 8%
34.1% 9% 9%
11.1% 24.1% 27.0% 17.4% 13% 13% 12% 11% 9% 9% 9%
3.6% 17.1% 16.6% 60% 7% 7% 6% 6% 6%
40% 2.9% 5.4% 11% 4% 5%
4.1% 8%
3.2% 15.3% 15.5% 4.3% 3.6% 3.7% 3.5% 4% 4% 20% 22% 22% 22% 22%
15.0% 40% 20% 20%
15.9% 13.1% 13.7% 13.1%
12.6% 12.7% 20% 20%
20%
24.8% 26.3% 24.2% 20% 33% 35% 36%
17.8% 19.4% 19.2% 22.0% 20.4% 19.2% 32% 33% 33% 33%
22% 23%
0% 0%
FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E

Employee cost 63 moon / TCS cost Product license Others Total Employee cost 63 moon / TCS cost Product license Tech Cost Depreciation Others

Source: Company, Spark Capital

Change in technology vendor of trading platform could be EBIDTA Margin accretive

Opex growth (%) MCX’s current technology vendor for trading platform is 63 moons where it pays fixed
14% cost of Rs 13mn a month and 10.3% of transaction income. This contract is valid till
3.0 15% Aug’22.
2.5 8% 8% 7%
7% 10%
5% Now MCX has given this contract to TCS to build a trading platform.
2.0 3% 5%
1.5
1% The cost incurred with TCS would be capex amortized over 5-6 year and does not any
0% annual obligation fees to be paid to TCS except for AMC charges.
1.0 -4%

0.5 -5% This change in technology cost shall be EBIDTA accretive on immediate basis and
1.8 1.8 2.0 2.0 2.2 2.4 2.3 2.4 2.6 potential would be PAT accretive.
0.0 -10%
FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
However, we have baked in this benefit in our estimates till details on cost of the TCS
Opex (Rs bn) YoY (%, RHS) project are made known to investors.
Source: Company, Spark Capital Source: Company, Spark Capital

Page 36
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#7. MCX: Classic operating leverage play, EBIDTA and PAT growth to better than revenue growth

Expect PAT decline in FY22 to higher vs. top line; normalization of tax rate in FY24E shall lead to lower PAT

MCX : Revenue vs EBIDTA vs. PAT growth (%) MCX - EBIDTA & PAT margin (%)

62%
70% 70%

47%
60% 56% 58% 57% 59%
60% 55% 56%
50% 52%

35%

33%
47% 48% 47%
40% 50% 46% 43%
42% 40%

17%
15%

15%
30%

14%
13%
37%

13%
13%
10%

10%

40% 33% 34%

20% 31%
6%

5%
2%

2%
0%

10% 30%
0%
20%
-10%

-2%
-3%

-5%

-5%
-7%
-9%

10%

-9%
-20%
-14%
-17%

-30% 0%
FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Revenue growth EBIDTA Growth PAT Growth EBIDTA margin (%) PAT Margin (%)

Source: Company, Spark Capital

MCX’s PAT and EBIDTA Margins are in-line with global peers
MCX vs. Global Peers - PAT Margin (%) MCX vs. Global Peers - EBIDTA Margin (%)
50.0% 47.0% 45.6%
80.0% 73.5% 73.0%
40.1%
37.2% 37.2% 37.3%
39.3% 37.9% 70.0% 62.9% 63.5% 62.8% 65.4%
40.0% 34.6% 59.4% 58.4% 56.4% 58.4%
32.6% 60.0%
30.0% 50.0%
40.0%
20.0%
30.0%

