MCX — earnings call

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Prepared remarks

Moderator · Conference Operator

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

Our first question comes from the line of Shrenik Mehta from IndoAlps Wealth.

Shrenik Mehta

I just wanted to check regarding the statement that you made about a large part of this growth being structural.

And what are the factors that you're seeing, which is helping you to say that… We see clearly bullions really driving most of the volumes and the bullion volatility is also driving a lot of this picture.

If you could throw some light, it will be fantastic.

Praveena Rai

Yes.

So, our two big drivers of volume are energy and bullion.

We've seen growth across both of these.

While of course, bullion has had a much higher growth, and we are very happy about that.

It has grown more than 4 times, the energy growth has also been good and strong over a very high base.

So, this really makes both of them strong constituents for MCX.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Our next question comes from the line of Devesh Agarwal from IIFL Capital.

Devesh Agarwal

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

Ma'am, my first question would be there was a consultation paper, which talked about allowing FPIs into gold and silver contracts.

So one, if there is any update you can give us?

And secondly, what is the contribution that we have from FPIs in the energy products, that is, crude oil and natural gas?

Praveena Rai

Thank you very much for the wishes.

So having FPIs to participate broadly in the commodity space going beyond the cash-settled segment is certainly critical on the agenda.

It's something that there has been a fair amount of debate and consultation.

As you know, there's also the consultation paper that is out there.

We are also contributing strongly in it.

So, we will, of course, wait for the results of this paper to come out.

And then we will take it forward from there.

Now the FPI contribution, as you know, is primarily in the energy segment because it's the cash-settled segment.

Our onboarding of FPIs has been strong.

The pipeline is also strong.

The contribution currently stands at about 2% to 3% of ADT.

And within the Energy segment, they are a significant contributor.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Your next question comes from the line of Amit Chandra from HDFC Securities.

Amit Chandra

My first question is on the increase in the UCC that we have seen.

So, for the full year, it's up by 64% and very heartening to see this.

But obviously, it is because of onboarding of some of the discount brokers, non-discount brokers.

So, is it fair to assume that the increase in the UCC is in the base or we can see furthermore participation in terms of more retail clients coming and trading on to the commodities because in terms of number of people trading, we are at 35% of what it is there in equities.

So… and what is driving such a steep expansion in terms of the people who are trading on the commodities?

Is it only the volatility or you see some active participation across -- or it is more like broad-based?

Praveena Rai

So, Amit, we would want to see a sort of democratic increase in participation without being overly aggressive in any one space.

I think I'm quite happy with where we stand on the retail side.

We don't believe that everyone who is an equity investor will end up becoming a commodity investor.

So, we are seeing the numbers ramp up steadily and evenly and we will continue to retain our efforts in that growth.

A lot of actions that have been taken that we have worked with the market as well, as you said, with digital members, digital brokers, looking at things like the consolidated ledger, looking at user experience of MCX trading vis-a-vis the equity markets.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Your next question comes from the line of Mitesh from Axis Capital.

Mitesh

Most of the questions have been answered.

Just on the participation side, how have been the trends in the participation in the month of April and May so far?

Praveena Rai

Mitesh, I don't think we are commenting on this quarter.

I think we'll have to take your question in the next call.

But there's no dramatic cause for concern.

Moderator · Conference Operator

Your next question comes from Akhilesh Bhatter from Ampersand.

Akhilesh Bhatter

Congratulations on a good set of results.

I had 2 questions.

So first one was regarding your competitor launching multiple bullion products and energy products in the last quarter and -- maybe from last year onwards.

So, what are we doing to sort of protect market share here?

Praveena Rai

So Akhilesh, yes, we are watching the space very closely.

It is a large competitor.

And yes, they have made their intention felt in the market with a lot of focus that they are placing on commodity segment.

From whatever we see, our bullion numbers remain untouched when it comes to market share over the last 2 years.

Some recent activity on changing expiry dates and so on, in the energy segment is leading to some kind of shallow, 1-day-in-a-month activity.

So, I think it's also quite misaligned with the sort of global structuring on which our contracts are based and that is required for the integrity of the contract.

