Multi Commodity Exchange of India Limited (MCX) Earnings Call Transcript & Summary

Welcome to the call. This is Rowena here from MCX, and I have with me Mr. Satyajeet Bolar, who's our CFO. And we also have Mr. DG Praveen, who is our Head of Investor Relations. I'll request all of you to please introduce yourself, and [indiscernible], I hand this over to you.

Yes, sure, sure, sure. So I'll be starting with introduction with our company. Hi, good afternoon, everyone, and a very warm welcome to the call. We appreciate you taking out the time on this call. My name is Sukinda and from ULJK Financial Services, and would like to begin by introducing our company. ULJK is an 119-year-old organization, and we were established as an equity broking platform. Our promoters who are the co-founders of BSE. Currently, the business is in its fourth generation. We continue our equity broking business, providing research on its listed companies to MS, [ FII Bank ] and insurance companies. So I would like to take this ahead with the management of MCX to go ahead and they can give a little bit more briefing about the company, that would really be grateful.

Okay. Thank you. So if you know about the company, directly we can go to the questions and answers, say one time. Or still you want a brief introduction, we can just can speak for 5 minutes. But if you have some questions directly, I think -- any other questions with respect to each of those questions, we can elaborate and that will be the introduction for that.

No problem. So I would be request you if you can just give us a little bit information, a little bit brief about the company a little bit. So that would be an introduction about the company. So that would be really grateful.

Okay. So like already in my investor call, we have said like I will focus on some of the recent updates and major developments that happened at the exchange. So we happened with our first listed company, stock exchange -- listed stock exchange that happened in all way back. And currently, it is like -- with the peak margin reporting coming into the picture. And our auctions started gaining really in a big way. We have seen very good volumes getting weakness in the multiple contracts, both especially in the crude oil, natural gas and also we are having very decent options volume in gold contracts. Besides auction, so we are also looking for some of the supplementary features, we are getting added to our existing price contract like in case of our metal contract. In case of lead we have come out with, in parallel of the brands, local brands. So under that one already 2 local refineries have been [indiscernible]. So those brands also can get delivered on the MCX trading platform. So prior to that kind of [indiscernible], we also have in balance some of the gold refinances. So now besides LBMA-approved brands, the local brands also can get delivered on the MCX in our gold mini contracts. So by doing that one, the advantage that we would like to get is we wanted to make many domestic refiners who otherwise are not eligible directly to offload the goods now can be able to use that one, that way it is like we are adding more suppliers to the contract, who can use our platform as a hedging as well as the delivery-based -- delivery platform also. That means in case if they are not able to offshore anywhere their produce for any reason or their marketing strategies such that they would like to look for an efficient item, then definitely, they can look at MCX and they can make use of MCX trading platforms. So that is on the future set. Apart from the one, we are also looking for some new products to be launched, such as [ electricity ], the aluminum alloy, steel TMT. So several products are in the pipeline. That means some are waiting for regulatory approval and some, we are also working on it, as and when we get the necessary approvals, we will go and we will be launching those contracts. So primarily now a lot of focus also -- we have started giving an option. Significantly, we started leaving the transaction fee auctions contracts effective from October last year. So that way it is like whatever is getting translated the volumes are getting translated into auctions, that also is bringing revenue to the company. So that is very significant. I think despite we started leaving the transaction fee, there is no [indiscernible] that we have witnessed in the auctions contract rather we have seen continuous focus, continuous growth in options contract. So with that one, I will leave. Then I think we will answer more during our question-and-answer portion. Yes, please feel free to answer your questions.

So whoever while would like have their questions can please go ahead. Mr. Hajek Shah and Mr. [ Mudita ]. Do you like to have any questions from your side?

Could you introduce yourselves please?

Yes. I'm [indiscernible] from U.S. Financial Service.

Please go ahead with your question.

So you moved this traction on [indiscernible] basis on auction contracts, but the future contracts on similar terms hasn't grown at that level comparatively. So where we see this ADT, I mean, is it that many participants are transferring themselves into the offshore contracts from futures? Or is it completely new participants who are entering the auction segments? How is the cutoff breakup you could get an idea about this entire scenario.

