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MCX set for a major cost saving in TCS deal, annual fee may be less than ₹10 crore: sources
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
In the conference call after its quarterly earnings, Multi Commodity Exchange of India (MCX) announced that it will not have to make payment to Tata Consultancy Services (TCS) for the software maintenance in the first year of its use. As per the agreement, the initial year of platform utilisation is categorised under a warranty period, …
In the conference call after its quarterly earnings, Multi Commodity Exchange of India (MCX) announced that it will not have to make payment to Tata Consultancy Services (TCS) for the software maintenance in the first year of its use.
As per the agreement, the initial year of platform utilisation is categorised under a warranty period, absolving MCX of any software maintenance payments to TCS during this phase.
As the initial excitement settles, attention turns to a question looming on investors’ minds: What happens once the one-year warranty period concludes in September 2024?
Sources hint at a paradigm shift, with post-warranty software maintenance fees projected to be in the single digits, a figure notably less than ₹10 crore.
This anticipated reduction is in stark contrast to MCX’s previous financial commitments, where it was paying a substantive ₹125 crore per quarter to 63 Moons for software usage, a contract set to expire in December of this year.
In its reply to CNBC-TV18’s query concerning the software costs, MCX has said it would not like to make any comment at this point.
The market has responded emphatically to MCX’s tech leap, with the stock reaching a record high of ₹2,666 per share on November 8.
Since the transition to the TCS platform on October 16, the stock has surged more than 21%, drawing positive sentiment from brokerages.
UBS, in a recent note, has raised the target for MCX to ₹3,000 per share, citing stabilisation of the new technology platform and promising near-term drivers. The stock has delivered returns of over 63% in 2023, reflecting the market’s resounding confidence in MCX’s strategic direction.
On the earnings front, MCX reported Q2 earnings below estimates, with a reported loss of ₹19 crore compared to a profit of ₹63 crore in the same quarter last year. The loss can be attributed to a sharp surge in software support charges, revealing a shift in financial dynamics.
In Q2 FY24, software charges disclosed by the company stood at ₹134.50 crore in Q2FY24 against ₹21.85 crore in Q2FY23 and ₹89 crore in Q1FY23.
On an operating level, it reported an EBITDA loss of Rs 9 crore against an EBITDA of ₹84 crore year-on-year.
Despite this, brokerages remain positive, attributing the loss to transitional adjustments and foreseeing a positive trajectory driven by the newfound cost efficiency.
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