We entered MCX at Rs 2,050 a share in Oct’23. The stock is up ~200% in last 13 months.

Despite explosive growth in options, the company was available at a throw away valuation due to perceived risk in migration of tech platform from its old vendor 63 Moons to one integrated by TCS exclusively for MCX.

We saw it as a special situation and had confidence in migration eventually getting completed based on mock trading results around that time.

Luckily, our investment thesis played out without any major hiccups with new platform stabilising and adding to tech capabilities of the exchange.

Meanwhile, the options traded on MCX continued to exhibit explosive growth, and futures too rebounded.

From incurring a quarterly loss when we entered, the company showed sequential improvement each quarter in the last four quarters. For Q2FY25, it posted a net profit of Rs 154 Cr.

The market too has taken cognisance of it which is reflected in MCX’s current price of Rs 6,104.

We do see multiple levers of continued growth via new products and customer segments for MCX. However, the heightened speculative activity via F&O & consequential regulatory interventions do pose some risks to this growth.

At current market cap of Rs 31,000 Cr, MCX discounts normalized annual earnings of ~Rs 500 Cr by ~60x. MCX’s monopoly like stature in commodity exchange, free cash & high return ratios indeed deserves a premium, however any headwinds to earnings growth can dent this multiple, leading to quick drawdowns.

Considering the risk-reward from hereon, we believe it is prudent to take money off the table and wait for better opportunities that may emerge in the on-going market correction.

MCX has been a low-risk idea that ended up adding significant alpha to our portfolio, while such ideas are hard to find but even one such idea in a year or two, is simply great for our portfolio.