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

Ladies and gentlemen, good day, and welcome to the Multi Commodity Exchange of India Limited Q1 FY '27 Earnings Conference Call. Joining us on the call are Ms. Praveena Rai, Managing Director and CEO; Mr. Manoj Jain, Executive Director, Regulatory, Compliance, Risk Management and Investor Grievances; Mr. Sanjay Rajpal, Executive Director, Critical Operations; Mr. Chandresh Shah, Chief Financial Officer; Mr. Praveen DG, Chief Risk Officer; Mr. Shivanshu Mehta, Head of Department, Bullion and Interim Charge of CBO Portfolio. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Praveena Rai, MD and CEO, MCX. Thank you, and over to you, ma'am.

Good evening, everybody. A warm welcome to all our shareholders, investors, analysts, and other stakeholders to this earnings conference call for the first quarter of FY '27. We are pleased to begin FY '27 with another quarter of strong operational and financial performance, reinforcing the structural growth in India's commodity derivatives market and the resilience of our business model. Q1 followed an exceptionally strong fourth quarter of FY '26. There has been a consolidation performance in Q1. Performance continues to reflect healthy year-on-year growth across all key financial parameters. I'll summarize a few. So, during the quarter, our total income increased 85% to INR 752 crores and revenue from operations grew to INR 702 crores, which is an 88% growth. EBITDA doubled to INR 544 crores, and there is a good EBITDA margin of 72% with a PAT at INR 413 crores. This demonstrates the scalability of our business model and continued focus on efficiency. Underlying to this is strong fundamentals. The quarter witnessed very strong growth across the Average Daily Turnover, the ADT. This grew to INR 10.5 lakh crores. This is a growth of 47% year-on-year and it's also a growth over last quarter. The Notional Options ADT has also grown by 266%. So, this reflects increased market depth, deeper liquidity and wider adoption of commodity derivatives by market participants. Client participation is encouraging. Our traded client base doubled from previous year to 13.72 lakh clients this quarter. This really highlights the increasing acceptance of commodity derivatives as an effective tool for both hedging as well as investments. Beyond financial performance, we continue to strengthen our product portfolio. We've had a whopper of a contract. We've had a very successful launch of the Silver 100gm Futures contract. This was a demand from the market given the price of silver in a quick response to market demand. The product was launched and has already seen a very good performance, which we will talk about subsequently. This has become a more accessible hedging as well as investment product for the participants. MCX price is another piece I would like to highlight towards the end of last quarter, we had a regulatory directive by which exchange discovered price was to be used by the AMCs for AUM calculations. We have worked very closely with the industry and have a number of AMCs, at least 50-plus AMCs, who are today using MCX bullion price as a reference for AUM calculations. A big action as far as the last quarter goes is really expansion of Good Delivery Norms. In line with a lot of policy narratives around the country on bullion, we've included silver and also empaneled the country's first domestic silver refiner. These norms align with best-in-class global standards at par with all global norms that have so far been followed in the country. Three more domestic gold refiners have also been empaneled, and the Good Delivery framework has also been extended across all contracts. So, these initiatives support the broader vision of promoting domestic refining and contributing to India's self-reliance in precious metals. It has been a step that has been much welcomed by the industry as well. Another industry milestone is we are at a very early stage of work on our coal exchange. On approval from the regulator, we have incorporated the MCX Coal Exchange of India and other procedural items are in play towards the next steps on this. This will create a transparent, efficient technology-driven national coal trading ecosystem aligned with the government's market reforms as well as our long-term strategy of expanding into new commodity segments. On the global state, MCX continues to strengthen its leadership position as per FY 2025, statics, MCX is the world's largest Commodity Options Exchange and fourth largest Commodity Derivatives Exchange by a number of contracts traded. This reflects confidence exposed to our markets by participants and reinforces commitment to innovation, market development and operational excellence. So, looking forward, our focus remains on expanding participation, expanding our product suite, deepening liquidity across contracts, enhancing technology and market infrastructure, creating sustainable long-term value to all shareholders. With this, I would also like to highlight a very, very strong focus for MCX on risk management. I think I have been asked this on a few discussions, where in volatile environments and the purpose of MCX being to operate as a platform of hedging, the action that has our top focus is risk management and being able to react quickly to signals from across the world over the course of the last one year has helped us to hold a very strong risk management posture and permit all the new participation products, innovation enhancements, et cetera, to actually play out. With this, I would like to thank our regulators, members, participants dear investors, all our hard-working dedicated employees and all stakeholders for their continued trust and support with us. Thank you, and we are open to questions. Our leadership team is available here.

