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 Multi Commodity Exchange of India

Thank you.

The next question is from the line of Prayesh Jain from MOSL.

Please go ahead.

Prayesh Jain

Hi, thanks for the opportunity.

I just extended that question on the previous question.

So, if you look at your employee cost, previous quarter in the different -- previous quarter we had highlighted that there were some extraordinary or some one-off bonus provisions that had happened.

Now this quarter, again, we have seen a similar run rate.

Do we expect the run rate to continue?

Or now just an additional point out there, whether the variable pay for this year will be apportioned over the 4 quarters?

Or how is it kind of accounted, so how should we think about the employee cost?

Praveena Rai

Yes.

So, there is an apportionment.

So, to that extent, the numbers hold that portion.

Having said that, I think the numbers reflect a certain level of growth in people as well as annual performance, increment numbers and so on, which have already been accounted for as well as the apportionment.

Prayesh Jain

So, this quarter run rate should sustain for the rest of the year?

Praveena Rai

Yes.

Prayesh Jain

Yes.

Okay.

Got it.

Secondly, on the business front.

Anything on the base metals, delivery centres, sorting out or anything on co-location that you can share with us?

Praveena Rai

So, in terms of metals, I think there's been a lot of consultation activity with our stakeholders.

There will be some announcements on optimization that we will be making soon.

On co-location, as you know, this is completely in regulatory remit, so nothing much for us to say there.

Prayesh Jain

Why is MCX not allowed versus, say, exchanges, other equity exchanges on for co- location?

Praveena Rai

Yes, could you repeat yourself, please?

Prayesh Jain

I'm saying what's the rationale for SEBI to not give us co-location services versus co- location services being provided by equity exchanges.

Praveena Rai

I don't know Prayesh, it's a difficult question to answer here.

So, we'll have to leave that with regulatory remit now.

Prayesh Jain

Okay, thank you.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Amit Chandra

Yes, thanks for the opportunity.

So, my first question is on the uptick that we have seen on the bullion options.

So, post the launch, it has now become 46% of the notional turnover.

But in terms of premium, it is only 18%.

So, I understand we have like lower premium notional here.

But how do you see this thing evolving in terms of the contribution for going higher in terms of premium as well?

And also, how do you see this in terms of the cannibalization that we can have here to the futures volume as well because futures, there is a significantly large contribution from bullion as well.

So, this is the first question?

Rishi Nathany

Yes.

So, Amit, point being is that premiums are a function of volatility, and that is why you are seeing a lower premium to notional in bullion as compared to energy products.

Having said that, there is no cannibalization of futures due to increase in options if you observe.

The futures volumes have also increased while options volumes have increased.

So, I think it is the trend, shows that both futures and options grow at the same time and have that potential.

Amit Chandra

Okay.

And sir, in the continuation to this, what kind of tweaks are required in terms of the existing products for both gold and silver in terms of margins and in terms of specification so that we get more retail participation?

And how the participation has changed in terms of the newer product that has been launched after the monthly expiry?

Is it more retail heavy, or we are seeing a mix of both -- the similar mix that we had for other products in options?

Rishi Nathany

So, we have made certain tweaks.

The bimonthly options contracts have been made monthly, and we have seen a healthy participation there after also.

If you compare the retail participation from the Q4, it has increased in terms of percentage in Q1 FY '25- 26.

So, from 51.79%, it has increased to 52.37%.

So, retail participation has also increased.

The gold 10-gram contract has brought in a lot of retail interests.

I believe we do whatever is necessary to look at all types of participants, whether retail or otherwise.

Amit Chandra

Okay.

And the second question is on the costing aspect.

So obviously, we have seen some higher costs.

But how do you see the tech cost going ahead from here on?

What kind of investments we require more on a longer-term perspective in terms of the existing tech cost or we think that we are mostly invested in terms of the technology, which is going to drive for the next 2 years?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Vikram Raghavan from Moon Capital.

Please go ahead.

Vikram Raghavan

Hello team.

Congratulations on your best ever performance.

I have two questions.

One is, what will be the effective tax rate going forward?

The second question is on the other operating income that has stayed flat over the years.

I wanted to ask why it is not increasing as a function of volume as it largely comprises income from margin money.

