BSE Ltd. share price target

We had upgraded BSE to BUY from Neutral in our thematic report titled “Indian Capital Market: A golden era!” published in Dec’24. We followed up in Jan’25 with BSE as one of our top ideas for 2025.

Black & White

Expanding Market Share and Unlocking New Opportunities

BSE reported a strong performance in 2QFY25 as PAT jumped 192% YoY and 31% QoQ to INR3.46b (20% beat), driven by strong revenue growth and better-than-expected operational efficiency.

BSE reported a strong performance in 1QFY25 with a PAT of INR2.64b, an increase of 160% YoY and 148% QoQ (6.5% beat).

Bombay Stock Exchange (BSE) is consolidating on its newly-found traction in equity index options segment. Volume growth has been stellar in Q2FY24 (index options ADTO in Sensex moved from almost 0 in May’23 to INR 26trn in Sep’23) and now pricing has also improved substantially (INR 50/mn of premium turnover in Apr’23 to ~INR 260/mn on weighted basis as per notification in Oct’23).

Bombay Stock Exchange (BSE) has made notable changes in the rules governing derivative products including contract size and expiry day. This has led to traction in derivatives (INR 4.3trn notional ADTV in Jul’23 from almost nil in Mar’23). The establishment and acceptance of BSE derivatives is our investment thesis.

Bombay Stock Exchange (BSE) has made notable changes in derivative products including contract size and expiry day. This has led to traction in derivatives (Rs1trn ADTV in Jun’23) and could grow further given the small base. Cash volumes and MF platform orders maintain strong momentum.

BSE is India's leading exchange group and has played a prominent role in developing the Indian capital market. It is a corporatized and demutualized entity which provides an efficient and transparent market for trading in equity, debt instruments, equity derivatives, currency derivatives, commodity derivatives, interest rate derivatives, mutual funds and stock lending and borrowing. It also possesses a dedicated platform for trading in equities of small and medium enterprises (SMEs) that has been highly successful. They also have a dedicated MF distribution platform BSE StAR MF which is India Largest Mutual Funds...

BSE reported a strong operational revenue growth of 42% YoY in 2QFY22. The revenue beat to our estimate was led by a 15% YoY increase in equity transaction charges on account of strong volumes and market share gains. Revenue from the Star MF platform rose 22% YoY in 1HFY22. Overall volumes (number of orders) saw a 99% YoY increase in 2QFY22. BSE continues to command strong market positioning. The management is open to monetization of the Star MF platform via sale to a strategic investor. BSE saw its market share increase in both the cash equity and derivatives...

BSE reported operational revenue growth of 24% YoY in 4QFY21. Growth was led by a 117% YoY increase in equity transaction charges; this was partially offset by revenue decline in Star MF on moderation in realization on the platform. Overall strong market activity led to an 86%/17% YoY increase in transaction charges / services to corporates. A robust increase in margins was the function of operating leverage in the business. The management's decision to explore options to unlock value from its Star MF segment is encouraging; however, no bids have been accepted thus far....

BSE's 2QFY21 reported revenue was above estimates, largely led higher revenue from services to corporates. Management's decision to explore options to unlock value from its Star MF segment is encouraging. Strong transactional income from the Equity segment was offset by lower revenue in Star MF on one-time rate negotiation. Cross-subsidization by NSE has limited monetization opportunities for BSE in the INX and Commodity Derivatives segments in the near term. While the announced additional income streams may be small currently, some of them have the potential to...

Cross-subsidization by NSE has limited monetization opportunities for BSE in the Star MF, INX, and Commodity Derivatives segments in the near term. This was primarily due to a decrease in turnover by 26% YoY in the Equity Cash segment (special rate group) in 1QFY21 and one- While total expenditure of INR1.0b was lower than estimated, overall decline in revenues resulted in largely in-line EBITDA (v/s estimates). NSEs competitive pricing has impacted BSEs ability to charge in the Star MF, INX, and Commodity Derivatives segments. NSEs competitive pricing has impacted BSEs ability to charge in the Star MF, INX, and Commodity Derivatives segments. This was primarily due to a decrease in turnover by 26% YoY in the Equity Cash segment (special rate group) in 1QFY21 and one-off income in While total expenditure of INR1.0b was lower than estimated, overall decline in revenues resulted in largely in-line EBITDA (v/s estimates).

BSE cash market share has slipped to 6.4% vs ~13/9% in FY18/19 and currency derivative segment is also facing tough competition. Investments in INX and newer initiatives (commodity & Insurance distribution) have impacted EBITDA margins (1.1% in 9MFY20, down ~7% YoY). We expect revenue growth of 12.0/10.4% in FY21/22E led by rebound in transaction revenue (better market condition, StAR MF and INX contribution). We expect operating leverage to play out with growth (EBITDA margin of 8.8/14.2% for FY21/22E). BSE has net cash of Rs ~20bn (~77% of MCap) and a dividend yield of ~5%, which limits downside. Risks include rise in competition, loss of market share and increase in investments. We maintain NEU on BSE based on revenue and margin miss in 3QFY20. The core revenue stream is under pressure, margin is in the negative territory due to ongoing investments in new initiatives (INX). BSE cash market share has declined to 6.4% but StAR MF platform is witnessing continued traction. We arrive at a SoTP based TP of Rs 590 by assigning 15x multiple to core Dec-21E PAT (Rs 46/sh), Rs 105/sh for the CDSL stake and adding net cash (Rs 439/sh).

BSE is witnessing continuous decline in core business metrics. Cash market share has slipped to 6.7% vs ~13/9% in FY18/19 and currency derivative is also under pressure. Continued investments in INX and newer initiatives (commodity & Insurance distribution) have impacted EBITDA margins (2.1% in 1HFY20, down ~10% YoY). We expect revenue growth of 12.8/0.3% in FY21/22E led by rebound in transaction revenue (better market condition, StAR MF and INX contribution). We expect some operating leverage to play out with growth (EBITDA margin of 12.0/16.5% for FY21/22E). BSE has net cash of Rs ~20bn (~82% of MCap) and a dividend yield of ~6%, which limits downside. Risks include a rise in competition, loss of market share and an increase in investments. We maintain NEU on BSE based on unexciting 2QFY20. The core revenue stream remains under pressure while new age platform like StAR MF is doing well. Margin expansion will come with growth. We arrive at a SoTP based TP of Rs 585 by assigning 25x to core Sep-21E PAT (Rs 122/sh), Rs 111/sh for the CDSL stake and adding net cash after 20% discount (Rs 351/sh).