MCX — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day, and welcome to the Multi Commodity Exchange of India Limited

Thank you very much.

We will now begin the question and answer session.

First question is from the line of Devesh Agarwal from lIFL Capital.

Devesh Agarwal

Firstly, congratulations on a good set of numbers on an overall year basis.

I think the growth has been phenomenal.

My question pertains to the cost increase that we have seen in this quarter.

So we see that there has been a sharp increase in the operating costs, especially in the employee cost and software support charges.

So can you highlight what has led to such sharp increase in these 2 line items?

And are there any one-offs in this?

Praveena Rai

Thank you, Devesh.

I think it's an important question.

When we look at our cost line items, both employee and IT cost is where we've seen an increase this quarter over last quarter.

So if I look at the employee expenses, there is an element here, which pertains to performance payouts.

We've had a good year, and we're expecting that to get reflected in those numbers.

So if I were to look at the employee expenses, I would cut it at about 75%-25% in terms of the delta with 75% going into a one-time incremental expense associated with performance and 25% is really the readiness from a capacity building standpoint as we go into next year with all our growth plans in place.

If you look at the IT costs, here, we do have a bit of a timing concentration in some of our warranty and sort of annual contract renewals.

So there is a 30% sitting here in the delta amount, so INR30 crores minus INR20 crores, INR30 crores is the number for this quarter versus INR20 crores of last quarter.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Amit Chandra from HDFC Securities.

Amit Chandra

My first question is in terms of the product launches.

So in the last call also, we have indicated that we are in track to launch the index options and the weekly expiry options.

So where actually we are in terms of the journey in terms of launching, if you can give some time lines or some clarity on that?

And also if you can throw some light on -- in terms of the launch of the electricity futures contract and what could be the incremental volume opportunity that you see from this contract?

Praveena Rai

So yes, Amit, thank you for that, and thanks for joining.

So yes, our new products road map is very much in place.

As you know, there is a lot of homework that is required along with various approvals Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Astha Jain from Pkeday Advisors.

Multi Commodity Exchange of India Limited

The next question is from the line of Chintan Sheth from Girik Capital.

Chintan Sheth

Sorry to have again on the product launch.

We have recently from the media learned that SEBI has announced the in-principle approval to NSE for electricity futures.

So just trying to understand how - - what's our strategy even if we get the approval, say, during this year, that's the expectation, then how should we look at the volumes coming through our platform?

And what will be our strategy given the NSE is already got the principle approval …is already there?

Praveena Rai

So I would say that we are working very closely on the matter.

And it is not in our understanding that there is any approval from the regulator to anybody.

And I think I've sort of addressed the broader opportunity space that is there and the fact that we are -- as a commodity exchange, this is not a small business for us.

It's not something that we are trying to enter into.

As a commodity exchange highly focused on the energy sector, power is a very natural part of that portfolio.

And we are highly engaged to make this a good success, and we are very positive about it.

Chintan Sheth

Right.

And coming to the weekly expiry of index’s, we believe we were trying to understand, create the future volume initially to drive this success.

Where are we in terms of improving our indices, strengthening the volumes over there, which can drive business for us?

So if you can -- what are we doing actually over there to try to manage, to try to manage that?

Before launching the weekly contracts on the indices?

Rishi Nathany

Chintan, to answer your question, let us understand the structure of index products.

Normally options on various other products are options on futures.

In indices, there is index futures and there will be options on the index itself.

So it is not an option on the index futures.

It will be the options on index.

Therefore, there is hardly any correlation per se between the index futures and the options which will come on the indices.

So these will be cash settled products, which will be based on the index itself.

Chintan Sheth

And where are we in terms of launching and testing those products out?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Lavanya from UBS.

Lavanya

Just wanted to check a bit on new products.

When you say indices, what are all indices that we are looking at?

Is it bullion?

Or can you just elaborate what are all indices that we are looking at?

And also any effort that we are putting in specifically improving the base metal contracts, which used to be a very good contribution at one point of time?

Rishi Nathany

So we have 2 base metal -- sorry, index contracts running right now.

One is the BULLDEX, which is the Bullion Index and one is the base Metal Index called the METLDEX.