Chandresh Shah

Yes.

So, Vikram, effective tax rate for MCX is around 20.72%.

The reason being that our subsidiary, MCXCCL, whatever contribution to SGF they make is tax deductible expense, though it is not debited to P&L.

So that's why they don't have tax provision and that is bringing the effective tax rate down.

Praveena Rai

There was a question on margin, right?

Could you just repeat that question?

Vikram Raghavan

Other operating income.

So that has stayed flat over the years.

That is a function of margin money, which is a function of volume.

So why is it not increasing in line with the volumes?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Lavanya Tottala

Hi.

Thank you for this opportunity and congratulations on a great set of numbers.

So just on the new products and the recent products.

So maybe if you can explain us or help us understand how we are working on the recent products or development specifically maybe electricity derivatives and the next new products which are in line for the launch.

That's question number one.

Second, I just wanted clarity on the cost.

So specifically, one is depreciation.

So, it has been fluctuating in the last 3 quarters.

So where do we see those stable levels here?

Praveena Rai

Yes, Lavanya, so I think on the product side, we spoke about the launches we've had, both in bullion as well as electricity, cardamom.

So, electricity contract was launched in June, and the cardamom contract in July, of course, just a few days back.

We are also looking at quite a healthy pipeline of products.

So, these were things that we've been -- we worked on few months back and slowly as these approvals keep coming in and we are able to then bring them to market with a certain timeline.

We, of course, have to time the market so that we can't do multiple things at the same time, and we will have a calendar of launches playing out.

I expect that this will be across categories.

So, we have plans in the metal complex as well as in the agri side as we speak now and bullion also.

I think your other question was on cost stability.

It's something that -- sorry.

Chandresh Shah

Depreciation cost.

Praveena Rai

Depreciation cost.

Yes, you want to take that.

Chandresh Shah

Yes.

So, Lavanya, depreciation depends on the tech investment that we do.

And till the time there is fresh investment happening or assets are fully depreciated, this number is bound to change every period.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Chintan Sheth

Hi, this is Chintan from Girik Capital.

One question was on SGF contribution.

If I see the previous quarter number and full year number, that got revised upward by meaningfully from INR63-odd crores for the full year '25, now in the Q1 audited really hit INR79 crores if I'm not mistaken.

So, I'm trying to understand the reason for further revision to -- okay, it's clubbed with the regulatory fees, is it sir?

Chandresh Shah

Yes, that's right.

Chintan Sheth

Okay.

So INR63 crores plus whatever it is, is the regulatory fee, which has been clubbed.

Got it.

Second question is on the other operating income.

Like somebody was asking about it earlier that it has been flat relative to the volumes we have seen.

So, if you can run us through what … what drives that other operating income one more time, it would be great.

And the last question was on the breakup of the transaction revenue, if you can provide for the quarter, futures plus options?

Chandresh Shah

Yes.

Chintan, the breakup of transaction charges between futures and options is INR109 crores from futures and INR227 crores from options.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Jytotirmoy Jhena, an individual investor.

Please go ahead.

Jytotirmoy Jhena

Yes.

Hi, good afternoon.

Congrats on the great quarter.

I just had a couple of questions.

Have you seen any volumes trail off because of this ban on Jane Street by SEBI?

And are there any plans to introduce much longer-term products so that primary consumers can participate, for example, 2-year, 3-year, 5-year contracts on…

Rishi Nathany

Thanks, Jyotirmoy.

So, we keep working on various contracts and whether they are longer term depends on the market acceptance as well.

So, we do work on various maturities.

And for example, in gold 10 grams, if you see there was liquidity within the fourth month when we launched.

So, we are also very happy to see liquidity across months.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Sanket Godha

Yes, thank you for the opportunity.

Sir, can you break down that INR26.8 crores exactly into SGF contribution and the other regulatory costs?

So just to want to figure out whether it is 6 or 7 percentage of the total transaction income.

That's point number one.

And the second question, just wanted to understand your view, sir, that premium to notional, especially if you see in the month of July has come off meaningfully.

Just from your understanding point of view, given the volumes are increasing in MCX, whether the retail participation going up, that leading to more people trading in out-of- the-money contracts and leading to structurally lower premium to notional number.

