We initiate coverage on Multi Commodity Exchange of India (MCX), a world-class oligopoly which has weathered a ‘promoter shock’ and emerged with unscathed operations and business franchise. Our conviction is driven by the fact that the commodity exchanges business is at its infancy in India. MCX is thus poised for non-linear growth with progressive policy evolution.
MCX is a persistent leader among Indian commodity exchanges despite cyclically poor trading volumes in its key commodities. Post the recent rationalisation of fixed costs (lower software and service costs), the co is poised to derive operating leverage as volumes resurface. The recent business development drive will help. At 18x FY17E EPS (implying PEG ~0.4x), MCX’s strong franchise and longer term growth prospects look attractively valued. We value MCX at 25x FY17E EPS arriving at a target price of Rs 1,180.