So, at this stage, I think we don't want to be reacting and making any moves, which are not cognizant with the way commodity products should operate.

Being highly focused on the space, we understand the structuring of these products and what the market needs.

So, we will stay focused on continuing to drive participation in the existing portfolio and looking at what the market needs by way of new products.

So, creating that awareness, bringing in new participants, creating more hedgers, all of those core actions are in play.

And I think they're keeping us in good stead.

Akhilesh Bhatter

One more question regarding RBI launching new lending norms for prop traders.

So, I just wanted to understand if you have done any sort of analysis on the sort of volumes that will be hit or maybe what sort of volumes are coming in from small prop traders versus big prop traders, if we have any numbers around that?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Your next question comes from the line of Makarand Bhosekar from Proinvest Nirmiti.

Makarand Bhosekar

Am I audible?

Praveena Rai

Yes.

Makarand Bhosekar

Congratulations on good set of numbers.

As we see a very good sequential growth in numbers of top line, I was expecting a kind of better expansion in margins, but somehow the product license fees and other expenses line items grew faster than the revenue.

So, we could not see the expected margin expansion.

So, can you tell me if there is any one-off in these line items or we can expect these as a normal base?

Praveena Rai

Makarand, we are in growth phase, and we are looking at actions to keep the market very, very relevant and to look at how we really develop the commodity markets to meet the requirements of the industry as well as the country, as we have to mature and have more sophisticated offerings available across the board.

And we have to keep our technology expense, our expense on our investments on people.

All of these elements have to be built out, continue to be built out, to be ready to execute the plans that we have.

So, if you are asking whether our focus is going to be on margins in the coming months, our focus will be on efficiency.

Our focus will be on ensuring that whatever we do, is done in a manner that is most efficient on cost and smart.

But the focus is not going to be on spending less.

We have to continue to spend smart and do the right thing to be prepared for the future.

Makarand Bhosekar

Okay.

So, there was no one-off item, right?

Praveena Rai

No.

Makarand Bhosekar

Okay, thank you.

My next question is, as you said in the first -- answering the first question, that you are expecting the momentum to be continued.

But when we look at the April Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Your next question comes from Lavanya from UBS.

Lavanya

Congratulations on good set of numbers.

Most of my questions are answered.

Just wanted to check on some of the cost line items.

Software support charges, I mean, it has been quite stable compared to the jump which we have seen last year in Q4. And second is on the SGF spend.

So, this time, we have taken a much higher contribution to SGF.

So, how should one see this trend going ahead?

Chandresh Shah

Lavanya, this is Chandresh.

So, the SGF spend is more to keep our reserve fund in a healthy position.

So that it helps us in taking some decisions and mitigate risk.

So, we always maintain the SGF at a healthy level, and we'll continue to do that.

And it is in line with what we see the business going up and how it is growing.

And also, SGF is a requirement of SEBI, and it is computed based on the formula and calculation methodology given by SEBI.

And I think the other question you already answered that it is very much in line, software support.

Lavanya

Okay.

Software support charges should be stable and incremental from here and most likely, we should see no jump in Q4. Is that something one should build in?

Chandresh Shah

So yes, like ma'am explained in the previous caller's response, so we are into growth phase, and we will keep investing in the business as and when what is required.

The only thing is that it will be done very efficiently.

So, when the business requirement is there, expenses will be incurred.

Moderator · Conference Operator

Your next question comes from Vedant Agarwal from IIFL.

Vedant Agarwal

First of all, congrats on a great set of numbers.

So, I wanted to understand 2 book-keeping numbers.

So, what has been the interest income on margin money for 4Q FY '26 and for the whole year FY '26?

And I also wanted to again touch upon other expenses like we have seen Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Your next question comes from the line of Bharat Shah from BCS Capital Ideas Limited.

Bharat Shah

Hearty congratulations for very distinguished and defining results.

I had 2 questions.

The first one, in this very -- what prima facie appears to be a win-all kind of scenario where volumes are rising rapidly.

We have increased number of market intermediaries.