Is it a fair assessment to make so that the growth in the notional might not translate probably in the same proportion to the premium growth.

Any color if you can give how the out-of-money contracts are trading to understand that trend, sir?

Chandresh Shah

Yes.

So Sanketh, see that broadly I can tell you what all is included in this expense line of INR26.81 crores.

So, it is contribution to IPF and ISF, which is 1%, 1% each of TC.

It is a provision for contribution to SGF and the regulatory fees that we pay to SEBI.

The exact breakup, I don't have it handy, but broadly, you can assume it is around -- it's around INR4 crores.

Sanket Godha

So INR4 crores is...

Chandresh Shah

Regulatory...

Sanket Godha

Other regulatory expenses and rest is your SGF cost, that's the way I need to understand, right?

Chandresh Shah

Yes.

Rishi Nathany

To answer your second question regarding premium to notional, premium to notional is a result of various factors.

It's just not trading out of the money.

It's also about the volatility in the market.

If you observe the beginning of the first quarter, there was Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Sanil Desai from ICICI Securities.

Please go ahead.

Sanil Desai

Yes, good evening, ma'am.

Congratulations on a good set of numbers.

So, my first question is more of a clarification just on the newly launched electricity futures.

So, are this being charged on the same transaction fee as we charge on other futures or is there any wave off which we are offered right now?

Praveena Rai

Same.

Sanil Desai

So, we are charging the same.

Okay.

And secondly, like we pay the product license fee to LME, is it a similar kind of arrangement with IEX, which we have here, like same percentage or anything different over here?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Sorry to interrupt, sir, but I may request you to rejoin the question queue for follow-up questions.

Sanil Desai

Sure.

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Chintan Seth

Yes.

Thank you for the follow-up.

Just wanted to understand how do you look at electricity futures in the broader scheme of things?

We are launching new products and everything.

But we have been waiting for this for quite some time.

So, we are kind of excited if you can just what our internal...

Rishi Nathany

Your voice is muffled.

We cannot understand you clearly, please.

Chintan Seth

Yes.

So, my question was on the electricity futures.

We have been trying to get the approval for quite some time.

And now we have got it, what internally we are thinking to scale this up?

And how should you -- what will be the benchmarks or goals or targets you are setting yourself for to scale this up in the future?

Praveena Rai

Yes.

So, I think we are also very excited, Chintan, about this contract because it's a completely new product space, and it's a very large market when it comes to India.

There is also very stable spot exchange mechanism that exists.

So, on the back of all that, I think we have launched the contract.

We've seen a good pickup in the early days.

In fact, the first month is August.

The first month of the contract is August.

So, the month now has opened, even though we launched in July to sort of warm the contract up.

So, from the 1st of July, the sort of mechanisms really start playing out.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Shalini Gupta

Good evening.

I wanted to ask like, whole market volumes seem to have shot up.

What is the reason?

Rishi Nathany

So Shalini, we have been growing consistently over the years.

It's not that it has shot up suddenly.

And it is a factor of increasing awareness, increasing participation, and that is translating into higher volumes.

So, the business is growing, and commodities are taking their place in the sun, so as to say.

So, I think that is also the reason why people are preferring commodities as a viable asset class, and more investor interest is there in commodities.

Shalini Gupta

So, you are expecting this to continue...

Praveena Rai

I will also add that one is, of course, the macro aspects of what's happening, but I think there's also been a lot of very focused efforts and initiatives taken to create more energetic engagement, interaction, spreading the knowledge of why commodity Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Sorry to interrupt, ma'am, but I may request you to rejoin the question queue.

Shalini Gupta

Yes, yes.

All right.

Thank you.

Moderator · Conference Operator

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

Please go ahead.

Aditya Bhatia

Hi, just a bookkeeping question.

What is the average realization for the current quarter?

And number 2, on a more macro level, with the regulators increasing scrutiny in the derivatives market, are you seeing any near to mid-term regulatory or compliance headwinds?

Rishi Nathany

So, in terms of average realization, now you will understand that it is true to label.

So, there is no average realization.

What we announced, there's a fixed fee for everyone, and that is the realization.

So, there is no variability in the realization.