10.0% 20.0%
10.0%
0.0% 0.0%
CME ICE CBOE LME MCX* CME ICE CBOE LME MCX*

CY19 CY20 CY19 CY20

Source: Company, Spark Capital * MCX is for FY20 & FY21

Page 37
 Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

#. MCX: Valuation Summary

We expect MCX to generate an average ROE of ~15% during FY21-24E
We value MCX at 30x Mar’23 EPS (vs. Avg 1yr fwd P/E of 30x in last 2 years )
50
Valuation Summary Mar'23 MCX 1yr Fwd. PE
45 40.6
Core PAT (Rs bn) - Mar'23 2.3
P/E Multiple (x) 30.0 40

Valuation of core business (Rs bn) 69.6 35

30.3
FY22 Cash & Equivalent (Rs bn) 0.0 30
25.41
Valuation (Rs bn) 69.6 25
19.71
20
20.0
Discount for Holdco Structure 0% 15
NOSH (mn) 51 10

Jun/18

Oct/18

Jun/19

Oct/19

Jun/20

Oct/20

Jun/21
Aug/18

Aug/19

Aug/20
Apr/18

Apr/19

Apr/20

Apr/21
Feb/18

Feb/19

Feb/20

Feb/21
Dec/17

Dec/18

Dec/19

Dec/20
Target Price (Rs.) 1,365
CMP (Rs.) 1,515
Upside -10% P/E Mean +1 SD -1 SD

Reported EPS - Mar'23 (Rs) 33.3

BVPS - Mar'23 (Rs.) 308.1 40
1yr Fwd. EV EBITDA
Implied P/B (x) 4.4x
35 31.3

FY22- EPS ADTO Growth Scenarios ---> 30

40 -10.0% 0.0% 10.0% 15.0% 20.0% 25.0% 25.0

25
-2.0% 34.7 39.3 43.8 46.1 48.4 50.6 21.29
35.1 39.7 44.3 46.6 48.9 51.2 20
Increase/decrease

-1.0% 16.88
-0.5% 35.3 40.0 44.6 46.9 49.2 51.5 18.7
15
Yields

0.0% 35.5 40.2 44.8 47.1 49.5 51.8

10
0.5% 35.7 40.4 45.1 47.4 49.7 52.1

Jun/18

Aug/18

Oct/18

Jun/19

Oct/19

Jun/20

Oct/20

Jun/21
Aug/19

Aug/20
Apr/18

Apr/19

Apr/20

Apr/21
Feb/18

Feb/19

Feb/20

Feb/21
Dec/17

Dec/18

Dec/19

Dec/20
1.0% 36.0 40.6 45.3 47.7 50.0 52.3

2.0% 36.4 41.1 45.8 48.2 50.6 52.9

EV/EBITDA Mean +1 SD -1 SD

Page 38
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Global Valuation of Commodity Exchanges

EV/EBITDA x PE x Net income margin % EV/Sales x

Market Cap
Name CY 20 CY 21 CY 22 CY 20 CY 21 CY 22 CY 20 CY 21 CY 22 CY 20 CY 21 CY 22
(USD mn)

CME Group Inc 78,326 25.8 25.1 23.2 37.2 32.6 30 43.10% 49.30% 50.60% 16.7 16.7 15.8

Hong Kong Exchanges & Clearing 77,364 18.7 14.7 12.7 52.2 40.2 34.6 68.30% 62.50% 63.40% 16.3 11.5 10

Intercontinental Exchange Inc 67,149 21.6 18.9 18 32.1 24.2 22.9 34.60% 40.10% 40.80% 13.8 12 11.6

London Stock Exchange Group PL 64,153 44.7 14.6 13.2 118.7 30.7 26.5 17.20% 21.60% 23.40% 20.7 6.7 6.3

Deutsche Boerse AG 33,442 17.2 15.1 13.9 27.1 23.3 21.5 34.00% 34.40% 34.70% 10 8.7 8.1

Nasdaq Inc 29,220 22.8 19.4 18.6 31.3 25 24.4 32.10% 35.50% 34.90% 11.9 10.5 10.1

B3 SA - Brasil Bolsa Balcao 20,701 14.4 13.2 12.4 25.5 20.5 19.2 49.50% 55.40% 55.10% 11.4 10.3 9.6

