Home >Markets >Stock Markets >MCX’s Q1 may be scoring over BSE, but its stock is getting pricey
BSE Ltd’s Q1 slacked despite an increase in daily turnover. (Photo: REUTERS/Danish Siddiqui)
BSE Ltd’s Q1 slacked despite an increase in daily turnover. (Photo: REUTERS/Danish Siddiqui)

MCX’s Q1 may be scoring over BSE, but its stock is getting pricey

  • While BSE quotes at a price-earnings multiple of 20 times FY21 earnings, MCX shares trade at about 31 times earnings
  • Given the sharp run-up in MCX share price in the past few months, the stock may face hurdles

MUMBAI: The MCX stock has gained 13% since July 28, when it unveiled its Q1 numbers. But investors in the BSE stock saw their fortunes dip marginally post the exchange's Q1 results, announced this week. In fact, the divergence between the shares of MCX and BSE have been stark this year. MCX has gained about 60% so far in 2020, while the BSE stock has been flat.

Some of that divergence is because of the better operating leverage at MCX. In fact, BSE Ltd’s Q1 slacked despite an increase in daily turnover. Revenues fell about 5.7% year on year (y-o-y) as listing fees were lower. An increase in turnover in the special rate group meant that fees were marginally lower. Further, last year there was also a one-off income as a result of which the base was higher.

MCX’s revenues were also hit in Q1. Truncated trading hours meant that revenues declined by 8% y-o-y. Trading volumes showed recovery in May and June. Some commodities have also seen increased trading, such as gold due to its rising demand in international and domestic markets. Higher margins in the crude oil segment saw trading value decline 71% y-o-y.

On the cost front, MCX has demonstrated an edge over BSE though. MCX’s operating costs are lower which can be seen from the higher margins. In fact, MCX’s margins were stable at 27% compared to the year-ago period. But BSE reported operating losses during the quarter even as it managed to curb expenses.

In fact, analysts have been quite sanguine about growth plans at MCX which plans to launch bullion and metal futures this month. "There are also more products in the energy segment in the works, and MCX continues to forge new industry tie-ups, such as that with Mjunction. Mutual funds have launched schemes including commodities. Increasing retail commodity participation is one of the key action plans for most retail equity bank-backed brokers. Delivery volumes on the exchange are increase well," said analysts at Morgan Stanley in a note to clients.

For BSE, on the other hand, the suspension of over 1,000 companies last quarter could have an impact on revenues in the future. Further, its ability to charge on its mutual fund platform Star MF has been hit due to NSE’s competitive pricing strategy. However, BSE is looking at unlocking value in the Star MF platform, which is encouraging. Analysts say that some of these initiatives have the potential to scale up. “While the announced income streams may be small currently, some of them have the potential to present meaningful opportunity over the long term," said analysts at Motilal Oswal Financial Securities Ltd in a note

Nevertheless, some of the growth expectations already reflect in the higher valuations of MCX. While BSE quotes at a price-earnings multiple of 20 times FY21 earnings, MCX shares trade at about 31 times earnings.

Given the sharp run-up in MCX share price in the past few months, the stock may face hurdles. "Moreover, potential impact of universal exchange norms on MCX's market leadership 90% share and concentration of a few commodities in overall volumes could cap valuation upside," said Edelweiss Securities Ltd analysts in a client note.

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