And in terms of commodity markets, we are very small compared to the equity markets, and we continue to grow, and we see continued interest in people to participate here.

See, commodities markets have a varied participants.

So, you have a lot of hedgers, real users, exporters, importers, physical market participants primary producers and Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Aditya Yadav from Transcend Capital.

Please go ahead.

Aditya Yadav

Yes, hi, good evening.

My question was an extension to previous participant's question.

I understand you've discussed there have been multiple initiatives which have been taken in terms of awareness, distribution, etcetera, which had led to increase in revenue.

But still this quarter gone by, this April to June quarter had a step jump in revenue.

I mean -- so I just wanted to probe a bit further on that, and you could give your sense why it has suddenly taken off in the last quarter?

Praveena Rai

Yes.

So, I don't think it's suddenly taken off.

I think quarter-on-quarter, the last few quarters have been each step, right?

So, I think that's probably the way to look at it.

So, if you look at every month, every month has had its -- there are some great months and good -- there are some good months.

But overall, quarter-on-quarter, we've seen that broader macro trend of growth is driven by macro parameters as well as all the actions around increasing both products as well as participants.

Global actions around bullion, etcetera, have helped the bullion space.

This has also coincided with the launch of the monthly options that we've had on gold and silver, the 10-gram launch.

So, I think all those moving parts have come together, and that's how that sort of synergistic result is something that we are able to see today.

Aditya Yadav

Okay.

All right.

Thank you.

That's all from my side.

Moderator · Conference Operator

Thank you.

The next question is from the line of Prakishit Gupta from Fair Value Capital.

Please go ahead.

Prakishit Gupta

Thank you very much for the opportunity and congratulations on a great set of results.

Most of my questions have been answered.

So just one question on the electricity futures, please.

While you have already mentioned that the transaction fee charged is the same as other future contracts.

However, would you be able to quantify in terms of either volume or maybe value of the business that you expect from this contract, maybe for this entire financial year?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, this will be the last question for today.

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

Please go ahead.

Lavanya Tottala

Hi.

Thank you for the opportunity again.

So just wanted to understand one thing, clarification.

So, ma'am, you mentioned that the participation in electricity derivatives, 50% is coming from the corporates.

So, the rest is coming from capital market participants or have you see DISCOMs using this for hedging or I mean, increasing participation from DISCOMs one can expect over a period of time.

Anything on that?

Praveena Rai

See, 50% plus is coming from clients.

Of that, I think we really wouldn't be able to say whether it's coming from what kind of participant, DISCOM and so on.

But I think we do expect the public sector to take more time to come on Board.

The early participation will come from private sector generators, and we are actively engaged with all of them.

There is a lot of activity around solar generation and private distribution and so on and so forth.

So, we have the open interest of 700 lots.

Lavanya Tottala

Okay.

Maybe participation in terms of other contracts, how do you see like in terms of hedging and all?

I mean, specifically gold, are we seeing higher share of hedgers in other contracts coming in, specifically gold?

Anything there?

Praveen DG

Can you repeat again, Lavanya?

You are not clear.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to Ms. Praveena Rai, MD and CEO, MCX, for closing comments.

Praveena Rai

Yes.

Thank you very much to everyone who participated, and very high quality of questions.

I hope we were able to address all of them.

Thank you for your time and participation.

Look forward to staying connected.

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.

Questions and answers

Moderator · Conference Operator

Thank you very much.

The first question is from the line of Devesh Agarwal from IIFL Capital.

Please go ahead.

Devesh Agarwal

Good afternoon, everyone, and thank you for the opportunity.

Firstly, congratulations on a very great set of numbers to the entire team.

The two questions, ma'am, that I have.

First is basically, there was a delay in commencement of trading on one of the days.

So just wanted to understand what exactly the issue was in terms of why the delay.

And secondly, has there been any regulatory steps being taken up by SEBI in this particular instance?

And are we expecting any penalty from SEBI for this?

Praveena Rai

Yes.

So, it's a very important question to address.

And as mentioned, we continue to be highly focused on our technology excellence.

On the day, as mentioned, there was a database anomaly, which led to this delay in overnight clearing system processes, Multi Commodity Exchange of India Limited