MCX’s 1QFY17 revenue at INR582.3m grew 12.5% YoY and 4.7% QoQ; and was in line with our estimate (INR595.6m). Revenue was a function of volumes, at INR16t, up 17.7% YoY and 7.3% QoQ.EBITDA was INR174.4m, above our estimate of INR147m, and EBITDA margin of 29.9% was a 520bp beat. While staff expenses were above estimate (INR143m v/s estimate of INR111m), ad, admin and other expenses was well below estimate at INR159m, v/s estimate of INR222m.Adjusted PAT (excluding exceptional items) was INR328m, above our estimate of INR295m. PAT grew 21.1% QoQ and 30.5% YoY adjusted for the exceptional items in previous quarters.
Valuation: Given the fixed nature of MCX’s cost base, increase in volumes would help improve its EBITDA margin significantly. They assume FY18 to be the first full year with at least one key reform, with ADT returning to pre-CTT levels and this to be split equally between futures and options. That drives our EBITDA margin estimate of 47% in FY18 and earnings estimate of INR40/share. Their price target is INR1,200, which discounts forward earnings by 30x.