Multi Commodity Exchange of India (MCX) has reported a decent 20 per cent rise in its net profit to Rs 65.95 crore for the quarter ended March 31, 2012 as against net profit of Rs 54.94 crore in the corresponding quarter of the previous year. Similarly, sales during the quarter also grew by 19 per cent to Rs 123.87 crore as against Rs 105.88 crore in the previous year. However, despite this, the sequential performance of the company has deteriorated. Both topline and bottomline declined on a quarter-on-quarter basis by 4 per cent from Rs 129.58 crore and Rs 68.79 crore reported during the previous quarter ended December 2011.

We at DSIJ had predicted this sequential drop in financial performance of MCX and recommended our readers to stay away from the counter in our DSIJ Magazine Vol 27, Issue No 12 dated May 21 - June 3, 2012. Our bearish attitude on the counter stemmed from the fading value of gold and silver futures contracts, which contribute more than 50 per cent to the total value of all futures contracts traded on the MCX bourses. 

After reporting rapid growth in the first nine months of FY12, the value of gold and silver futures contracts have fallen in the March 2012 quarter. The number of traded contracts for gold and silver on the exchange platform also took a beating on a sequential basis, indicating that investor participation on the bourses of MCX has declined. In fact, the data collected for all commodities traded on the MCX platform showed that the values as well as volumes for all futures contracts have fallen on a sequential basis.

The markets were quick to react to this and hence one saw the counter decline sharply by 37 per cent from its listing day high of Rs 1,426 per share to Rs 898 per share at present. The counter is also now quoting at nearly 13 per cent discount to its issue price of Rs 1,032 a share.

Going forward, we believe that the June 2012 quarter earnings would also be far worse than expected. Data compiled from the MCX website shows that the value of silver futures contracts on the bourses has taken a solid beating between April-May 2012 as against April-May 2011, which has resulted in an overall decline in the value of all futures contracts traded on the MCX bourses.

Hence, keeping all these factors in mind as well as other concerns raised in our earlier write-ups pertaining to its novel business model, the concentrated revenue stream derived from a handful of commodities and the steep valuations as compared to a globally listed matured player like Chicago Mercantile Exchange (CME Group), we advise readers and the investor community at large to stay away from the MCX India counter, as we expect it to underperform on the bourses.