Multi Commodity Exchange of India Limited analyst Q&A

Thank you very much. We will now begin the question and answer session. First question is from the line of Devesh Agarwal from lIFL Capital.

Firstly, congratulations on a good set of numbers on an overall year basis. I think the growth has been phenomenal. My question pertains to the cost increase that we have seen in this quarter. So we see that there has been a sharp increase in the operating costs, especially in the employee cost and software support charges. So can you highlight what has led to such sharp increase in these 2 line items? And are there any one-offs in this?

Thank you, Devesh. I think it's an important question. When we look at our cost line items, both employee and IT cost is where we've seen an increase this quarter over last quarter. So if I look at the employee expenses, there is an element here, which per tains to performance payouts. We've had a good year, and we're expecting that to get reflected in those numbers. So if I were to look at the employee expenses, I would cut it at about 75%-25% in terms of the delta with 75% going into a one -time incremental expense associated with performance and 25% is really the readiness from a capacity building standpoint as we go into next year with all our growth plans in place. If you look at the IT costs, here, we do have a bit of a timing concentration in some of our warranty and sort of annual contract renewals. So there is a 30% sitting here in the delta amount, so INR30 crores minus INR20 crores, INR30 crores is the number for this quarter versus INR20 crores of last quarter.

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So 30% of that is a one-time expense. 70% is expense, which comes down to an expense that is getting concentrated in the quarter associated with maintenance renewals and so on. So on an annualized basis, one would expect that to continue, whereas 30% is a one-time.

Right, ma'am. Just continuing on that, we also see a sharp increase in your depreciation, assuming there will be a significant capex that you're incurring. I'm assuming, again, that will be around the tech cost. So just wanted to understand where are we spending this incremental cost because we have just completed our CDP project? So where is this incremental capex happening on the technology front? What is the expected spend that we are targeting for the year FY '26? And what run rate should we assume both in case of opex and depreciation in FY '26 for your technology?

Yes. We do expect capitalization to sort of depreciation and amortization to continue at these levels because as we are growing significantly, and I think we just discussed that we are looking at -- we have doubled our volumes. And obviously, the tech refresh is a continuous process that would need to be there. There is an element of regulatory change as well as expansion of the kind of network capacity that we require as we have more technology -oriented participants and higher volumes that they are actually performing on the exchange. So all of these are constit uents, regulatory network, tech refresh, and of course, the BAU expenses, which will keep our depreciation at this level.

Any number that you want to call out in terms of what would be the likely capex for FY26?

We won't be able to call out a specific number, but I can tell you, overall, at an expense level, we expect our ratios to stay flat.

Right. And are we incurring any expenditure in our capex for co -location facilities as well? We recently read a media article suggesting that SEBI is kind of contemplating this. So one, are we already starting to spend money for this facilities -- colocation facilities? And secondly, where does this stand in terms of implementation?

We will not be able to comment on this at this stage because it's really based on what media is saying. Until we have regulatory clarity, we won't be able to comment on this.

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

My first question is in terms of the product launches. So in the last call also, we have indicated that we are in track to launch the index options and the weekly expiry options. So where actually we are in terms of the journey in terms of launching, if you can give some time lines or some clarity on that? And also if you can throw some light on -- in terms of the launch of the electricity futures contract and what could be the incremental volume opportunity that you see from this contract?

So yes, Amit, thank you for that, and thanks for joining. So yes, our new products road map is very much in place. As you know, there is a lot of homework that is required along with various approvals

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that we need before we can take this live. So we are -- we have full readiness from our side, and we are waiting for the right green signal to take this to market. So we believe that between our indices and new products such as electricity, we will really look at significant growth in the coming time. There is reasonable volatility. There is interest from market participants. And there is also a need for this because India is a very large market when it comes to power. In fact, we're the third largest market globally both from a production and consumption standpoint, the government's energy security policy, which really is looking at more than 500 gigawatts of renewable power getting generated in the country and the kind of grid lines we have and the national grid available for a very healthy supply-demand network to operate are all leading us in the direction of the fact that this is an important area to be addressed. So I think everyone is on the same page there. It's now just a question of getting it done. We believe it's around the corner. I also want to point out, if I may, that we did have a good launch of our Gold Ten futures, that is actually in this year because it happened on the 1st of April, it was time d to kind of match with Akshaya Tritiya and has given us some very, very good response in the first month itself. The 10-gram gold coin meeting India good delivery standards has had a very good offtake in the first month.

