MCX shares crash over 10% despite strong Q3; here's why the stock is seeing a sell-off

Shares of Multi Commodity Exchange of India (MCX) plunged by over 10% on January 21 after brokerage firm Morgan Stanley issued an 'underweight' rating, citing concerns over the company's Q3 financial performance.

At 11:20 am, MCX shares were trading 11% lower at ₹5,388 per share, reflecting the sharp investor reaction. By 11.40 am, the share price corrected by over 9%, reaching ₹5,472 per share.

Q3FY25 Results: A Mixed Bag

MCX released its financial results for the October-December quarter post-market hours on January 20. The company reported a net profit of ₹160 crore for Q3FY25, showcasing a recovery compared to the ₹5.35 crore loss recorded in the same quarter the previous fiscal year.

Total income for the quarter stood at ₹324 crore, a year-on-year growth of 55% from ₹209 crore in Q3FY24. The company's earnings per share (EPS) turned positive, reaching ₹31.38 during the quarter. Meanwhile, its earnings before interest, taxes, depreciation, and amortisation (EBITDA) was reported at ₹216 crore.

In the nine months between April and December, MCX's turnover was dominated by precious metals and stones, which accounted for 65.22% of the total. Energy commodities contributed 22.4%, base metals 12.28%, agricultural commodities a marginal 0.04%, and index futures 0.05%.

Regulatory Restrictions on MCX Shares

MCX operates under stringent regulatory guidelines, with only “fit and proper” individuals allowed to deal in its shares. Additionally, any shareholder intending to acquire more than 5% of the company's equity must secure prior approval from the Securities and Exchange Board of India (SEBI).

Morgan Stanley's Concerns

Foreign brokerage firm Morgan Stanley downgraded MCX's stock with a target price of ₹3,715, a 31% decrease from the current levels of ₹5,415.65. While acknowledging that EBITDA performance was in line with expectations, the brokerage noted that the company’s net profit fell short of estimates.

The firm expressed doubts about the sustainability of MCX's revenue streams and described the current valuation as "stretched." This cautionary outlook could likely be the reason why today the company's share price has seen significant sell-off.

Investor Sentiment

The stark contrast between MCX’s improved year-on-year financial performance and Morgan Stanley's bearish stance underscores investor concerns over the long-term outlook. Yes, the company has shown signs of recovery, but questions about revenue sustainability and valuation persist.

As the market digests these developments, the coming weeks will be crucial in determining whether MCX can regain investor confidence and stabilise its share price.

As India’s first listed national-level electronic exchange, MCX continues to dominate the commodity derivatives market with a market share of 97.97% in terms of the value of commodity futures contracts traded in FY24. The exchange remains a cornerstone of the Indian commodity market ecosystem, offering efficient price discovery and effective risk management solutions.