Cboe Global Markets Inc 12,991 16.6 15.9 15.7 27.7 22.7 22.7 37.30% 41.50% 40.70% 11.1 10.1 9.9

Japan Exchange Group Inc 12,268 13.1 12.9 12.4 25.9 26.5 26.1 38.50% 37.50% 37.30% 8.8 8.7 8.6

ASX Ltd 11,445 21.8 20.4 19.6 32.5 30.8 29.7 51.40% 49.80% 49.50% 16.1 14.7 14.1

Singapore Exchange Ltd 8,846 17.9 17.4 16.8 25.5 24.7 24.2 44.10% 43.40% 43.10% 10.9 10.4 10.1

Bursa Malaysia Bhd 1,561 7 7.2 8.3 17.4 18 21 48.50% 47.20% 44.30% 4.6 4.6 5.1

Bolsa Mexicana de Valores SAB 1,309 10.3 9.3 8.5 18.7 16.7 15.3 38.10% 38.50% 39.20% 6.1 5.5 5.2

Multi Commodity Exchange of In 1,045 37.4 30.3 22.7 33.6 31.9 26.6 59.60% 53.30% 53.20% 17.3 14.7 12.2

JSE Ltd 675 8.2 7.1 6.9 14.2 11.5 10.8 31.80% 31.40% 31.30% 3.5 2.8 2.6

NZX Ltd 403 18.4 15.9 14.6 35.2 31.1 27.1 22.40% 22.10% 23.60% 8.1 7 6.5

Industry Average 24.2 17.8 16.4 48.6 29.7 27.0 41.2% 43.4% 44.1% 15.0 11.3 10.6

Page 39
Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Financial Summary
P&L (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Transaction Income 1,911 2,029 2,330 2,389 2,833 3,530 3,280 3,309 3,814 4,313
Others 314 320 264 209 167 448 626 327 366 411
Total Operating income 2,225 2,349 2,594 2,598 3,000 3,978 3,906 3,636 4,180 4,724
Other non operating income 1,102 1,169 1,169 920 986 1,053 1,038 1,255 1,217 1,288
Total income 3,326 3,518 3,763 3,519 3,986 5,031 4,943 4,890 5,397 6,012
Employee cost 349 419 644 682 725 773 752 799 851 906
Technology expenses 663 604 714 724 819 895 847 867 938 1,009
Depreciation & amortization 259 246 186 167 155 181 221 239 255 273
Other expenses 337 573 440 474 517 526 456 485 523 569
Total operating expenses 1,608 1,842 1,984 2,046 2,215 2,376 2,275 2,390 2,567 2,756
EBIDTA 1,718 1,676 1,780 1,472 1,771 2,655 2,669 2,500 2,831 3,256
Finance cost 14 3 2 0 0 2 2 2 2 3
Exception income /loss 0 56 0 0 238 0 0 0 0 0
PBT 1,704 1,617 1,778 1,472 1,533 2,653 2,667 2,498 2,828 3,253
Tax 450 470 512 388 75 289 415 450 509 820
PAT 1,254 1,146 1,266 1,084 1,458 2,365 2,251 2,048 2,319 2,433
Minority / Share from associates 4 0 0 0 4 0 1 1 1 1
PAT (after Minority) 1,258 1,146 1,266 1,084 1,462 2,365 2,252 2,049 2,320 2,434

Revenue Mix (%) FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Transaction Income 57.4% 57.7% 61.9% 67.9% 71.1% 70.2% 66.4% 67.7% 70.7% 71.7%
Others 9.4% 9.1% 7.0% 5.9% 4.2% 8.9% 12.7% 6.7% 6.8% 6.8%
Total Operating Income 66.9% 66.8% 68.9% 73.8% 75.3% 79.1% 79.0% 74.3% 77.5% 78.6%
Non-Operating Income 33.1% 33.2% 31.1% 26.2% 24.7% 20.9% 21.0% 25.7% 22.5% 21.4%