We have increased number of clients through those intermediaries?

And our product engine is working well.

And all of this is resulting into dramatic growth rates across our product lines and the businesses.

In such a very positive scenario, what can go wrong if something has to go wrong?

And what can actually unravel or disturb the kind of great velocity that the engine has acquired?

Praveena Rai

So, I think it's a fantastic question.

And we, of course, track all risks at every stage.

Certainly, operating risk is number 1.

And I think we've spoken in the past at length that, while the market offers opportunities, the ability to operate and deliver to that opportunity is really not something one takes for granted.

So, whether it is the platform, whether it is our surveillance, whether it is our risk management, the operations of CCL when it comes to margins and collateral, each and every element of this gets challenged when there is a high degree of uncertainty in the market.

So, this is a risk we are very cognizant of.

I would say we spend most of our time on, in addition to all the other levers that you spoke about.

I would think this is a hidden lever to add to that list.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Sorry, to interrupt.

Bharat Shah

No, I'm just finishing my first question.

Please allow me to complete.

Is there anything in the realm of recognition that you are concerned about or worried about?

Chandresh Shah

No, we are not worried about anything specific.

Bharat Shah

Okay.

My second and last question is.

Moderator · Conference Operator

Sorry to interrupt.

Mr. Shah, may we request you to keep the questions brief.

As I believe there are questions -- this is not the first question.

Bharat Shah

This was the first question in the context of which I raised the question.

If you can allow me to complete it, it will be faster.

Moderator · Conference Operator

Sir, may we request you to join the queue for any follow up questions.

Your next question comes from the line of Bhavya Sanghvi from Alchemy Capital.

Bhavya Sanghvi

Congratulations on a great set of numbers.

Most of my questions have been answered.

Just one book-keeping question.

Can you give me the transaction charges for the quarter and split it up between options and futures?

Chandresh Shah

So Bhavya, futures revenue for Q4 is INR242 crores and options revenue is INR569 crores.

Moderator · Conference Operator

Your next question comes from the line of Subramania, an Individual Investor.

Subramania

Congrats on a great set of numbers.

My questions have been previously answered.

Moderator · Conference Operator

Your next question comes from the line of Dharmil Shah from Dalmus Capital Management.

Dharmil Shah

Firstly, congratulations on the great results.

My first question would be on the similar lines like previous participants have inquired about, on the competition.

So, like Bharat sir mentioned that equity Exchanges are getting into, not just the largest one, but I mean the other one has also shown some interest, in getting into the commodity side.

So, just wanted to check, I mean, what are the key factors or drivers that would change retailer mindset to Multi Commodity Exchange of India Limited

Moderator · Conference Operator

Our next question comes from the line of Madhukar from JPMorgan.

Madhukar

I have just one question.

On SGF, how comfortable are we with the SGF position right now?

And what is our sort of continuing policy in terms of what percentage of transaction charges are we contributing?

Have we put out that number definitively sort of?

Yes.

That's my question?

Rishi Nathany

Yes.

So, on SGF right now, we are in a comfortable position.

We have a very good cushion on SGF.

Chandresh Shah

And Madhukar, we have not put out any percentage or anything of transaction charges for SGF.

Madhukar

Got it.

So, is there sort of a number in terms of what volume option premium or futures that we would be comfortable with and beyond which we would require?

I know some simplistic measure to just know that?

Rishi Nathany

So, Madhukar, it's just not a function of numbers.

It's also a function of volatility and the margin levels.

So, it's a combination of everything.

So as volatility would increase or volumes would increase simultaneously and OI would increase, then only with the SGF requirement increase.

So, it's very difficult to predict all the moving parts altogether.

Having said that, we are in a very comfortable position regarding SGF.

And as and when we have the requirement, we'll plan for it.

Moderator · Conference Operator

May we request you to return to the queue for any follow-up questions, please.

The next question comes from the line of Madhu Gupta from Quantum AMC.

Madhu Gupta

Congratulations for a good set of numbers.

I just have 2 questions.