See, what we could see is slightly there has been a drop in the participation in terms of greater clients in futures. But at the same time, there is a significant growth that happened in that trends who participated in the options. Overall, if you look at it, that is overall growth that has been happened in terms of project participants in futures and offshores put together. So that be the way, we can put it is that -- there are new as well as the old clients who are now trading in the options contract. Similarly, there are some new [indiscernible] is also trading in the futures. But overall, there has been a slight [ devalue ]. I'll give you the numbers so that it will give you a better picture. Like take the Q1 of '22 to '23. In futures, 1,00,061 clients have traded compared to 2,11,000 in the corresponding quarter last year, okay? Coming to the options number. We have 1,19,000 against 32,600. So that is what we have witnessed in this quarter versus the corresponding quarter in case of option contract. If you look at overall futures and options, then in this current like Q1 of this year, we're around 2,00,038 total clients have traded in options compared to 2,00,023 clients who have traded in the corresponding quarter last year. That means there has been a growth, overall growth that we have witnessed overall in the market and especially the growth, whatever we have seen is significantly being contributed with the options.

Okay. Sir, are some of our products still not monetized yet? If there are -- which products are those, if you could give a brief.

We are now start -- we already charging almost every product. We are not giving any product of -- no transaction fee given in the unique product because even means that we're getting charged now and options are also charged. That way is like there is no product where we are giving it freely.

Okay. And sir, about the commodities, all commodities cooling off. How do we see this trend impacting us in any way? Commodity prices coming back to normal levels. Is there a correlation in any relationship?

See, generally, what happens is it is the volatility that plays a bigger role compared to the price factor because even if the prices are falling, and if there is volatility, we still would be able to witness a lot of volumes. For example, there are times when there is a very sudden dip of prices happens. And during those years, also, you see a lot of volume because volatility is reaching at a high level and people come that to really want it because significant volume comes from algo-trade, okay? And besides that one, it is like. So there are multiple category of participants are trading in this one. But for the everyone, it is the volatility is the king. The volatility plays a bigger role that besides the volumes of the exchange. There can be -- for a short duration, there can be some impact that can happen on the account of price, but the main factor that we all have to look at it is the volatility factor. The volatility factor also decide which segment is small liquid, whether it is bullion segment, or metals or energy. So where ever the volatility is, where volumes grow, that is the reason if you see the distribution, volume distribution on the exchange. It will keep shifting. It won't be in one basket, like last year, it could be bullion. Maybe the previous to previous year, it may be in metals. So depending upon the volatility, that keeps shifting. So basically, there are many people who are common to all the products, and there are people who are specific to certain commodities. Because the physical marketplace, they are specific, they are more focused on a particular commodity basket. But there are people who are operating across the commodity cycle. So those people are generally will be more interested in the volatility of the wherever, whichever quarter is -- the quarter is more volatile, they look at it. But at the same time, the [ futures ] market participants who also require price risk protection. So those people also will start more aggressively during the times of volatility. So that is why the volatility plays a bigger role.

Okay. So even if a sudden drop in prices, commodity prices could aid us in getting volumes? Is that what -- is that what it means?

Yes. if you level it out over a period of time, the increase of price drop will be lesser as compared to the volatility because the volatility plays -- because even if the prices are low and if you have volatility. Still, you will get the volumes.

Okay. Okay. Understood. And sir, any update on monthly options from 1 kg gold bars and electricity contracts? Which was there in the previous...

