Stating that participation in commodity derivatives is only a 1/5th of NSE’s individual equity derivative traders, the brokerage described MCX as “well-placed to benefit” from rising penetration in India’s underdeveloped commodity derivatives market, noting that the exchange enjoys a near-monopoly across most non-agri contracts.
“We forecast MCX’s revenue to grow at 20% CAGR despite the elevated base, noting new product scope and retail participation is at 1/5th of NSE,” Jefferies wrote in its initiating coverage report.
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Earnings outlook: 22% CAGR, margin expansion
Jefferies expects MCX’s operating revenue to rise from Rs 230 billion in FY26 to Rs 400 billion by FY29, implying a 20% CAGR over FY26–29.
EBITDA is projected to grow at 21% CAGR over the same period, with margins expanding by 260 basis points to 73%, driven by operating leverage offsetting higher technology and SEBI-related costs.
According to Jefferies’ estimates, MCX’s EPS is forecast to increase from Rs 52 in FY26 to Rs 94 in FY29, translating into a 22% earnings CAGR and sustaining RoE at around 50–51%.
“Along with 260bps margin expansion, earnings CAGR is forecasted to be 22% to FY29e,” the report noted, adding that MCX trades at a FY27 P/E of 46x and a FY27 PEG of 2.0x, lower than US and Asian exchange peers despite stronger earnings growth and higher return ratios.
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Structural growth drivers: retail participation and new products
Jefferies highlights that India’s commodity derivatives market remains significantly underpenetrated versus global peers, with commodity futures turnover at only about half of equity cash turnover compared with higher ratios in the US and China.
MCX’s commodity options notional turnover is just 1% of equity options, versus 17% for CME Group in the US, underscoring the runway for expansion as participation deepens.
The number of participants on MCX has grown at around 50% CAGR over the past three years to 2.1 million, largely driven by options, yet still represents only one-fifth of individual traders in NSE’s equity derivatives.
Jefferies expects retail participation to increase further, aided by sachetisation through mini contracts—where margin requirements are roughly one-tenth of regular contracts—and the ability to extend trading beyond equity market hours, with non-agri commodities tradeable up to 23:30 IST.
“Participation in commodity derivatives is only a 1/5th of NSE’s individual equity derivative traders,” the analysts pointed out, adding that the introduction and rising share of mini contracts in bullion and energy has been a key factor behind option demand.
Beyond the core growth trajectory, Jefferies sees multiple earnings optionalities that could add a risk-weighted 15–20% to MCX’s earnings over the medium term.
These include the proposed coal exchange, potential approval for colocation facilities, expansion of foreign portfolio investor (FPI) participation into non-cash settled derivatives, and the launch of weekly commodity index options.
“MCX has multiple optionalities including: (1) coal exchange, (2) colocation, (3) FPI participation in non-cash derivatives and (4) weekly option contracts,” Jefferies said, estimating that, in aggregate, these could represent 21–32% revenue upside and 24–38% earnings upside by FY31, before applying probability weightings.
The coal exchange alone is projected to contribute 4–6% incremental earnings once mature, assuming MCX captures 90% market share in coal derivatives, while colocation could add 6–11% to earnings through rental income and higher options turnover.
Balance sheet strength and valuation comfort
Jefferies also underscores MCX’s strong financial profile, noting that the exchange has positive working capital, limited capex requirements (around 20% of operating cash flow) and free cash flow conversion above 100% of EBITDA.
This has enabled healthy dividends, with payouts at about 30% over the last two years against a stated policy of up to 60%, leaving room for higher shareholder distributions as cash flows scale.
On valuation, Jefferies argues that MCX’s premium to domestic peer BSE—valued at 36x Jun-28e EPS—is justified by its larger product scope, longer penetration runway and superior profitability metrics.
“MCX trades at 2.0x FY27 PEG vs 2.4x for US exchange peers and 3.5x for SGX, despite MCX offering better earnings growth and higher RoEs,” the note said, adding that global exchange comparables support the 45x multiple embedded in the Rs 3,600 target price.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)