Growth & margin ratios (%) FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Average realization (Rs /mn) 18.0 18.0 19.9 22.2 21.5 21.0 20.7 20.9 20.9 21.0
Revenue growth 6% 10% 0% 15% 33% -2% -7% 15% 13%
Cost to income ratio (%) 48% 52% 53% 58% 56% 47% 46% 49% 48% 46%
EBIDTA growth -2% 6% -17% 20% 50% 1% -6% 13% 15%
PAT growth -9% 10% -14% 35% 62% -5% -9% 13% 5%
EBIDTA margin 52% 48% 47% 42% 44% 53% 54% 51.1% 52.4% 54%
PAT Margin 38% 33% 34% 31% 37% 47% 46% 42% 43% 40%

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Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Financial Summary
ADTO Mix & Growth FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
ADTO - Futures (Rs tn) 203.3 219.2 242.4 211.9 256.5 324.2 314.7 307.1 352.9 397.8
ADTO - Options (Rs tn) - - 0.1 7.0 11.3 9.4 19.1 22.0 25.3 29.1
Total ADTO (Rs tn) 203.3 219.2 242.5 219.0 267.7 333.6 333.9 329.1 378.2 426.9
ADTO growth (%) 8% 11% -10% 22% 25% 0% -1% 15% 13%
Mix (%)
Futures 100% 100% 100% 97% 96% 97% 94% 93% 93% 93%
Options 0% 0% 0% 3% 4% 3% 6% 7% 7% 7%
ADTO Futures Mix (%)
Bullion 36.7% 36.7% 34.8% 25.3% 23.0% 34.7% 55.9% 45.8% 45.9% 46.8%
Energy 34.4% 34.4% 32.9% 33.3% 37.2% 45.4% 22.7% 27.9% 27.9% 27.7%
Base Metal 26.7% 26.7% 29.9% 39.2% 38.3% 18.7% 19.5% 23.7% 23.7% 23.0%
Agri & Others 2.2% 2.2% 2.4% 2.1% 1.5% 1.2% 1.9% 2.6% 2.5% 2.5%

Balance Sheet (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Cash & Bank Balance 351 208 193 597 5,346 7,593 4,261 6,481 7,445 8,516
Investments 13,237 11,143 11,985 13,221 10,663 12,561 12,051 11,526 12,412 13,380
Other financial assets 2,718 5,283 4,398 3,572 2,067 4,555 5,952 6,155 6,600 7,101
Total Financial Assets 16,305 16,634 16,576 17,389 18,076 24,709 22,263 24,162 26,456 28,998
Fixed Assets & Intangibles 1,451 1,401 1,521 1,618 1,770 1,820 1,857 1,721 1,632 1,540
Other non-financial Assets 798 584 598 656 909 817 905 965 970 976
Total Non-Finnancial Assets 2,249 1,985 2,119 2,274 2,679 2,637 2,762 2,685 2,603 2,516
Total Assets 18,554 18,619 18,695 19,663 20,755 27,346 25,025 26,848 29,059 31,513

Shareholder capital 510 510 510 510 510 510 510 510 510 510
Reserves & Surplus 12,347 12,424 13,114 13,295 11,998 13,083 13,672 14,390 15,202 16,054
Shareholders equity to owners 12,857 12,934 13,624 13,805 12,508 13,593 14,182 14,900 15,712 16,564
Minority 0 0 0 0 0 0 0 0 0 0
Shareholders equity 12,857 12,935 13,624 13,805 12,508 13,593 14,182 14,900 15,712 16,564
Settlement guarntee fund 1,875 1,882 1,705 1,806 3,298 4,098 4,692 5,344 6,057 6,838
Trade Margin 2,389 2,473 2,032 2,707 2,868 6,970 3,750 3,914 4,498 5,078
Other finanancial liablities 470 516 749 760 1,383 1,467 1,181 1,522 1,584 1,675
Non-Financial liabilities 963 814 585 585 697 1,218 1,218 1,168 1,208 1,360
Total Liabilities 18,554 18,619 18,695 19,663 20,754 27,346 25,024 26,848 29,059 31,513
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Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Financial Summary

