MCX management is on record during concall that 3 month extension from 63 moons was at exorbitant cost. One analyst mentioned the market rumour of it being multiples of what is being paid currently to them. Adding 2+2, a reasonable judgement would be 45-60 Crs. Management has said that this extension will reflect as one time cost in this quarter
Depending on how much operating profit is made this qtr, there is a reasonable risk of a big hit to its PAT. It is in that context I had made the statement. Hope that clarifies
I have similar views on some of the estimates you have mentioned.
Those from the industry know it well that 3 months extension in IT world is never 3 months. I wouldnât be surprised if this continues for some more time.
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AgreeâŚthat is why it is important to keep a hawk eye on the progress made by MCX towards this. In their ongoing meetings with various analyst, these questions are asked and updates being provided. MCX is also sharing call recordings and transcripts on these calls on regular basis.
Also, price and volume action will confirm this as everyone is watching it. Just need to keep our eyes and ears open!
The software delay is definitely a short term overhang for the stock. However, short term events of this nature have very little, probably <2% impact on the intrinsic value of the company and any large correction due to it will become a buying opportunity. While focus is on software implementation, options volumes have now crossed a new all time high this month and are up more than 4x since the start of the year.
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I agree with your viewpoints. Forgot to mention that I am already invested (and likely to be biased)!
Hence trying to play devilâs advocate to try and gather views against my thesis.
Anyone aware how far testing of new TCS software has progressed? Have they started parallel runs? I read through some of their recent investor meeting update transcript, could not find much information.
I am not sure they have made any public announcement on this, but the following evidence is available to draw your own conclusions. From the Circulars section on their website, you can see the following
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Since early-mid November - the frequency and duration of mock trading sessions on the new system has been increasing. The Dec 17 Mock Trading session was of a 4 hour duration
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They also seem to be going through the paces of running the new platform from the Disaster Recovery site / and they are building some protocols for reporting technical glitches, if they occur, going forward
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I do not have enough knowledge to know what is pending - but it does seem as though the platform is increasingly stable to deploy
From a risk perspective,
- I would have thought that the new platform and old platform would run in parallel for some time. This does not seem to be the case yet (perhaps some experts with a better IT background may have a sharper view). I donât know if that is a practical solution - but it does appear that if it is, then there really isnât sufficient time for this to happen if they are going to switch over in less than 2 weeks.
- However, from a risk mitigation perspective, my understanding is that they can in any case keep the 63moons platform running in parallel as a back-up (even without 63moons support). This was one of the options they were mentioning for this current quarter before they re-signed 63moons. Perhaps the regulator was uncomfortable with 63moons being run as the main platform and not having any technical support (but may be willing to accept this solution if it is the back-up platform)?
My own conclusions (based on nothing other than their public information and perhaps my biases) are
- They seem to be on the way to make the transition to the platform by the month end. It would be disappointing if they donât and have not made any disclosure to that effect with 2 weeks to go
- The platform is probably not live tested as it should be - and even though there could be back-up options, the next 3-6 months could be a bit nervy. They might âsaveâ on the short term âextortionistâ fees from 63moons for another quarter - but I hope it does not come back to bite
- There is of course the risk that there is another quarter of high cost from 63moons (we will find out in Q3 results as to how much this was).
Discl: Am invested so likely to be biased
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I think running two system parallely is not feasible because sync-up of data is a big challenge.
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Thankyou @akacker ! Was not aware that they are disclosing this information through their circulars. Going forward will track it from the source (their is another one they have posted today (21st Dec) on mockrun . Given only 10 days to go and yet no information on parallel run, it is clear they are yet not up to the level required. Most likely the scenario you have mentioned will play out.
meanwhile, market is completely discounting this software issue and associated licensing cost and focused only on the growing options volumes.
would be interesting to see how it plays out.
Disclaimer: invested and can be biased
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@Chumantar - given your response I am presuming you are not from IT background. Such parallel runs are very common (kind of standard practice) and absolutely necessary when switch is made from one platform to another. In fact globally some exchanges have done parallel run for months before moving to new platform given the risks involved in trades going wrong due to unknown bugs in new software. Hope this clarifies!
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If the amount they are paying for this extension is similar to Q3, we can kiss good bye to the profits for next 2 quarters!!
Need to keep a laser eye on the volumes growth now!
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On the transition to new platform, inputs indicate they have made some progress and targeting to go live first on the low volumes (agri??) side of business.
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This notification just says Support Services
Due to delay in implementation of the new technology platform, the Exchange had to extend the services of the existing vendor, initially for one quarter at the cost of Rs. 60 crores (October-December 2022) and thereafter, for two quarters at the cost of Rs. 81 crores for each quarter (beginning January 01, 2023 till June 30, 2023). Consequently, Q3 FY 2022-23 EBITDA has been impacted due to booking expenses of Rs. 60 crores (the January 2023 to June 2023 period extension costs would impact the coming two quarters).
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Any idea why 63 moons did double revenue this quarter?
The high temporary software charges point to the incompetence of the management to some degree. The saving grace is that this business doesnt really require competence; and is quite idiot proof. Numerous management teams over the last 12-15 years (and the govt) have tried their utmost best to destroy the company, yet the company exits the quarter with 90+% market share.
Assuming that they are able to commission the software by the time the 63 Moons contract is to come to an end again; the incremental cost is 40 cr + 60 cr + 60 cr = 160 cr or about 2.5% impact based on todays MCap. Of course, one should provision for more slippage in timelines. If lets say they take a year from today and renew at 100 cr; then the hit would be a further 2.5%. All-in-all a 5% somewhat worst-case hit to value; while the stock is already down 6% today.
The more important metric to track in my opinion remains trajectory in options volumes which have dipped somewhat in January. Lets see how Feb turns out.
Diclosure: Invested and hence may be biased
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160 Crs incremental hit to networth because of 63 Moons contract extension.
MCX trades at 5 times book.
800 Crs. erosion should happen in market cap.
On Dec 30, 2022, MCX was trading at 7920 Crs when they announced the contract extension. It started correcting post the announcement. Today it fell further to adjust for the new information = incremental impact of 60 Cr each in Q4 FY23 and Q1 FY24.
M Cap at todayâs low of 1400 = 7140 Crs. Difference of ~800 Crs. Market has already priced it in.
Key drivers going forward:
- Options volumes growth
- Approval for electricity derivatives
- Launch of mini contracts in Base Metals (which was suspended by SEBI few years ago and permitted again last month). Energy mini contracts will follow in sometime.
- Launch of monthly contracts in Gold (currently only bimonthly and hence higher premiums in Options)
- Coal ministry decision in March on coal exchange (MCX or IEX or both?)
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Why 800 crs erosion? How did you calculate that figure?