MCX India Fundamental Analysis and Future Outlook

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MCX India Fundamental Analysis and Future Outlook

The Multi Commodity Exchange of India Limited (MCX). India’s first listed exchange is a state-of-the-art, commodity derivatives exchange that facilitates online trading of commodity derivatives transactions, thereby providing a platform for price discovery and risk management. The Exchange was started in November 2003 and operates under the regulatory framework of the Securities and Exchange Board of India (SEBI).

The company’s shares have 52 weeks price band of INR 1859-815 and a total market capitalization of INR 89.84 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 36 and a dividend yield of 1.70%

Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.

  1. Economic Moat
  2. Business Model and Management
  3. Growth Ratios
  4. Profitability Ratios
  5. Cash Flow Ratios
  6. Liquidity and Solvency Ratios
  7. Efficiency Ratios
  8. Valuation Ratios
  9. ROE (Du Pont Analysis)
  10. Future Prospects

(All units are INR Millions except ratios and per share data)

You can get the complete excel model used for this analysis from below:

1.Economic Moat (★ ★ ★ ★ ★)

The company operates in online trading of financial contracts and has a near-monopoly in online trading of commodities. The Exchange has an extensive national reach, with 681+ registered members and 55,660+ Authorized Persons with its presence in around 1037+ cities and towns across India. MCX is also India’s leading commodity derivatives exchange with a market share of 97.05% per cent in terms of the value of commodity futures contracts traded in H1 FY 2021. Multi Commodity Exchange Clearing Corporation Limited (MCXCCL), a wholly-owned subsidiary of MCX, is the first clearing corporation in the commodity derivatives market.

MCXCCL, having state of art risk management system, is the central counterparty for all trades executed on MCX’s trading platform. It also provides Electronic Commodity Accounting and Receipts Tracking System through the web-based portal ‘Commodity Receipts Information Systems’ (COMRIS). Further, it provides a settlement guarantee for all trades executed on MCX via Settlement Guarantee Fund (SGF). This overall gives a solid economic moat to the company. Therefore this category gets 5 stars in MCX India fundamental analysis.

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2. Business Model and Management (★ ★ ★ ★ ★)

MCX offers trading in commodity derivative contracts across varied segments including bullion, industrial metals, energy and agricultural commodities, as also on indices constituting these contracts. It is India’s first exchange to offer commodity options contracts and bullion index futures contracts. The Exchange focuses on providing commodity value chain participants with neutral, secure and transparent trade mechanisms, and formulates quality parameters and trade regulations, in conformity with the regulatory framework.

MCX has also forged strategic alliances with leading international exchanges such as CME Group, London Metal Exchange (LME), Dalian Commodity Exchange (DCE), Taiwan Futures Exchange (TAIFEX), etc. The Exchange has also tied-up with various trade bodies, industry associations and educational institutions across the country. These alliances enable the Exchange in improving trade practices, increasing awareness, and facilitating overall improvement of the commodity market.

Mr Saurabh Chandra is the Chairman of the company and was a former Secretary to the Ministry of Petroleum and Gas. He has 40+ years of experience in the Ministry of Finance and Ministry of Commerce and Industry. Mr P.S. Reddy is the Managing Director and Chief Executive Officer. He is a former MD and CEO of Central Depository Services (India) Limited (CDSL). Overall the management is qualified and has shown interest in shareholder wealth creation. Therefore this category gets 5 stars in MCX India fundamental analysis.

MCX India Fundamental Analysis and Future Outlook

3. Growth Ratios (★ ★ ☆ ☆)

The company has a weak financial position due to the nature of its business. The clearing and trading business already has a cap on services charged. The working capital is also very high and exceeds revenue. The Cap-Ex is mostly used up in business activities and technology. Hence overall the company does not have a stable growth trajectory. Therefore this category gets 2 stars in MCX India fundamental analysis.

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MCX India Shares Fundamental Analysis and Future Outlook

4. Profitability Ratios (★ ★ ★ ☆ ☆)

The margins have been declining over the years but the company still has good margins. The gross margin has also declined due to increasing cost of services delivered and this also indicates that the company is not able to pass down its increasing costs to its customers. Therefore this category gets 3 stars in MCX India fundamental analysis.

MCX India Fundamental Analysis and Future Outlook

5. Cash Flow Ratios (★ ★ ★ ☆)

The net income margin is declining and the Cap-Ex as a percentage of sales has almost remained flat. The free cash flow as a percentage of net income has been fluctuating and the free and operating cash flow growth has seen a slight improvement. This overall shows a stable cash flow position for the company. Therefore this category gets 4 stars in MCX India fundamental analysis.

6.Liquidity and Solvency Ratios (★ ★ ★ ☆)

The company has a small interest-bearing debt in its capital structure. The financial leverage and debt to equity ratios are hence flat over the years. The company, therefore, does not have any significant concerns to its solvency. The current ratio is above the minimum threshold of 1 which indicates a surplus of current assets over current liabilities. The Quick ratio has also declined over recent years. This overall indicates good but declining liquidity position for the company. Therefore this category gets 4 stars in MCX India fundamental analysis.

