Over years BSE has managed to gain market share and become the leader only in markets where network effects hadn’t set in e.g. currency derivatives, or the business itself was new.e.g. BSE starMF
The case of MCX seems to be different because, I think most of the players who would trade are already doing so on MCX and network effects have already set in. The ones who might shift to BSE will be HFT firms and speculators who are happy making money through price movements in points. However, they also need liquidity which might lead them not to shift to BSE.
Also, BSE’s liquidity enhancement schemes to gain share in cash and derivatives haven’t worked in the past.
I think given the past experience it might be quite difficult for BSE to attract liquidity unless it first creates some fake liquidity which attracts true liquidity.
Agreed with you. If we see the current valuation we are getting core business at 2000 odd crores after deducting cash and cash equivalents. Just take the quarter of march 2018, where MCX has done business of near about 15 lacs crore. So which will translate into the revenue of Rs. 75 crores. Expenses are majorly capped at 50 crores. so this brings PBT of Rs. 25 crores (excluding other income, Cant estimate the other income as dont knw as of march where investments are made… but can take other income near abt 25 crores on a conservative basis which can give pbt of 50 crores after considering other income). Seeing on a yearly basis this translates to 100 crores on 2000 crores valuation. Just a 20 PE for an exchange with such amazing growth aspects even entry barriers in the business and all sort of things. I think it has fantastic moat and it is very attractive at current price. Now attractive part lies here… If we assume 25% growth in sales i.e. sales of 94 crores on a quarterly basis their expenses are nearly capped at 50 crores, additional sales wont increase their expense which is interesting part of this business it gives PBT of 44 crores so 25 crores turns into 44 crores… now when we take 44 to an annual basis it turns out to mouth watering 176 crores on 2000 crores valuation. So when growth comes in sales profit is going to grow exponetially… I dont think bse can take existing business which is of futures because of ban on liquidity schemes and sort of things … Chances for bse are remote on existing future contracts… As far as options are concerned this can be a sacrificing area for mcx . chances are high over here… But at current levels and looking at current business forgetting options available at very attracting price with great risk reward ratio…
Discl: Invested from lower levels still accumlating… These are just my views and it can change over time and date. Request you to do your due diligence before taking an investment decision.
You shouldn’t account for other income in the valuation if you’re excluding the cash/investments from the valuation.
The “amazing growth prospects” have remained prospects for a long time now.
Again, you are assuming things that are not there and there are no indications of such assumptions coming true.
This operating leverage is double edge sword. If volumes drop, profits will plunge.
Disclaimer -Exited after remaining long term investor for 3 years. Watching the business to see effects of BSE.
25 Crores per quarter is excluding other income which gives yearly 100 crores. For Quarter ended March 2018 from the data available in the public domain my estimate is Revenue excluding other Income at 75 Crores. Expense near about 50 crores which gives PBT from core operation at 25 crores.
hahaha… Growth is just knocking the door…Take it with a pinch of salt… Check the volatility in major base metals, energy as well as bullion.
Agreed it is an assumption but seeing the nature of business and the way market has opened and still new reforms coming after SEBI FMC merger… It is just about who eats the pie…I would say who eats the new pie served in the dish… But existining pie remains with MCX as it is…I am ready to stay here for years assuming current pie remains in the dish… I may go wrong but probability are minute seeing the practicality of these businesses driven by volume as well as considering MCX’s pact with various international partners… Again as said I may go wrong as there are inherent risk in all businesses… Assumptions are part of an investor… An investor invests because he assumes something to happen with a level of risk he can bear and with amount of patience he can hold…Just my views
Hi I agree that the current price make it a good deal for the business that you’re getting. But probably we shouldn’t assume the expenses to be capped since they pay a fixed amount of ₹1.5Cr/annum and 10.3% of revenue to the software provider.
The spike in ADT numbers from Jan’18 after a long pause finally leading to some good results.
Double digit revenue growth and non linear profit growth. Good part coming from other expense reduction. Had highlighted ADT volume spike sonetime in March above
Also, as in long term , concerned about competition ramping up post Sept once BSE jumps into arena, spoke to a senior person who has worked across exchanges. To my surprise, apart from marketplace network effect advantage, it does not seems to have any additional advantage. My thought was MCX might have process advantages in terms of warehouse mgmt etc but seems proven wrong. So, it would be interesting n critical to keep a watch how other exchanges intensify the game. Disc : Recently invested in both MCX n BSE with transactions done in last 3 months
Thanks for your comments above. When yoy say warehouse mgnt is not a moat, can you please explain on that? Is it more due to third party providers and they can provide to anyone?
Also, how hard do you think it will be have customers switch to new exchange provided there are enough financial incentives?
Conference call transcript
Thank you. MCX got approvals for more launching more options today and they will start charging in the second half of the year. Interesting times ahead. Looking forward to competition from NSE and BSE.
It is to be noted that before the announcement of universal exchange it was falling like a bad stock but after the news it is trying to recover and trying to go up , i think mr market thinks that due to increased competition mcx could get higher pe if it can sustain its market share.
After a lull of almost 6-7 months, volumes (commodity trading volumes ) r again up yoy from Jan’18. All data available on company site . The risks highlighted still remain
Are the volumes being shown for both futures and options? MCX will not charge for Options till September 2018.
Very encouraging numbers for April and May. So, hoping continuation of good results in Q1’FY19. Below is commodity wise ADT YoY growth rates. Overall 34% growth , almost double than Q4FY18
in 2013 at the peak of commodity bull cycle they did 300 Cr of profits . i.e 15-16x peak earnings its trading today.
Where is the value ? Better buy commodity instead if one thinks commodity bull market has started.
That’s what i guess these numbers shows , people are buying into commodity.