Why MCX Share Price is Falling

Shares of largest commodity futures exchange in India, Multi Commodity Exchange (MCX), experienced a sharp decline, hitting the lower circuit on Friday, 30 June 2022.

This comes despite the benchmark indices hitting an all-time high on Friday.

While the benchmark Nifty 50 gained 1.1%, MCX shares tumbled by over 12%, with an intraday decline of 14.06%. This marked the most significant drop since 23 March 2020.

Investors were taken aback by this sudden fall, especially considering that MCX shares had delivered a solid return of 27% before the fall.

As shares of the commodity futures exchange have hit a roadblock, let's find out why this has happened and what lies ahead.

Tech woes weigh

The decline in share price was triggered by a further delay in the delivery of trading software by Tata Consultancy Services (TCS), leading MCX to continue using its current vendor, 63 Moons Technologies.

This extension of the contract will require MCX to pay an additional Rs 2.5 bn to 63 Moons for six months, negatively impacting the company's profits.

The delay in transitioning to the new trading platform suggests that MCX is facing challenges in its technological upgrade, which could further harm its business.

Originally, MCX hired TCS in September 2021 to develop and implement software for securities trading and market infrastructure. The plan was for the new software to replace the existing one before MCX's contract with 63 Moons ended in September 2022.

However, according to a recent filing by 63 Moons, MCX approached them for the third time to extend the software support service agreement after their long-term agreement expired on 30 September 2022.

It is important to note that MCX had already selected a new technology service provider in February 2021.

The new platform developed by TCS underwent testing for several hours, and MCX expected the transition to be completed by the end of June 2023. However, MCX cancelled the scheduled mock trading session last week, indicating further delays.

MCX's financial performance in the March 2023 quarter was subdued primarily due to higher expenses related to software. The revenue for the March 2023 quarter came in higher by 25.6% at Rs 13.3 bn, while the net profit for the quarter declined 85.1% to Rs 54 m.

During that period, the company paid Rs 810 m to 63 Moons for software charges.

The ongoing delay in the technology shift at MCX, with the timeline shifting from December 2022 to June 2023, has resulted in an additional cost of Rs 1.8 billion over three quarters for the extension with 63 Moons.

During a recent conference call, MCX reported conducting several mock tests, with a significant portion (96-97%) of the test cases successfully cleared. Additionally, 170-180 unique members participated in the mock tests.

The contract with TCS is for six years, with annual maintenance costs beginning from the second year and amounting to approximately Rs 80-100 million per year.

Long term outlook

Despite the recent challenges, MCX is well positioned for future growth. The company has a strong market position and a loyal customer base, making it one of the best monopoly stocks in India.

Additionally, the commodity markets are projected to experience growth in the coming years, which presents new opportunities for MCX to expand its operations.

Another factor that could drive future growth is the success of its new trading platform. Moreover, the transition to the new platform is anticipated to bring changes in the cost structure.

Analysts predict that the incremental revenue generated from the platform's adoption will contribute to MCX's operating profits and lead to margin expansion.

This expansion is projected to be driven by lower technology costs and the growth of options volume, which will bring non-linearity to MCX's financial performance.

How shares of MCX have performed recently

Over the past month, the stock has gained 2%. While over the year it is trading higher by 16.6%.

MCX has a 52-week high quote of Rs 1,697.1 touched on 20 December 2022. While, it has touched a 52-week low of Rs 1,156 earlier 28 September 2022.

Currently, it is trading at the PE (price to earnings) multiple of 58.9.

About MCX

Multi Commodity Exchange (MCX) is largest commodity futures exchange in India. It is owned by Ministry of Finance, Government of India.

It has a market share of over 95% in commodity futures.

It has a monopoly position in bullion metals, base metals, and crude oil trading in India.

MCX facilitates the online trading of commodity derivative transactions.

Mutual funds increased their stake by a substantial 1%.

For more details, see the Multi Commodity company fact sheet and quarterly results. For a sector overview, read our finance sector report.

You can also compare MCX with its peers on our website:

MCX vs ICICI Securities

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