The quarterly results for the Multi Commodity Exchange of India Limited (MCX) have just been released. After experiencing losses in the previous two quarters, MCX results showed a net profit of ₹87.8 crore for the January-March quarter of FY24. In this blog, we will delve into the factors behind MCX’s return to profitability, analysing the key components of their financial performance.
About MCX
MCX is a commodity derivatives exchange that began operations in November 2003. The Securities and Exchange Board of India (SEBI) is responsible for its regulatory control. With regard to several commodity derivatives, including bullion, industrial metals, energy, and agricultural products, MCX offers a platform for price discovery and risk management as well as online trading facilitation.
MCX is known for being India’s first exchange to offer commodity options and futures contracts on various commodities and indices. It has a vast national presence with 547 registered members and extends its services across 687 cities and towns in India. As of the end of March 2024, MCX holds a market share of 95.93% in commodity futures trading in India.
The exchange also incorporates MCX Clearing Corporation Limited (MCXCCL), which manages risk and assures the clearing and settlement of trades. MCX’s technological infrastructure supports high-performance trading with robust risk management and market surveillance systems, ensuring the smooth functioning of trade activities and compliance with regulatory standards.
MCX Q4 results performance
After a challenging period with losses in the previous two quarters, MCX reported a net profit of ₹87.8 crore for January to March 2024. This represents a substantial recovery, with the company experiencing a year-on-year revenue increase of 35%, totalling ₹181.1 crores for the quarter.
Despite this positive MCX India quarterly results performance, the annual figures show a 44.2% decline in net profit from the previous fiscal year, highlighting the volatility and challenges faced throughout the year.
The quarter’s operational achievements include recording the highest-ever Average Daily Turnover (ADT) since the company’s inception, underscoring a significant engagement in commodity trading activities. However, the ADT for commodity futures saw a decline of 16.5% over the year.
Financially, MCX’s EBITDA for the quarter rose to ₹120.33 crore, marking a strong recovery from negative figures in the preceding quarter. Yet, annual comparisons show a decrease in EBITDA by 35.73% compared to the previous fiscal year, largely due to increased expenditures related to technology services and contributions to the Settlement Guarantee Fund
Q-o-Q performance:
| Period | Q4 FY24 | Q3 FY24 | Q-o-Q growth | Q4 FY23 | Y-o-Y growth |
| Operating Revenue | 181.14 | 191.53 | -5.42% | 133.75 | 35.43% |
| Total Revenue | 199.45 | 209.26 | -4.69% | 153.83 | 30% |
| Net Income | 87.87 | -5.35 | 17.4243 | 5.45 | 1512.29% |
Source: MCX Investor Presentation Q4FY24
Although MCX India quarterly results were positive, it did not meet analysts expectations. According to Morgan Stanley, MCX’s Q4FY24 revenue dropped 8% short of their projections. Furthermore, EBITDA and net profit fell 20% and 15% short of the projected amounts, respectively.
Dividend declared
In its recent announcement, MCX disclosed a proposed final dividend of ₹7.64 per equity share for the fiscal year 2024. This dividend recommendation is contingent upon approval from the shareholders during the upcoming 22nd Annual General Meeting (AGM) of the company.
The specific details regarding the AGM’s date, the record date for determining shareholder eligibility for the dividend, and the schedule for the dividend payment and dispatch are yet to be announced.
Share price performance
Shares of commodity exchange MCX dropped more than 7% in early trading on April 24 following its announcement of positive yet below-expectation financial results for the quarter ending March 2024.
As of April 25, 2024, MCX’s stock has returned 395.05% in the last five years.
Source: Google Finance
Investing pros and cons
Pros:
- Strong market position: MCX maintains a leadership role in India’s commodity derivatives market, consistently holding over 95% market share.
- High transaction volumes: MCX results reported the highest ever Average Daily Turnover during FY24, indicating robust trading activity.
- Solid financial infrastructure: The exchange benefits from significant capitalisation and a debt-free status, ensuring financial stability.
- Innovative product offerings: Continual introduction of new products like Steel Bar contracts and planned launches like power future contracts keep MCX at the forefront of market developments.
- Strategic partnerships: Collaborations with global exchanges enhance MCX’s operational and strategic capabilities.
- Technological advancements: Following the transition to a new trading platform, MCX is positioned to realise cost savings and efficiency gains.
Cons:
- Market concentration risks: A large portion of turnover is concentrated in a few commodities, such as silver, gold, natural gas, and crude oil, which could pose risks if these markets become volatile.
- Regulatory challenges: The commodity trading market is heavily regulated, and any adverse regulatory changes could impact MCX’s operations and profitability.
- Software transition risks: Although the recent software upgrade is a step forward, initial teething problems could affect operations and user experience.
- Moderate track record as a standalone entity: MCX CCL, although backed by MCX’s infrastructure, is relatively new and still proving its standalone operational effectiveness.
- Volatility in commodity prices: Fluctuations in commodity prices can lead to unpredictable trading volumes, directly affecting revenue.
Bottomline
While MCX demonstrated a notable financial recovery in Q4 FY24, it continues to face challenges, including market volatility and regulatory pressures. The company’s ability to maintain a strong market position and innovate with new product offerings provides a solid foundation for future growth.
However, investors should remain cautious and consider the potential risks associated with commodity trading and the ongoing transitions in technology and market dynamics.
