Shares of Multi Commodity Exchange of India (MCX) tanked 10% on January 21, following Morgan Stanley’s downgrade to an ‘underweight’ rating and a sharp reduction in the stock’s target price to ₹3,715. The brokerage expressed concerns over stagnating revenue growth and stretched valuations, citing risks to the sustainability of earnings.
Q3 FY25 Performance: MCX reported a net profit of ₹160 crore for the quarter ended December 2024, a significant improvement from a loss of ₹5.35 crore in the corresponding period last year. The company’s total income rose by 55% YoY to ₹324 crore, while its earnings per share (EPS) stood at ₹31.38. EBITDA for the quarter came in at ₹216 crore.
Despite these gains, Morgan Stanley highlighted a miss in profit after tax (PAT) due to a higher contribution to the Settlement Guarantee Fund (SGF). The brokerage also flagged concerns over the moderation in average daily revenue (ADR), which it said could lead to downgrades in revenue and earnings estimates.
Brokerage’s Concerns:
- Profitability Miss: While EBITDA met expectations, PAT fell short due to additional contributions to SGF.
- Stagnating Revenue: A slowdown in ADR poses risks to earnings sustainability.
- Valuation Risks: The brokerage considers the stock’s valuation stretched, given revenue concentration risks.
- De-rating Potential: Prolonged stagnation in ADR and earnings could lead to a significant de-rating of the stock.
Outlook: Morgan Stanley’s target price of ₹3,715 implies a 38% downside from the current market price of ₹5,989.40. The firm stated that sustained pressure on operational metrics and revenue concentration risks could weigh heavily on the stock’s valuation in the near term.
Market Reaction: MCX shares dropped nearly 10%, trading at ₹5,436.95 during the session, reflecting investor concerns over the company’s growth trajectory and brokerage warnings.
Disclaimer: The information provided is for informational purposes only and should not be considered financial or investment advice. Stock market investments are subject to market risks. Always conduct your own research or consult a financial advisor before making investment decisions.