Okay. And ma'am, we have significantly increased our investments in terms of tech enablement. And also can we relate it to our preparedness for the co -location or enabling HF trading on the platform. And also these new launches also require a lot of newer investments that is what is reflecting in terms of our tech cost -- so if you can throw more color on that? And secondly, my next question would be that we have seen the increasing contribution of the bullion contracts in the options segment, which is now 25% of the notional volume and only 9% in terms of the premium contribution. So any reason you can attribute why the gold premiums or in terms of the premium to notional ratio of gold contracts are actually lower than the overall premium to notional ratio of MCX despite gold being a monthly contract. So if you can provide some clarity on that?

Yes. This is Rishi Nathany, CBO. As we grow, naturally, the costs will go up to answer the first part. Second is that in terms of -- your question on the gold premiums. You have to understand that the premiums are a function not only of time but also volat ility. Crude oil and natural gas ha ve higher volatility than gold. And that is why you would see the kind of premiums you are seeing in gold. That is why despite the notional being higher, the premium value is substantially lower in proportion. And this is a natural function of the volatility within the gold options. Howe ver, I'd like to tell you that ever since we've made the gold options monthly contracts, we've seen a very good uptick in terms of the total notional turnover as well as the premium turnover.

The next question is from the line of Astha Jain from Pkeday Advisors.

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Sir, I had one question related to the participants. So we saw a massive uptick during the Trump tariff. So sir, should we consider that as a one -time thing? Or should we consider that as a base going forward?

It is from the macro geopolitical standpoint, that's a very difficult question to answer. And I mean it's really not in our remit to say how the macroeconomic situation is going to turn out. We do see a fair amount of global volatility in the approach across markets not only from the US, but across the world, and this will continue to have its impact with reference to how people want to hedge their price risk. But having said that, these will always be events. And the baseline, we see both experience with an event goes on to create the exposure and experience needed. Hopefully at the end of an event, there is a higher participation than at the beginning of the event. So yes, the baseline goes up. The events themselves will be spikes. This year appears to be one which will offer a certain level of natural volatility. With or without that, we do see this impacting the baseline in a positive way.

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

Sorry to have again on the product launch. We have recently from the media learned that SEBI has announced the in-principle approval to NSE for electricity futures. So just trying to understand how - - what's our strategy even if we get the approval, say, during this year, that's the expectation, then how should we look at the volumes coming through our platform? And what will be our strategy given the NSE is already got the principle approval …is already there?

So I would say that we are working very closely on the matter. And it is not in our understanding that there is any approval from the regulator to anybody. And I think I've sort of addressed the broader opportunity space that is there and the fact that we are -- as a commodity exchange, this is not a small business for us. It's not something that we are trying to enter into. As a commodity exchange highly focused on the energy sector, power is a very natural part of that portfolio. And we are highly engaged to make this a good success, and we are very positive about it.

Right. And coming to the weekly expiry of index ’s, we believe we were trying to understand, create the future volume initially to drive this success. Where are we in terms of improving our indices, strengthening the volumes over there, which can drive business for us? So if you can -- what are we doing actually over there to try to manage, to try to manage that? Before launching the weekly contracts on the indices?

Chintan, to answer your question, let us understand the structure of index products. Normally options on various other products are options on futures. In indices, there is index futures and there will be options on the index itself. So it is not an option on the in dex futures. It will be the options on index. Therefore, there is hardly any correlation per se between the index futures and the options which will come on the indices. So these will be cash settled products, which will be based on the index itself.

And where are we in terms of launching and testing those products out?

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We are in pretty advanced stage. And as and when we are ready to go to market, we will let the market know.

Sure. And lastly, on the cost side, you did clarify on the portion of one-time in the employees and tax side. Given the volumes and the business growing on the options, especially, do we anticipate to pre- empt our investments on tax side to drive and build a more sustainable platform going forward? And do we see that impacting our numbers because we are already -- even with this one-time expense this quarter, our margins are pretty healthy and there is scope to reinvest some to strengthen our infrastructure, especially on the IT side and the platform side. Are we considering that to further strengthen our business model?

Yes, I think we will be ahead of the curve when it comes to tech investments. We spoke about it even last quarter. So we have developed our agility, which means our speed to market when it comes to new products from a tech standpoint, the kind of connected ness that we are able to provide to the market participants and most importantly, our readiness for growth. So all of this is already very much baked in, into our readiness framework for technology.

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

Just wanted to check a bit on new products. When you say indices, what are all indices that we are looking at? Is it bullion? Or can you just elaborate what are all indices that we are looking at? And also any effort that we are putting in specifically improving the base metal contracts, which used to be a very good contribution at one point of time?