Gold monthly options, we will be sure we'll be coming out with that one as we are working on the launch plan and all those things. Soon we'll be coming out with that one. So that can be, I think, maybe this quarter, we should see that one maybe in the coming quarter. At any time we would be coming out with that monthly contract. Monthly contracts mean only in the old [indiscernible] contract, one depending upon acceptance and other things. We will also look at monthly contracts and other bimonthly contracts, also like silver today, all the silver contracts are bimonthly contracts. So once we can able to people also understand about this monthly concept, short duration contracts. We definitely will look at introducing this one in other bimonthly contract. And also, we are keen to come out with some option contract indices because METLDEX cannot be performing now because of nickel perform -- nickel there has been a sudden debate to happen at LME and that had an impact on nickel. Because of that on the METLDEX is not performing now, but now there is a rebalancing that will happen in the month of January next year. If nickel is not continue to not perform well, then definitely it will get replaced. So we expect that once that kind of replacement and again, we can able to bring the volumes back in that METLDEX, we'll be coming out with some option contracts in METLDEX. But having said that, definitely, we are very keen to go ahead and come out with the option contracts in BULLDEX, which is continue to do well. So that there we will be doing that one. So that is on option side in business. To your last question on electricity. The electricity is, like we said, we already applied to the regulator. We are just waiting for the regulatory approval. As and when we get it, we are really keen to go ahead and launch the Electricity Fund act, which is for that way. So it's more about -- here it is -- we are awaiting the regulatory approval rather than our preparedness.

Okay. Sir, and in the agri commodity front, do we see -- do we have a target market share which we could in FY '23, FY '24 onwards?

I think from the beginning, our focus was more on agriculture commodities and the contribution that is being made by the agricultural commodities is very limited. It was -- always very less than 5%. I think today, it's -- I think right around 2% to 3%. But you know the challenge is because agriculture commodities also are very sensitive commodities. And we will always will be have to face multiple hurdles in the form of maybe the government policies and also this one because last year, we were doing very good in crude palm oil. Suddenly one day does happen that the commodities have to be suspended. So we have to suspend the Crude Palm Oil contract which otherwise was doing very good. Similarly, in case of cotton, we had to come out with various surplus by limiting ourselves in terms of daily pricing it, reducing the open interest that we will have items of situation days of cotton. So because these commodities are very price sensitive, it is always very difficult that we can -- very difficult to see that irrespective of whatever amount of focus you make it, if some major policy or something comes, which can go against these commodities. So several factors determine the performance of agriculture commodities. We're being very price sensitive.

Okay. Okay. Sir, on gold options, I had a question where now similar gold options have been launched by BSE and NSE. So if this trend continuous, how do we see ourselves competing and maintaining our market share on similar funds? Will it be cost-effectiveness in transactional charges? Or how would be the strategy?

We are not worried about the competition because you would be knowing that they have been -- their option contracts have been supported by the liquidity enhancement scheme, okay, from the beginning. But we -- today, we don't have any liquidity enhancement scheme that is supporting our contracts. So we are doing, and in fact, whatever we could be able to gone on a liquidity in our contract, the generally liquid and it is coming from the market participants directly. So we are not -- the markets is because we should not compare between one supported by liquidity enhancement mixing, other not supported by the liquidity enhancement scheme. So those we are not really will not take it into consideration because ultimately, whatever happens for hedges, that means for the people who are the option writers, they require an underlying -- that means the required a counter contract or a product to hedge themselves. So for that, definitely, again, they have to look at the futures. So it is only platform like if you look at our MCX, we had both futures and options, both are liquid. So a genuine person like whoever wanted to trade are, especially the option writers. This is a perfect trading platform wherein we can be able to find out a platform on both the legs so that they been able to hedge themselves perfectly, and they can able to offer writing the option contracts. So that is one major advantage. So we are focused on our own -- we are popularizing our options contract, especially, like I said, reducing the duration and all those things. By doing that one, we can be able to reduce the cost of trading for the market participants. Otherwise, current transaction fees are well good enough. They are -- with that kind of transaction fees, we don't see that it will have an impact on our trading volumes. So and it has been very recently being introduced this transaction fee. So we are not going to look at it at the conjecture.

More questions? Mr. [ Harish ], any questions from your side?

I just wanted an update on the electricity side, we -- on the non-standing contract in there? What is the [indiscernible]?

Like we said earlier, it is like we are awaiting the regulatory approval in terms of electricity. As and when we get the approvals necessary approvals, we are ready to go and launch the product.

No. I think we're all set. So thank you for the management of MCX for giving us this opportunity in this call. And thank you, on behalf of ULJK Group, we conclude this conference. And thank you all for joining.

Thank you. Thank you very much. Thank you for your time.

Thank you. Thank you so much, sir.