Per share Data (Rs) FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
No of share o/s 51.0 51.0 51.0 51.0 51.0 51.0 51.0 51.0 51.0 51.0
EPS 24.7 22.5 24.8 21.2 28.7 46.4 44.2 40.2 45.5 47.7
EPS growth (%) -9% 10% -14% 35% 62% -5% -9% 13% 5%
BVPS 252.1 253.6 267.1 270.7 245.3 266.5 278.1 292.2 308.1 324.8
BVPS growth (%) 1% 5% 1% -9% 9% 4% 5% 5% 5%
DPS 10.0 6.5 15.0 17.0 20.0 30.0 27.6 26.1 29.6 31.0
DPS growth (%) -35% 131% 13% 18% 50% -8% -6% 13% 5%
Dividend Payout Ratio (%) 78% 29% 60% 80% 70% 65% 63% 65% 65% 65%

Valuation Metrics FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
P/E 61.4 67.4 61.0 71.3 52.8 32.7 34.3 37.7 33.3 31.7

P/B 6.0 6.0 5.7 5.6 6.2 5.7 5.4 5.2 4.9 4.7

EV/ EBITDA 38.9 40.1 39.2 46.8 37.4 24.6 25.3 25.8 22.6 19.5

ROE (%) 10.3% 8.9% 9.5% 7.9% 11.1% 18.1% 16.2% 14.1% 15.2% 15.1%

ROA (%) 7.0% 6.2% 6.8% 5.6% 7.2% 9.8% 8.6% 7.9% 8.3% 8.0%

Dividend Yield (%) 0.7% 0.4% 1.0% 1.1% 1.3% 2.0% 1.8% 1.7% 2.0% 2.0%

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Multi Commodity Exchange | Initiating Coverage | Rating: SELL | TP: 1,365

Crystal Ball Gazing

Multi Commodity Exchange (MCX) is the dominant exchange in commodity derivates in India with a 96% market share. Peak margin rules would have a negative impact in the near term. While
the hedgers remain elusive from Indian commodity exchange, till it does not pick up we don’t fore see structural increase in ADTO. Further, MCX has higher product concentration risk vs.
Global exchanges which does not provide a secular growth trend. However, we ascribe higher multiple for its capital light business model and potential operating leverage play.

Top line to grow at 8% CAGR during FY21-25E.

Expect Avg. ROE of ~15.2% during FY21-FY25E, with EPS CAGR
Avg, EBITDA margin to improve to ~54 % during the same Expect multiples to settle at 30x
of 5.4%
period.

FY18-FY21 FY21-FY25E FY18-FY21 FY21-FY25E P/E multiple EPS – Mar’25 Price target
Revenue CAGR 14.5% 8.0% ROE 13.3% 15.2% 30x 54 1633

C-I Ratio 51.7% 46.7% ROA 7.8% 8.2%

EBIDTA CAGR 21.9% 10.7% EPS CAGR 27.6% 5.4%
EBIDTA Margin 48.3% 54.4%
BVPS CAGR 0.9% 7.3%
PAT margin 40.0% 41.7%

Total
EPS CAGR of 5.4%, exit multiple Return of
Entry = Rs. 1515@ 33x Cumulative Dividends of Rs. 87
of 30x 13%

Page 43
 Spark Disclaimer

Disclaimer

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year horizon
Absolute Rating
Interpretation
ADD Stock expected to provide positive returns of >5% – <15% over a 1-year horizon SELL Stock expected to fall >10% over a 1-year horizon

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