Financial services

Buy This Small Cap Financial Services Stock, Stocks May Rise 33%: ICICI Securities

Stock market outlook

The current market price of MCX shares is Rs 1,293.50 each. Its 52-week low is Rs 1,143 each recorded on May 16, 2022, and the 52-week high at Rs 2,135 each was recorded on October 14, 2021.
According to the target price given by the brokerage, the stock has the potential to gain 33% in 12 months if the stock is purchased at the current market price.

Returns on investments over the past 5 years

Returns on investments over the past 5 years

It gave 0.84% ​​in the last week, while in the last month it gave 1.76% negative respectively. While in the last year it gave 18.62 negative returns. Over the past 3 years, it has given 40.15% positive returns. Over the past 5 years, it has given a positive return of 17.97%.

Option rotation maintains momentum

Option rotation maintains momentum

Rising options volume has been our consistent investment thesis on MCX. ADTV Options crossed Rs400bn in the first 16 days of Sep’22 (Sep’22-TD) from Rs78bn in Sep’21. This rise can be attributed to the steady recovery from the impact of the September 21 maximum margin standards and the continued volatility in commodity prices. Options volumes may maintain the current momentum with the planned launch of new products such as Monthly Gold Options with Gold Futures (1kg) as the underlying asset. Based on volume trends, MCX could see 28% QoQ growth in operating profit in Q2FY23E. The industry’s strong position precludes any reduction in multiples. Therefore, once the gain from higher options volumes outweighs the decline in lower futures volumes, the ensuing earnings growth will add significant upside to the stock. MCX appears to be in this zone currently with growing options and stable futures volumes.

    ADTV options exceeds Rs 400 billion

ADTV options exceeds Rs 400 billion

Sep’22-TD ATDV options stands at Rs416bn, up 34% MoM. The sharp increase was entirely due to ADTV’s 43% MoM growth in crude options. Even if we have to adjust to the typical peak in option volumes in the middle of the month, ADTV options for the full month of September 22 could be 375 billion rupees. This implies Q2FY23E ADTV options at Rs320bn, up 61% QoQ.

Options reliance on crude may be reduced with more product launches

Crude options ADTV as a percentage of all options ADTV fell from a high of 90% on Jan 22 (when the natural gas contract was launched) to 74% on July 22, and increased to 81% in September 22-TD. This may significantly decrease with the likely launch of new products such as monthly 1kg gold options (link).

Futures ADTV remains range bound

Futures ADTV remains range bound

Sep’22-TD ADTV rises to Rs240bn, up 7% MoM. The sequential improvement was driven by a strong increase in bullion sales. Assuming Rs240bn ADTV for the remainder of Sep 22, Q2FY23E ADTV futures stand at Rs234bn, down 8% QoQ.

Q2FY23E EBITDA Expected to Increase 28% QoQ

Q2FY23E EBITDA Expected to Increase 28% QoQ

Based on our estimates, futures revenue could decline by 5% quarter-on-quarter. Futures revenue is estimated at Rs 634 million (assuming a mixed rate similar to Q1FY23). Options turnover is expected to increase 67% QoQ and we expect the options premium to remain at 2.6% (similar to the Q1FY23 rate). This will result in options income of approximately Rs 480 million. Other operating income is probably at Rs130mn. We estimate that total revenue will grow by 14.5% QoQ to Rs 1,245 million. Total spend could rise 3.3% QoQ to Rs 630m, leading to 28% growth in EBITDA and an expansion of around 500bps in EBITDA margin to 50.6%.

ICICI Securities keeps buying for a target price of Rs 1.1700

ICICI Securities keeps buying for a target price of Rs 1.1700

Commenting on the action, the brokerage said: “Our estimates take into account ADTV options/futures at Rs240bn/270bn for FY23E and Rs260bn/305bn in FY24E. ADTV options fell from Rs80bn in FY22 to Rs255bn in FY23 -TD (data up to September 16, 2022) while ADTV futures fell from Rs 262 billion to Rs 245 billion in the same period This indicates that there is scope for higher profits if current momentum continues. Maintain long with an unchanged target price of 1,700 rupees, based on a base EPS of 43.4 rupees and free cash of 181 rupees per share.”

Risks include a sudden drop in overall volumes as key commodity prices (like crude oil) decline and high software spending.

Disclaimer

Disclaimer

The security was selected in the brokerage report of ICICI Securities. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.