First is, what is the revenue that you've earned from the electricity derivative contract and the transaction charge, which started in FY '26, the trading of electricity derivatives.

That's the first question.

The second question is you recently won the license to set up a Coal Exchange.

What is the road map Multi Commodity Exchange of India Limited

Moderator · Conference Operator

The next question comes from the line of Deepak Ajmera from IGE India.

Deepak Ajmera

Congratulations on a good set of numbers and excellent leadership.

My question is on electricity derivative.

Ideally, the potential for this market is significant.

And what sort of initiative, whether it is Ministry, Exchange regulator or anything to develop this market that - - on that you are working, if you can highlight, that will be helpful?

Praveena Rai

Yes.

Thank you, Deepak.

I think we are very excited about the electricity contract, right, from launch to date, it has been growing month-on-month in its participation and presence in the market.

We do work with the regulators, both the SEBI and CERC, but more importantly, a lot of work with the state regulators because a lot of policy really comes from the state.

Converting a few DISCOMs is a very important part of the plan.

It takes more time, but I think we are at a point where some of that is going to come in as well.

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

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

Amit Chandra

I have like 2 follow-up questions.

The first is on the competition.

You have answered about that in detail.

But, just to understand better, is it the interoperability of the clearing corporations, which is not there between equities and commodities?

Is that the main reason why we are not seeing the shift of the liquidity from one Exchange to another?

And what's your view on the regulator allowing interoperability maybe at a later stage?

And secondly, on the impact of the RBI regulation.

So, the -- if you see the clearing corporation funding from FDs and the bank guarantees, the total margin money that the clearing corporation have, MCX has the highest in terms of 55% to 60% of the total funding of the clearing corporation is through BGs versus 35% for the industry.

So, is it a higher risk for us in terms of the impact that we see from RBI?

Rishi Nathany

So, to answer your question on BGs and FDs, frankly, for FDs it wouldn't impact as it is fully funded.

In terms of BGs, I think your numbers are wrong.

BGs contribute a much lower percentage than FDs.

So, while there may be an impact, but the numbers may not impact as much as you are saying.

Amit Chandra

So, I'm talking about FDs and BGs combined.

We don't have the quantification.

Rishi Nathany

Yes.

So, you see the large portion -- the largest portion of that is FDs.

So, I don't think that would get affected to that extent.

Secondly, on your interoperability question.

Liquidity does not just go away due to interoperability and what it is.

Matter of liquidity we get liquidity.

We have sticky liquidity.

We have the industry participating.

We have everyone, all the ingredients, which helped and also, you have to understand secondly that, interoperability is only possible when there is a 100% similar product.

For example, in equity, the ISI Number security is the same, that is why interoperability can be possible.

In commodities may be different.

Amit Chandra

Okay.

So, the interoperability will not happen between equities and commodity, right?

Multi Commodity Exchange of India Limited

Moderator · Conference Operator

We will take the last question from the line of Devesh Agarwal from IIFL Capital.

Devesh Agarwal

Just one question.

We see that this has been a very strong year for us in terms of profit accretion and cash accretion.

But despite that, we have seen that the payouts have kind of gone down.

So, just wanted to know your thoughts as to this cash that we are kind of conserving, what are exactly the plans for this?

And what is the spend that we are expecting for the next year?

Praveena Rai

Yes, good question, Devesh.

I think it's important for us to have the sort of funding chest that is required as we look at our growth.

And this is not just from more of the same standpoint, there would be both organic, inorganic opportunities that we will continue to be looking at, new product segments, ancillary spaces.

So, there are certain strategies that are at very early stage, but we do have strong plans for the capital on hand.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, I would now like to hand the conference over to Ms. Praveena Rai, MD and CEO, MCX, for her closing comments.

Praveena Rai

Yes.

Thank you.

Thank you to all.

It is a phenomenal set of questions.

As always, we answer some, and you also leave us with a lot of food for thought to take back as we look at execution of our plans for this year and the coming quarter.

I really enjoyed the discussion.

All of us did.

Have a good day and look forward to connecting next time.

Moderator · Conference Operator

Thank you.

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

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