So these are the 2 contracts which we have and which we are looking to enhance further through bringing options on them.

In terms of growth in base metals in the year which we have ended, we've seen almost a doubling of volumes in the base metal contracts as well.

And we are working hard to ensure that those contracts also achieve the necessary traction.

However, when you say compare with the past, earlier, these contracts long back were cash settled.

Now they are deliverable with India pricing and India price discovery.

Hence, that time line to -- for the market to adjust to an India pricing and the contracts to again gain traction is going on.

And we believe that as we go ahead, these contracts will again get more and more volumes and participation.

Lavanya

Got it.

Got it.

And one more question.

Would you be able to get split of participation in terms of maybe retail hedgers or foreign participants, how the trend is now?

Any sense on that?

Rishi Nathany

So as far as you're talking about base metals or you're talking about the entire piece.

Lavanya

No, broadly, broadly.

Rishi Nathany

So broadly, all the numbers are already there on the website.

You can just have a look.

We publish those numbers on a regular basis.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Harsh Shah from HSBC Asset Management.

Harsh Shah

Firstly, just one data keeping question.

Can you just help us with the futures revenue and options revenue for this quarter?

Chandresh Shah

Yes.

So Harsh, option revenue was INR 179 crores.

Harsh, this is Chandresh, CFO.

Harsh Shah

Yes, yes.

Chandresh Shah

The option revenue for this quarter is INR 179 crores and futures revenue is INR 75 crores.

Harsh Shah

Okay.

Second question is barring the one-time impact or even the time concentration, if you look at from a full year basis, tech cost was somewhere around INR 93 crores.

Employee cost for the full year was around INR 144 crores.

But from a directional perspective, again, barring quarter-to-quarter movement, can we assume that for FY26, tech cost will be around INR 90 crores, let's say, INR- 100 crores, INR 110 crores and employee cost will be between INR 150 crores to INR 160 crores or directionally also this is not going to be the case?

Chandresh Shah

Yes.

I think, Harsh, this number -- the numbers would be around these levels.

Harsh Shah

Okay.

Just last question from my end is with respect to this capacity building, by any chance, are we building capacities to manage the TCS software better?

Basically, what I'm trying to understand, and please correct me if I'm wrong, is by any chance regulator is still a little bit of skeptical about the software that we are running.

We are still stress testing it for which you want to build capacities, both on hardware, software and personnel?

And also, is this the reason why there is some sort of hindrance with respect to new product launches?

Again, please feel free to clarify if I'm mistaken anyway.

Just wanted to understand why there's cost escalation and why we are not able to launch a new product and where is regulatory in all this?

Praveena Rai

So your comment on not being able to launch a product is a little surprising.

How did you arrive at that conclusion?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Shalini Gupta from East India Securities.

Shalini Gupta

No, my question has been answered.

I was asking for the transaction fees, which I think you said options is INR 179 crores, futures is INR 75 crores.

I correct?

Yes.

Yes.

So my question has been answered.

Moderator · Conference Operator

The next question is from the line of Arpit from IGE.

Arpit

I wanted to ask a question over the FPI contribution from the FPI participation out of total volume of transaction charges we have got in the quarter.

Praveen DG

Yes, it is roughly around INR 16,500 crores in options, and it is about INR 600 crores in futures.

So you can say about 7% of the total turnover.

Moderator · Conference Operator

The next question is from the line of Ashish Kumar from Ampersand.

Ashish Kumar

I have 2 questions.

First is with respect to this settlement guarantee fund.

So the contribution towards that during the quarter was around INR 18 crores, which was similar to last quarter, but it was significantly up on Y-o-Y basis.

So I wanted some sense on how we should look at it for this coming year?

And the second question is on new products other than electricity futures and whatever we have discussed, any other new products that are in the pipeline for FY26?

Praveena Rai

Yes.

So SGF is the settlement guarantee fund.

So it will be an outcome of the kind of volumes we have and of course, volatility in the market.

So I will say that at a high-level calculation, you can keep the ratio.

You can assume a sort of similar ratio to continue.

Now when it comes to new products, yes, we do have a number of new products in pipeline.