So we have 2 base metal -- sorry, index contracts running right now. One is the BULLDEX, which is the Bullion Index and one is the base Metal Index called the METLDEX. So these are the 2 contracts which we have and which we are looking to enhance further through bringing options on them. In terms of growth in base metals in the year which we have ended, we've seen almost a doubling of volumes in the base metal contracts as well. And we are working hard to ensure that those contracts also achieve the necessary traction. However, when you sa y compare with the past, earlier, these contracts long back were cash settled. Now they are deliverable with India pricing and India price discovery. Hence, that time line to -- for the market to adjust to an India pricing and the contracts to again gain traction is going on. And we believe that as we go ahead, these contracts will again get more and more volumes and participation.

Got it. Got it. And one more question. Would you be able to get split of participation in terms of maybe retail hedgers or foreign participants, how the trend is now? Any sense on that?

So as far as you're talking about base metals or you're talking about the entire piece.

No, broadly, broadly.

So broadly, all the numbers are already there on the website. You can just have a look. We publish those numbers on a regular basis.

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Yes. But it doesn't have specifically for the retail or something. So any broad sense like what kind of retail participation is there in MCX Index?

Are you looking for the numbers, how many people which have been already provided in the PPT? Is that the one you are looking for, what is the -- or you are looking for any retail in specific?

Retail specifically and hedges. Any broad range is also fine?

So I think the numbers we have shared, we have about 13 lakh of traded clients. And when you look at large numbers, they will typically come from the retail side. Commercial clients will tend to be smaller in number. So they are either very large corporates or in the SME sector.

The next question is from the line of Harsh Shah from HSBC Asset Management.

Firstly, just one data keeping question. Can you just help us with the futures revenue and options revenue for this quarter?

Yes. So Harsh, option revenue was INR 179 crores. Harsh, this is Chandresh, CFO.

Yes, yes.

The option revenue for this quarter is INR 179 crores and futures revenue is INR 75 crores.

Okay. Second question is barring the one -time impact or even the time concentration, if you look at from a full year basis, tech cost was somewhere around INR 93 crores. Employee cost for the full year was around INR 144 crores. But from a directional perspective, again, barring quarter -to-quarter movement, can we assume that for FY26, tech cost will be around INR 90 crores, let's say, INR- 100 crores, INR 110 crores and employee cost will be between INR 150 crores to INR 160 crores or directionally also this is not going to be the case?

Yes. I think, Harsh, this number -- the numbers would be around these levels.

Okay. Just last question from my end is with respect to this capacity building, by any chance, are we building capacities to manage the TCS software better? Basically, what I'm trying to understand, and please correct me if I'm wrong, is by any chance regu lator is still a little bit of skeptical about th e software that we are running. We are still stress testing it for which you want to build capacities, both on hardware, software and personnel? And also, is this the reason why there is some sort of hindrance with respect to new product launches? Again, please feel free to clarify if I' m mistaken anyway. Just wanted to understand why there's cost escalation and why we are not able to launch a new product and where is regulatory in all this?

So your comment on not being able to launch a product is a little surprising. How did you arrive at that conclusion?

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No. Basically, just trying to understand your gold is doing quite decent, but other products has been taking some time. So again, I'm just trying to understand what is pending from our perspective? Or is it -- we are done from our perspective, it is only from the regulator that is pending?

Yes. So we have a number of products in the portfolio. We have natural gas and crude oil, gold, silver, copper, aluminum, zinc, lead, and I think we are all having fairly healthy numbers across futures, options, deliveries and all of this information is available in the deck. When it comes to new products, as stated in the past, we are ready from a technical and go -to-market standpoint, and we are waiting for the final set of approvals to come in before we can take it to market.

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

No, my question has been answered. I was asking for the transaction fees, which I think you said options is INR 179 crores, futures is INR 75 crores. I correct? Yes. Yes. So my question has been answered.

The next question is from the line of Arpit from IGE.

I wanted to ask a question over the FPI contribution from the FPI participation out of total volume of transaction charges we have got in the quarter.

Yes, it is roughly around INR 16,500 crores in options, and it is about INR 600 crores in futures. So you can say about 7% of the total turnover.

The next question is from the line of Ashish Kumar from Ampersand.

I have 2 questions. First is with respect to this settlement guarantee fund. So the contribution towards that during the quarter was around INR 18 crores, which was similar to last quarter, but it was significantly up on Y-o-Y basis. So I wanted some sense on how we should look at it for this coming year? And the second question is on new products other than electricity futures and whatever we have discussed, any other new products that are in the pipeline for FY26?

