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Shares of Multi-Commodity Exchange of India Ltd. declined as much as 7 percent on Monday after the company extended its software services contract with 63 Moons, its existing vendor, for a period of six months.

This means that there has been further delay in the implementation of its new platform, which was supposed to be provided by TCS.

MCX had selected TCS in September 2021 as its technology solutions provider for its growth and transformation journey. As part of the plan, TCS would help MCX build a new technology core, transforming its trading as well as post-trade functions.

MCX believed that the new platform will help the company reduce overall costs.

Brokerage firm Morgan Stanley believes that the implementation of the TCS platform is not likely to take place before the September quarter of financial year 2024. As a result, the brokerage envisages an increase in its cost estimates.

Morgan Stanley also expects the MCX stock to trade at a 20 percent discount due to the sluggish relative earnings progression.

Citing average daily traded volume (ADTV) as a key driver for MCX's profits, Morgan Stanley noted that MCX's ADTV declined 8 percent month-on-month to Rs 43,300 crore, owing to weaker volumes in commodity futures. MCX is currently trading at a price-to-earnings ratio of 41x, while Morgan Stanley sees its target P/E ratio to be at 28x.

Morgan Stanley is underweight on MCX with a price target of Rs 1,220. The price target implies a further 17 percent downside from current levels.

MCX has also been downgraded by ICICI Securities to hold from a previous rating of buy. The firm has also slashed its price target on the stock to Rs 1,669 from the earlier target of Rs 1,795. ICICI Securities said that the new six-month extension is longer than its previous extension of three months. It expects MCX's December quarter operating profit or EBITDA to drop by 10 percent sequentially due to higher software expenses.

Shares of MCX are currently trading 5.6 percent lower at Rs 1,467.60. The stock declined 10 percent in the past year.

First Published:Jan 2, 2023 10:06 AM IST