Sorry, without sort of getting it to a certain point, we are unable to talk about it further.

And priority -- top priority for us is the products that we are ready with that -- where we are waiting for the go-to-market green light.

That will be our first focus.

As soon as we get those over the line, there will be other things to play.

Having said that, we also have in the silver category, we are planning to launch the monthly options.

So while our options, we launched the 1 kg options in the month of November, which is doing phenomenally well.

We launched on the 1st of April, the 10-gram gold, which is also very popular with retail.

So we are looking at launching in silver, micro options, the 30 kg, 5 kg and the 1 kg.

So these are all in play.

And these would also be in the shorter time frame.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Aravind R from Sundaram Alternate.

Aravind R

So basically, I wanted to understand like we observe in the equity markets, FII participation is much higher.

I understand the nature of like our commodity options are different.

But the introduction of like index options, and basically the cash settled contracts.

And like what other things can be done to increase the FII participation like index contracts, can it bring like a bigger step change in like FII participation?

And what other things can help in a more and more FII participation manner?

Rishi Nathany

So the norms for FPI participation came in the second half of '22, and we started participation early in '23.

So it's been more or less 2 years.

And in those 2 years, you've seen the kind of participation we have.

Now we also have to bear in mind that FPIs are only allowed to trade in crude oil and natural gas.

So as and when more and more products come under the ambit and more and more FPIs come into the market, we will see more participation increasing.

So this is early days yet.

We are seeing more and more FPIs onboard onto the exchange.

So we believe that as we go forward, we will see more healthy participation from FPIs.

Aravind R

Sure, sure.

And like do you think like something like co-location, which happens in equity exchanges can help here also?

Like I'm not sure like if it is available with MCX, but do you think that the thing can happen, like co-location facilities can happen and that can increase not just FPIs, but also other institutional investors and more and more participation there?

Rishi Nathany

Well, it remains to be seen.

We cannot talk about something which is not there.

As and when it comes within the regulatory approvals, then we will look it up and we can discuss it.

Moderator · Conference Operator

The next question is from the line of Aditya Bhatia from Electrom Capital.

Aditya Bhatia

So basically, I think my questions have been answered, but could you give us a mix between what your FPI and DII hedges, etc., what the mix really looks like right now?

Chandresh Shah

Sorry?

FPI and DII mix.

Aditya Bhatia

On your hedges, yes.

Praveena Rai

So to be honest, our DII portfolio is fairly limited at this point, primarily because there are a number of restrictions in -- for mutual funds and so on to participate in commodity derivatives.

But there are some changes to that, that we are working with the industry to understand the needs of the industry and really how we need to incorporate this in the multi-asset portfolios in a more dominant way.

So that would be an action that we're working on.

Aditya Bhatia

Sure, sure.

And is there any push towards more green finance contracts like ESG-linked carbon trading, etc., that has been spoken about?

Praveena Rai

Carbon trading has 2 parts.

One is the compliance part and the other is voluntary.

So I think both of these operate in a very different way in the Indian context, and India tends to be more of a global seller than a buyer.

So work is in progress at the broader government policy level when it comes to looking Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Sanket from Avendus Spark.

Sanket

Ma'am, this is a bit of on regulation.

The regulator came out with a consultation paper of segregating clearing corporations from the exchanges.

I know it's not a final regulation, but I just want to understand, suppose it gets implemented, then clearing corporation, I just want to understand how much they earn from the settlement fees, what you pay them and maybe the float income, what clearing corporation earns.

So just to understand if the segregation happens, what likely impact could be there on our top line and bottom line in that sense?

Praveena Rai

Yes.

I think from whatever is available in public, it is quite clear that as it stands, this implication is there for the equity exchanges.

So at this stage, the Commodity Clearing Corporation has a lot more complexity involved and handles warehouses and deliveries and so on and so forth.

So we are not really expecting this any time now.

Sanket

Okay.

Got it, ma'am.

And the second question, ma'am, is that how do we foresee this settlement guarantee -- core settlement guarantee fund cost?

So if we do the numbers for the full year, it comes to around 7 percentage of the total transaction income what you have earned.