MCX India Fundamental Analysis and Future Outlook

7. Efficiency Ratios (★ ★ ★ ★ ★)

The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.

MCX India Shares Fundamental Analysis and Future Outlook
MCX India Fundamental Analysis and Future Outlook

Overall the business efficiency has improved over the years due to the increasing scale and less competition in various lines of business for the company. The payables period has increased from 30 to 103 days and the receivable period has also declined. The cash conversion cycle has decreased from 9 days to -94.84 days, and it still remains negative. This overall shows good cash flow and working capital management. Therefore this category gets 5 stars in MCX India fundamental analysis.

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8. Valuation Ratios (★ ★ ★ ☆ ☆)

The company has started trading at higher multiples in recent years due to some fundamental industry factors like increasing financial awareness, inclusions, rising per capita income etc. This overall has increased the addressable market size for the company due to the variety of its offerings. There might however not be any significant increase in the net income for the company in the near future. Therefore this category gets 3 stars in MCX India fundamental analysis.

9. ROE 5 way Du Pont Analysis (★ ★ ★ ☆)

The leverage ratio and asset turnover ratio has been flat over the years. The operating margin is good but declining over the years. The interest burden ratio is high due to low-interest payments and is expected to remain constant in the near future. The return on equity overall is stable due to interest burden and tax efficiency. Therefore this category gets 4 stars in MCX India fundamental analysis.

MCX India Fundamental Analysis and Future Outlook

10. Future Prospects ( ★ ★ ★ ★ ☆ ):

Some insights for the coming years from the analysis, management discussions and con calls are as follows.

  • Management has indicated that crude volumes remain dented as the sentiment of participants was impacted due to negative price settlement issue and an increase in margin requirement.
  • As the volatility reverts to a manageable level, the management is positive of reduction in margin requirements and hence improvement in market participation.
  • Even as the change in contract specifications continued to impact volumes, management sees huge potential in base metals. The company has decided not to give salary increments beyond a certain level. It is negotiating with vendors also on different cost reduction initiatives.

Overall the company has weak fundamentals but can see some improvement in revenue growth and balance sheet positions due to financial inclusion and formalization of the economy. Therefore this category gets 4 stars in MCX India fundamental analysis.

The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.

Overall Fundamental Rating:

MCX INDIA SHARES (3.9/5)

Therefore it is a 4-star stock

★ ★ ★

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MindTree Shares
Economic Moat ★ ★ ★ ★ ★
Business & Management ★ ★ ★ ★ ★
Growth Ratios ★ ★ ☆ ☆ ☆
Profitability Ratios ★ ★ ★ ☆ ☆
Cash Flow Ratios ★ ★ ★ ★ ☆
Liquidity & Solvency ★ ★ ★ ★ ☆
Efficiency Ratios ★ ★ ★ ★ ★
Valuation Ratios ★ ★ ★ ☆ ☆
ROE (Du Pont Analysis) ★ ★ ★ ★ ☆
Future Prospects ★ ★ ★ ★ ☆
Overall Fundamental Rating ★ ★ ★ ★
MCX India Fundamental Analysis

You can read more about the company on its website!
Investor Presentation.
For fundamental analysis of other listed companies click HERE!

My other Investment Analysis:

5 star Investments ★ ★ ★ ★

4 star Investments ★ ★

3 star Investments ★ ★

2 star Investments ★ ★

1 star Investments

Read Our Research Methodology below: Fundamental Analysis Guide

(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

Overall Fundamental Rating:

MCX INDIA SHARES (3.4/5)

Therefore it is a 3-star stock

★ ★ ★

Subscribe here for such analysis on 200+ stocks!

Join our Telegram Channel.

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MCX India Shares
Economic Moat ★ ★ ★ ★ ☆
Business & Management ★ ★ ★ ★ ★
Growth Ratios ★ ★ ★ ★ ★
Profitability Ratios ★ ★ ★ ★ ★
Cash Flow Ratios ★ ★ ★ ★ ☆
Liquidity & Solvency ★ ★ ★ ★ ★
Efficiency Ratios ★ ★ ★ ★ ★
Valuation Ratios ★ ★ ★ ☆ ☆
ROE (Du Pont Analysis) ★ ★ ★ ★ ★
Future Prospects ★ ★ ★ ☆ ☆
Overall Fundamental Rating ★ ★ ★ ★
MCX India Fundamental Analysis

You can read more about the company on its website!
Investor Presentation.
For fundamental analysis of other listed companies click HERE!

My other Investment Analysis:

5 star Investments ★ ★ ★ ★

4 star Investments ★ ★

3 star Investments ★ ★

2 star Investments ★ ★

1 star Investments

Read Our Research Methodology below: Fundamental Analysis Guide

(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)





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Billion Dollar Valuation shares thorough research into the Fundamentals of the businesses listed in India. With their insightful write-ups, they uncover a lot on the table.
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