[Operator Instructions] The first question comes from the line of Amit Chandra with HDFC Securities.

My first question is on the recent RBI regulation regarding the bank guarantee. So, it's been a month. How do we see the impact of that on our volumes? And also, is it fair to say that the impact of this bank guarantee will be more gradual and it has not come maybe in the month of July. As more and more bank guarantees come for renewal, the volume related to the profit trading will actually decline. Secondly, ma'am, if I see the mix of the volume, it is now getting more tilted towards the crude and natural gas contracts. Obviously, the volatility there is much higher. But if I see the gold and silver contracts, there has been a substantial more than 100% rise in the notional volume, and it is continuing to rise, but there has been a fall in the premiums, which is leading to a fall in the premium numbers for gold and silver. So, what is creating this shift? And how we see the rise in the gold and silver volumes in the mix?

Thank you, Amit. Very, very valid question. The first one is on everybody's mind for sure. The regulation from RBI that was meant to come into effect in April had a 90-day sort of time period for this to get absorbed by the industry is now in force. I don't want to comment because this is really more of a Q2 action than a Q1 action. Having said that, we are not expecting this to have a very significant detrimental impact. We'll have to wait and watch what the actual impact of this turns out to be. It will have an implication on the cost of funds of some part of the flows associated with our members. We expect that to be optimal in nature as industry finds its own sort of mechanism to deal with it. Are we seeing anything significantly detrimental at this stage? I would say not really. The second point is the rise in ADT, yes. We are very happy to see the growth in ADT from about INR 3 lakh crores in Q1 last year to about INR 6.6 lakh crores in Q4. We have seen INR 10.5 lakh crores of ADT, which demonstrates highly engaged participation across the contracts. Yes, there is a normalization of the premium ratio. And this is as expected because as we look at volatility trends globally, there will be a normalization of the way premium will play out.

Okay. And ma'am, the second question is on the product pipeline. Obviously, in the previous calls, you have mentioned about you're working upon a big pipeline of products, especially on the metal side and on the index side. So, if you can get an update, what's the status there in terms of, where we are in terms of launching the newer metal contracts because that is the gap that we see in the options portfolio.

So, when it comes to metal contracts, I think we do see a lot of headroom. As you know, a lot of activity has happened on the way we've rationalized warehouses, simplified the contracts over time, and we have seen the impact of that, especially in the copper portfolio, the numbers that are playing out, and this will continue to be a strong focus area to build just in the contract.

Next question comes from the line of Devesh Agarwal with IIFL Capital.

Ma'am my first question is on the traded UCC. After two strong quarters, this quarter, we have seen a decline in the numbers. One, I wanted to understand what has led to this decline? And secondly, what according to you is the lead indicator in terms of addition of new traded UCCs? Is it the stronger prices or higher volatility, which can drive the new UCCs.

So we've had growth in UCCs quarter-on-quarter over the last few quarters. This is the impact of new members as well as expanded interest by participants in the commodity markets. We see a tad change this quarter, but I would say it's like more or less at par with the last quarter. Last quarter, of course, was high given the fact that it was a highly volatile quarter with sort of a lot of interest and a lot of opportunity that people would have seen. So I think we see this as sort of a UCC-wise flat quarter where some of the participants would have come in and are not probably participating this quarter. But the underlying strength of new members and new participants is a trendline that we still see as positive.

And any number, ma'am, that you have in your mind possibly that you can reach in a year's time?

I don't want to put a number here, yes. Last year, we closed at 20 lakh at a full year number. And we do expect to have higher numbers this year. And the headroom for growth continues to be substantial.

Next question comes from the line of Supratim with Jefferies.

Going back to regulation and the impact, thanks a lot for the color that you have provided. But if you could give us some sense around what proportion of the trades might be backed by bank guarantees currently or in last quarter, that would be helpful. So that's one. And secondly, there has been a lot of discussion around FPI participation and SEBI looking and looking at the FPI participation being extended to contracts beyond energy. So any update regarding that or any color regarding how you see that play out, that would be very helpful.

Sorry, can you repeat the second question, please?

Yes. So on the FPI participation, so there have been articles recently suggesting that SEBI and the commodity derivative Action committee is looking at expanding FPI participation to noncash contracts as well. So just wanted to understand that any color around that, how do you see that play out? And what kind of impact if that's allowed, could take place on MCX? That would be very helpful.