So is it fair to say that going ahead, given our volumes are increasing, our open interest goes up, then this cost -- 7 percentage of the transaction income kind of will be a recurring cost going ahead?

Chandresh Shah

So Sanket, this is Chandresh.

See, this 7% includes 1 - 1% of contribution to ISF and IPF, which is mandated as per SEBI regulation.

And the SGF contribution is something which we look at the requirements, and we keep adding to that because that helps us in different ways to maybe manage the margins for the members, which helps in increasing the volumes.

Sanket

Okay.

But is it fair to say that 5% of the cost, given the volumes are inching up will remain -- it's a good problem to have, but just wanted to understand that is the way it will work.

Chandresh Shah

Mostly, yes.

Sanket

Okay.

Got it, sir.

And one more thing, ma'am.

See, our gold contribution is going up, and you alluded to the point that gold invariably will have a lower premium realization compared to a crude or a silver.

So is it fair to say that if gold contribution picks up in our ADTO in options, then your premium to notional will see a gradual decline or a premium realization to the notional turnover will see a gradual decline as gold contribution picks up?

Praveen DG

No. If you purely look at the statistics-wise calculation mathematically, it depends upon whatever the product that is contributing to the maximum market share, that will be the influencing factor.

But as long as the volumes are going across the products, I think that is going to be good for the market and good for the exchange.

Sanket

Sir, the reason why I asked this question, sir, is that we see a bit of kind of a cannibalization when the gold is picking up, we see crude is taking -- not showing so much of growth what we saw in the past.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Deepak Ajmera from IGE.

Deepak Ajmera

Just one quick clarification because I attended NSE con call also and management clearly said that they have in principle approval to start the futures on the energy.

And you clarified that none of the exchange has that approval.

So if you can again clarify that point.

And second point -- second is the feedback.

Normally con call have diamond pass registration.

In your case, we have to wait for operator to get in, so you can enable that facility?

Rishi Nathany

Yes.

So your point taken about the second part, we look into it.

I mean the first part, we've already our MD and CEO has already clarified.

So I don't think there's anything else to clarify on that.

I mean, whatever they have said, they have said in their own wisdom.

We have clarified according to what we know.

Moderator · Conference Operator

Shall we move on to the next question?

Rishi Nathany

Yes, please.

Moderator · Conference Operator

It's from the line of Devesh Agarwal from IIFL Capital.

Devesh Agarwal

Just a couple of clarification questions.

The FPI share that you mentioned or the volumes that you mentioned, INR 600 crores in futures and INR 16,500 crores in option.

Is this an annual average or more of a fourth quarter average?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question is from the line of Lavanya from UBS.

Lavanya

On the index options.

So currently, we have index futures, which are not seeing much traction.

So how do you see this differently when options are provided and any approach that in terms of participation that we are currently already working on?

Like how do you see index futures different from options?

Praveen DG

Both are independent to each other because unlike other products, index options or index futures we can be -- are considered to be independent because they are going to be settled based on underlying index, okay?

So they can operate differently the way it wanted to operate, how the product is going to be designed.

Lavanya

Yes.

But why not so much traction there is index futures, any sense there or any efforts from our side to enhance index future options -- future volume?

Rishi Nathany

So Lavanya, we are working on index futures and other products as we work on all products.

It is for the market to take up which products they like.

Of course, we put in all our efforts.

Having said that, Praveen has already clarified that normally all the products we have in options are based on futures, but these products are based on the index itself, so they are discrete from each other.

Moderator · Conference Operator

Ladies and gentlemen, that was the last question for today's conference call.

I would now like to hand the conference over to Ms. Praveena Rai for closing comments.

Praveena Rai

Thank you so much for your time.

It's been a wonderful discussion.

Very intriguing questions.

It helps us also to explore and see what we need to do next.

Your interest in MCX keeps us inspired, honestly, and I look forward to staying connected.

We expect to have a good year ahead, and we'll stay in touch.

Moderator · Conference Operator

Thank you.

On behalf of Multi Commodity Exchange of India Limited, that concludes this conference.

Thank you for joining us, and you may now disconnect your lines.

Thank you.