Reviews

In this edition, we have reviewed Multi Commodity Exchange of India Ltd. and NACL Industries Ltd. We suggest our reader-investors to HOLD Multi Commodity Exchange of India Ltd. and NACL Industries Ltd. 

We had recommended Multi Commodity Exchange of India Limited (MCX) in Volume 36, Issue No. 18 dated August 2 to August 15, 2021 under the ‘Analysis’ segment. The recommended price for the stock was ₹ 1,643. We had recommended the stock on account of its strong brand equity, robust technology and high standard of corporate governance. MCX is India’s first listed exchange and implements state-of-the-art technology for commodity derivatives’ exchange that enables online trading of commodity derivatives. The exchange operates under the regulatory framework of Securities and Exchange Board of India (SEBI). 

Looking at the quarterly trends on a consolidated basis, for Q3FY22 the company posted net sales of ₹ 89.55 crore, which is a decline by 11.25 per cent compared to net sales of ₹ 100.90 crore for Q3FY21. For Q3FY22 the company gained an operating profit of ₹ 52.78 crore as against an operating profit of ₹ 73.45 crore in Q3FY21, exhibiting a decline of 28.14 per cent. The net profit of the company decreased 51.21 per cent to ₹ 35 crore in Q3FY22 as compared to ₹ 71.73 crore in Q3FY21. As regards the annual financial trend, for FY21 the net sales of the company fell by 1.83 per cent to ₹ 390.56 crore from ₹ 397.84 crore for FY20.

The operating profit increased by 1.86 per cent and stood at ₹ 288.91 crore for FY21 as compared to ₹ 283.63 crore for FY20. The net profit shrunk by 4.79 per cent to ₹ 225.13 crore in FY21 from ₹ 236.46 crore in FY20. MCX is a leader in commodity derivatives’ exchanges in India with 93 per cent market share in total positions of commodity futures’ turnover. It also has a presence in various commodities and offers healthy diversification. The latest court ruling permits long-term electricity contracts to be traded on the exchange.

Such diversified products will help MCX’s top-line amid volatility in prices. There is also continuous addition to the participants from which it benefits because of the volume growth. Indian Energy Exchange (IEX) prices will be used for settlement wherein 10 per cent revenue is to be shared with IEX as per an agreement valid for two years. Volume from the algorithm channel has been gradually rising to 51 per cent led by the addition of new participants. The index turnover is also increasing and is currently at 500 crore. Hence, we recommend HOLD.

We had recommended NACL Industries in Volume 36, Issue No. 18 dated August 2 to August 15, 2021 under the ‘Low Price’ segment. The recommended price for the stock was ₹ 77. We had recommended the stock on the basis of its strong financial position, focus on expansion and high growth potential. NACL is a recognised player with pan-India presence and is among the top Indian agrochemical companies. Under its umbrella it has over 50 products, all major crops and in most of the geographies. It has a sturdy logistic presence with over 56 stock points across India for quick deliveries. NACL’s products are sold across more than 55,000 counters over India.

On the consolidated financial front, the company posted net sales of ₹ 399.76 crore for Q3FY22, up by 52 per cent from ₹ 264.75 crore in Q3FY21, driven mainly by growth in its product and platform business. The operating profit was ₹ 34.93 crore, an increase of 21.09 per cent in Q3FY22 from ₹ 28.83 crore posted in Q3FY21. The company gained net profit of ₹ 15.60 crore in Q3FY22, rising 72.38 per cent from ₹ 9.05 crore gained in Q3FY21 owing to positive deal wins. On the annual front, the net sales came in at ₹ 1,191.37 crore in FY21, up by 17.39 per cent from ₹ 1,014.89 crore in FY20. In FY21, the operating profit increased by 67.32 per cent to ₹ 127.31 crore from ₹ 76.09 crore in FY20.

The company’s net profit gained in FY21 was ₹ 50.42 crore, up by a staggering 219.32 per cent from ₹ 15.79 crore in FY20. The key success factor for the company is its strong presence in the entire value chain of crop protection including research and development, active ingredients, intermediates, formulations’ retail distribution and farmer outreach programmes. To further strengthen the value chain the company is setting up greenfield manufacturing sites in Gujarat and Andhra Pradesh, expanding its product portfolio and enhancing its research and development capability while working together in forging long-term associations with retailers and farmers.

The company has a robust, diversified and expanding product portfolio spanning insecticides, herbicides, fungicides and plant growth regulators. A capable research and development team with state-of-the-art GLP-accredited facility to develop differentiated products and cost-efficient manufacturing processes is what gives the company an edge. NACL Multichem (P) Limited is a wholly-owned subsidiary of NACL that is engaged in developing a greenfield project for production of agrochemicals and synthetic organic chemicals at Ranasthalam Mandal, Srikakulam with a capacity of 38,000 MT per annum in phases. Hence, we recommend HOLD

(Closing price as of Feb 20, 2022)