Yes. So if your first question on trying to put a number on the impacted quantum of bank guarantees, if I understood your number right. So that's not something that we have, right? Because at any point in time, it's oriented towards the quantum of a particular member, and members also use multiple instruments. This varies every day based on margin calls. And so it's not a number we are able to put our handle on. But in our conversations, et cetera, with the market is sort of the perspective that I had given earlier on. Yes. FPI is something that we'll, of course, wait for. We are keen, no doubt about it. We are awaiting sort of progress on this count. This has been in the media. I think we'll stay with what's available in public domain as the sort of details on this get worked through.

Next question comes from the line of Adarsh Singh with ASK Private Wealth.

My question would be that if you see energy and particularly crude and natural gas, that contributes a large part of our overall revenue. But let's say, going forward, when the volatility reduces, let's say, a year forward, of course, the contribution from them would start lowering if you see, let's say two, three years forward, new energy sources would come, the contribution from particularly natural gas and crude would come down. So what are our new products, let's say, for example, index options that you were trying to scale? I mean what is the traction there to counter the impact of crude and natural gas?

I wouldn't link these two, Adarsh. I think your question, if I were to just take it at one level and say what is the sort of approach to manage multiple products in the portfolio, right? I think we've seen in the recent days that country is going to continue to be reliant on crude and gas, as we also work towards policy initiatives on self-reliance, gasification through coal, various other measures that are in play. As you know, we've launched the power contract, electricity contract, which has picked up pretty well. We are looking at more participation from the power players starting to make inroads, including with the DISCOMs, good open interest buildup. So a lot of the lead indicators on that look positive. The coal initiative we spoke about, it's not a derivatives initiative at this point. It's a coal exchange. But having this foundation is very important as we move forward. So really covering the whole energy basket is sort of the fundamental idea in that space. Your question on indices. I think Indices is a place that we will continue to be working on. The BULLDEX that was launched last year, I think there's a rework on the product that is in play, both on the Futures and Options. So I think we are expecting that to give a good bump up on Indices. And Indices is something that is a primary focus both across the bullion metal and the overall commodity space as well. So there are a few plans that are currently in pipeline. Over the next few months, they will hit the market, which we will be able to announce from time to time.

Next question comes from the line of Niranjan Kumar from Avendus Spark.

I have two questions. One on the SGF contribution. So on a Q-o-Q basis in this quarter, the decline was lower than the decline in revenue or transaction income. So is it broadly because of the market-based activity or because of the change in the calculation methodology by SEBI in March? That's first question. Maybe second question, the employee cost, the growth which you have seen in this quarter, is it largely driven by increments or by the employee count addition? Like is this a sustainable number going ahead? Those are the two broad questions.

Niranjan, this is Chandresh. So on your first question about SGF. So yes, SGF is a function of a lot of parameters and SEBI has prescribed the methodology based on which calculations are done every month actually. And the contribution, again, depends on the assessment of whether we have to infuse more in the fund based on this calculation and how much we want to have some safety net buffer headroom above the calculation that comes as per SEBI methodology. So depending on that, the analysis is done and the contribution is done. So that's the reason maybe you can see some variation in the SGF number. And in terms of employee cost, it's a mix of both addition of new employees plus increments and also a bit of maybe a slightly higher variable pay in our subsidiary, which has come up in this year. So I think otherwise, the expenses are in line with what we have seen and what we expect to be there in the future.

Got it, maybe any broad color like how much of the increase might be attributed to employee count or the bonus or the payout variable payout? That's it from my side.

So I think see, we keep hiring people. There is a onetime of around 8% to 9% included in this, which will not be there in the coming quarters.

Next question comes from the line of Shrenik Mehta with Indo Alps Wealth.

So my question is about the Bullion Options Notional ADT, which rose almost 16% sequentially, while the Bullion Options Premium ADT fell 27%. So this is taking the premium to notional from 1.03% to 0.35%. Now since the transaction revenue is a function of a premium and not notional, can you decompose this 68% yield compression say across four buckets: mechanical notional inflation from higher gold and silver prices levels, one; number two, implied volatility normalization post Q4 spike; number three, participation mix shift towards further OTM and shorter-dated strikes, and the contract mix from Silver 100 to the Gold 10 and the Gold X. What is the contribution of each? And which of these do you think are structural rather than the cyclical ones? Just want to understand the future idea a little better with this feedback.