Yes. So SGF is the settlement guarantee fund. So it will be an outcome of the kind of volumes we have and of course, volatility in the market. So I will say that at a high-level calculation, you can keep the ratio. You can assume a sort of similar ratio to continue. Now when it comes to new products, yes, we do have a number of new products in pipeline. Sorry, without sort of getting it to a certain point, we are unable to talk about it further. And priority -- top priority for us is the products that we are ready with that -- where we are waiting for the go -to-market green light. That will be our first focus. As soon as we get those over the line, there will be other things to play. Having said that, we also have in the silver category, we are planning to launch the monthly options. So while our options, we launched the 1 kg options in the month of November, which is doing phenomenally well. We launched on the 1st of April, the 10 -gram gold, which is also very popular with retail. So we are looking at launching in silver, micro option s, the 30 kg, 5 kg and the 1 kg. So these are all in play. And these would also be in the shorter time frame.

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The next question is from the line of Aravind R from Sundaram Alternate.

So basically, I wanted to understand like we observe in the equity markets, FII participation is much higher. I understand the nature of like our commodity options are different. But the introduction of like index options, and basically the cash settled contracts. And like what other things can be done to increase the FII participation like index contracts, can it bring like a bigger step change in like FII participation? And what other things can help in a more and more FII participation manner?

So the norms for FPI participation came in the second half of '22, and we started participation early in '23. So it's been more or less 2 years. And in those 2 years, you've seen the kind of participation we have. Now we also have to bear in mind that FPIs are only allowed to trad e in crude oil and natural gas. So as and when more and more products come under the ambit and more and more FPIs come into the market, we will see more participation increasing. So this is early days yet. We are seeing more and more FPIs onboard onto the exchange. So we believe that as we go forward, we will see more healthy participation from FPIs.

Sure, sure. And like do you think like something like co-location, which happens in equity exchanges can help here also? Like I'm not sure like if it is available with MCX, but do you think that the thing can happen, like co -location facilities can happen and that can increase not just FPIs, but also other institutional investors and more and more participation there?

Well, it remains to be seen. We cannot talk about something which is not there. As and when it comes within the regulatory approvals, then we will look it up and we can discuss it.

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

So basically, I think my questions have been answered, but could you give us a mix between what your FPI and DII hedges, etc., what the mix really looks like right now?

Sorry? FPI and DII mix.

On your hedges, yes.

So to be honest, our DII portfolio is fairly limited at this point, primarily because there are a number of restrictions in -- for mutual funds and so on to participate in commodity derivatives. But there are some changes to that, that we are working with the industry to understand the needs of the industry and really how we need to incorporate this in the multi -asset portfolios in a more dominant way. So that would be an action that we're working on.

Sure, sure. And is there any push towards more green finance contracts like ESG -linked carbon trading, etc., that has been spoken about?

Carbon trading has 2 parts. One is the compliance part and the other is voluntary. So I think both of these operate in a very different way in the Indian context, and India tends to be more of a global seller than a buyer. So work is in progress at the broader government policy level when it comes to looking

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at how carbon trading can work and should work in an Indian context. So we are following that closely. And at the right time, when it's suitable for derivatives to be a component of that, we'll certainly be there.

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

Ma'am, this is a bit of on regulation. The regulator came out with a consultation paper of segregating clearing corporations from the exchanges. I know it's not a final regulation, but I just want to understand, suppose it gets implemented, then clearing c orporation, I just want to understand how much they earn from the settlement fees, what you pay them and maybe the float income, what clearing corporation earns. So just to understand if the segregation happens, what likely impact could be there on our top line and bottom line in that sense?

Yes. I think from whatever is available in public, it is quite clear that as it stands, this implication is there for the equity exchanges. So at this stage, the Commodity Clearing Corporation has a lot more complexity involved and handles warehouses and d eliveries and so on and so forth. So we are not really expecting this any time now.

Okay. Got it, ma'am. And the second question, ma'am, is that how do we foresee this settlement guarantee -- core settlement guarantee fund cost? So if we do the numbers for the full year, it comes to around 7 percentage of the total transaction income what you have earned. So is it fair to say that going ahead, given our volumes are increasing, our open interest goes up, then this cost -- 7 percentage of the transaction income kind of will be a recurring cost going ahead?

So Sanket, this is Chandresh. See, this 7% includes 1 - 1% of contribution to ISF and IPF, which is mandated as per SEBI regulation. And the SGF contribution is something which we look at the requirements, and we keep adding to that because that helps us in different ways to maybe manage the margins for the members, which helps in increasing the volumes.

Okay. But is it fair to say that 5% of the cost, given the volumes are inching up will remain -- it's a good problem to have, but just wanted to understand that is the way it will work.

Mostly, yes.

