New Crude Oil And Natural Gas Products Will Drive Future Success

Key Takeaways

• Strong growth in average daily turnover and launching new products are expected to positively impact future revenues.
  
• Focus on operational excellence and product expansion is anticipated to boost efficiency, profitability, and trading volumes.
  
• Reliance on key commodities and regulatory challenges could hinder growth and innovation, while increasing costs may pressure margins despite potential revenue growth.

Catalysts

A commodity derivatives exchange, provides a platform to facilitate online trading of commodity derivatives in India.

• The consistent and strong growth in average daily turnover (ADT) across both futures and options, demonstrating increased trading volumes, is likely to positively impact future revenues and earnings.
  
• Launching new products like the cottonseed wash oil and crude oil and NG Mini, as well as modifications to existing contracts like the base metals future contract, is set to drive further revenue growth.
  
• MCX's focus on operational excellence, including technological advancements, is expected to improve efficiency and compliance, potentially enhancing net margins and profitability.
  
• Expanding the range of products and the depth of client participation, particularly with FPIs in crude oil and natural gas, is expected to boost trading volumes and overall revenue.
  
• Plans to introduce index options and other innovative products are anticipated to diversify revenue streams and contribute to the growth in earnings and market share.

Multi Commodity Exchange of India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Multi Commodity Exchange of India's revenue will grow by 20.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 47.4% today to 51.5% in 3 years time.
• Analysts expect earnings to reach ₹9.6 billion (and earnings per share of ₹189.01) by about January 2028, up from ₹5.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹8.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 47.9x on those 2028 earnings, down from 57.0x today. This future PE is greater than the current PE for the IN Capital Markets industry at 23.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.61%, as per the Simply Wall St company report.

Multi Commodity Exchange of India Future Earnings Per Share Growth

Risks

• The dependency on a limited number of commodities like crude oil and gold, which significantly contribute to MCX's trading volumes, might pose a risk if market conditions for these commodities turn unfavorable, potentially impacting revenue.
  
• Any delays or obstacles in the launch of new products, such as index and weekly options, due to technological or regulatory challenges, could hinder growth and innovation, affecting MCX's competitive edge and ability to increase profits.
  
• External factors like government policies on commodities, as seen with coal and electricity derivatives, could affect business plans and limit the growth of new segments, thereby impacting future revenue streams.
  
• Continued reliance on cash-settled contracts, as regulatory challenges restrict launching more such products, might limit diversification and scalability, potentially hindering the ability to capture more market share and increase earnings.
  
• Increasing costs related to technology services and regulatory requirements, such as the Settlement Guarantee Fund contributions, might pressure net margins if not offset by proportional revenue growth.

Valuation

• The analysts have a consensus price target of ₹6294.9 for Multi Commodity Exchange of India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹7800.0, and the most bearish reporting a price target of just ₹3715.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹18.7 billion, earnings will come to ₹9.6 billion, and it would be trading on a PE ratio of 47.9x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹5724.35, the analyst's price target of ₹6294.9 is 9.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.