Yes. So I think I'll just take your first part, and then I'll request Praveen to come in. So when it comes to price related, right? So let's move from ADT, which is Average Daily Throughput to Average Daily Volume, which eliminates the price component. So we are looking at, for example, in gold, something like ADB Average Daily Volume in options of about 300 metric tons, which is a 100% increase over last quarter. Similarly, we are looking at in silver, about 9,400 metric tons, which is again approximately 2% or more increase over last quarter. So volume-wise, it's healthy. There is that sort of price impact kicking in. Volatility is certainly a determining factor. Praveen, if you want to just comment on that?

So just like MD has said, it is like predominantly, it is a market factor because you can really could see that from a heightened volatility, it is now more has lowered the volatility has come down significantly in both gold as well as in silver. So that way, that is what actually contributed to this decline in the premium ratio.

Contract mix is not where we are seeing the big participation-wise.

Participation-wise, like if you can look at even the premiums of both gold and silver, both are almost at the same level. So that way, it is not significantly contributing to this one. In fact, the participation also, we can say that there is no major impact. The participation remained stable compared to the last quarter. So that way, I don't see that there's any shift in the participation or because of the change in the contract mix. Those are not the contributors.

I'll just come in, Shivanshu here. So while you correctly noted that the notional turnover has increased. And as we clarified, so has the volume and volume since it's irrespective of price, it is ideally a lead indicator or an actual indicator of participation, and actually, Options is starting to see more and more usage for the design purpose for which it's created, the environment which we saw. Now even if you look at the open interest, which is another such parameter, even on that count, there is an increase. If you see the silver all variant option AOI as well as the gold all variant AOI in options, which is about 17.3 tonnes, marginally higher than 16.9. In the case of silver, 583 tonnes as opposed to 522 tonnes in the previous quarter.

Despite our volume remaining quite similar, you still see a decline in the premium, right? So that is because of the volatility you're seeing.

Yes. That's right. That keeps changing from time to time actually, depending on what the market factors. But the products which we create are actually permanent in nature, and they are indicating more participation. So premium coming and growing is a function of various market conditions actually.

Next question comes from the line of Abhijit with Kotak Securities.

I had one question on technology cost, if you could give some color on where we are in terms of adequacy towards maintaining the right amount of capacity given what we saw in the previous quarter in terms of growth in volumes. And internally, we kind of have a benchmark in terms of where we put the capacity number against the volumes that we see in the recent period.

So I think we, as stated in all our earlier discussions, we continue to invest in the technology space. And when I say invest, I think it is invest smartly and invest efficiently. So it is our, of course, after risk and compliance are very top priority. At this stage, we are working towards a high degree of scale being available. In fact, just in the last one year, we have very successfully handled transactions. We would have started the year at less than 1 billion. And when I say a year, I'm talking of maybe four quarters back, a billion transactions a day, and we've already handled more than 3 billion transactions a day with the capacity to handle more than double that. So capacity-wise, very well positioned as we speak in terms of the growth that is coming our way, but we continue to look to drive resiliency, looking at driving scale. We've, of course, got Sanjay Rajpal, our new Executive Director for Critical Operations and Technology, who's joined us and making sure that this technology platform readiness for scale and resilience in an efficient cost-managed manner is a top priority for us.

Next question comes from the line of Parikshit Gupta with Fair Value Capital.

I have a few questions on the electricity futures and with some context from the electricity performance report that you have published for FY '26. So the first question, what was the Q1 traded volumes for electricity futures? And in terms of the overall market share, where do we tentatively stand with the Q1 numbers?

So electricity futures Q1 ADT is about INR 37 crores. We stand at, I think, about 55% or so from a market share standpoint when it comes to ADT. However, what we've done over the course of the year is really look at studying our market needs very carefully. And we have a strong reinforcement that our contract is very much aligned to market needs. This is reflected in liquidity that is across more than three months, so month one, two and three with open interest where we have nearly 1,630 lots of contracts of open interest, which is more than 70% in the market share, which really is a reflection of the actual utilization for the market from an electricity futures standpoint.

Okay. This is helpful. The second question from the same report that you published, it has mentioned that in India, the traded volumes are at around 70 bps of the total deliverable supply. While in the Europe, China or America, all of these are a healthy multiple of the deliverable volumes. So in the next three years, how much do we anticipate this ratio to evolve to? And just as a follow-up to this. In the same report, you've also mentioned that around 40% of this participation or this trading is through algorithmic trading. However, it does not save these algo traders are hedges or speculators. Do we have any insights into this? And going forward, which category do we expect to offer a higher growth rate?

Parikshit, which report are you referring to?

The electricity performance report, which is on the MCX website.