Okay. Got it, sir. And one more thing, ma'am. See, our gold contribution is going up, and you alluded to the point that gold invariably will have a lower premium realization compared to a crude or a silver. So is it fair to say that if gold contribution pi cks up in our ADTO in options, then your premium to notional will see a gradual decline or a premium realization to the notional turnover will see a gradual decline as gold contribution picks up?

No. If you purely look at the statistics-wise calculation mathematically, it depends upon whatever the product that is contributing to the maximum market share, that will be the influencing factor. But as long as the volumes are going across the products, I think that is going to be good for the market and good for the exchange.

Sir, the reason why I asked this question, sir, is that we see a bit of kind of a cannibalization when the gold is picking up, we see crude is taking -- not showing so much of growth what we saw in the past.

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So maybe from your assessment, speaking to your members or traders, are you getting a feeling that there is a bit of cannibalization, gold is growing at the expense of crude?

So if you see cannibalization would happen if we were constant and gold grew at the cost of crude oil or other things. We are seeing an overall growth. We have seen 100% growth. So how is there a cannibalization? Everything is growing. There are some thing s which are growing, contributing to lesser premium to notional. Some things are contributing higher premium to notional. So overall, you are seeing -- while you may see the overall mix of premium to notional coming down, but as long as the entire premium is going up and the notional is going up and the volumes are going up, it's a good problem to have, isn't it.

So want to add to what Rishi has said, generally, the market share keeps changing between the products depending upon the market scenario that is how you have to look at it. It's never been the constant scenario.

Okay, sir. And maybe last one. So you said that your option indices will be launched whenever you get the approval. So the nature of the option indices, whenever you launch will be weekly expiry or monthly expiry? What's the thought process?

See, we cannot comment on all that. The idea is that whenever we get approval, we'll launch accordingly, and we'll let the market know. So I would request you to please wait for that. And as and when it comes, we'll let the market.

The next question is from the line of Deepak Ajmera from IGE.

Just one quick clarification because I attended NSE con call also and management clearly said that they have in principle approval to start the futures on the energy. And you clarified that none of the exchange has that approval. So if you can again clarify that point. And second point -- second is the feedback. Normally con call have diamond pass registration. In your case, we have to wait for operator to get in, so you can enable that facility?

Yes. So your point taken about the second part, we look into it. I mean the first part, we've already our MD and CEO has already clarified. So I don't think there's anything else to clarify on that. I mean, whatever they have said, they have said in their own wisdom. We have clarified according to what we know.

Shall we move on to the next question?

Yes, please.

It's from the line of Devesh Agarwal from IIFL Capital.

Just a couple of clarification questions. The FPI share that you mentioned or the volumes that you mentioned, INR 600 crores in futures and INR 16,500 crores in option. Is this an annual average or more of a fourth quarter average?

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I was referring to the recent quarter.

Fourth quarter.

Fourth quarter. Fine. And secondly, did you mention any time lines to launch the silver monthly option contracts?

No, we haven't mentioned any time, but we are working on it. And as and when.

It depends upon multiple factors, and we won't be able to give any definite date or period by when we can able to launch. But definitely, we are considering these products.

Right. Sir, just in case of order, basically, we have multiple products, which are likely to go live. You have silver, you have index options, you have electricity and then weekly. Any order that you think based on your discussion with the regulator, which can come first and how the others will follow, whether we see all of them in this year? Any tentative time lines will also help, sir?

Very difficult to predict. We cannot assign any timelines or any order. All we can say is we are working on these products. And as and when it is found feasible, they will be brought to market.

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

On the index options. So currently, we have index futures, which are not seeing much traction. So how do you see this differently when options are provided and any approach that in terms of participation that we are currently already working on? Like how do you see index futures different from options?

Both are independent to each other because unlike other products, index options or index futures we can be -- are considered to be independent because they are going to be settled based on underlying index, okay? So they can operate differently the way it wanted to operate, how the product is going to be designed.

Yes. But why not so much traction there is index futures, any sense there or any efforts from our side to enhance index future options -- future volume?

So Lavanya, we are working on index futures and other products as we work on all products. It is for the market to take up which products they like. Of course, we put in all our efforts. Having said that, Praveen has already clarified that normally all the products we have in options are based on futures, but these products are based on the index itself, so they are discrete from each other.

Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to Ms. Praveena Rai for closing comments.

Thank you so much for your time. It's been a wonderful discussion. Very intriguing questions. It helps us also to explore and see what we need to do next. Your interest in MCX keeps us inspired, honestly, and I look forward to staying connected. We expect to have a good year ahead, and we'll stay in touch.

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. Thank you.