BSE: Firing on all cylinders

9 Apr 2024 , 10:33 AM

Analysts of IIFL Capital Services upgrade BSE FY24-26 EPS by 8-20%, as they account for strong volume growth across its Equity Cash, Options and MF segments. As highlighted in analysts of IIFL Capital Services’ recent note – the new MD is targeting to improve the market share in FY25, by targeting higher institutional participation. Despite earnings upgrade, the stock offers multiple optionality, which could potentially double its FY26 EPS. Analysts of IIFL Capital Services increase their SOTP-based TP to Rs3,100 and maintain BUY.

Market-share gains across segments:

BSE is seeing a strong traction in the Equity Option segment since its re-launch in May’23. At FY24 end, it achieved market share of 7.3% on a premium basis, with >Rs50bn ADTO. Profitability of the segment improved with a ~5x tariff increase in Sensex30 contract since Nov’23. Analysts of IIFL Capital Services estimate BSE to clock revenues of >Rs1bn in Q4FY24, with 40% margin. In the Cash segment too, BSE ADTO grew by 60% YoY to Rs66bn ADTO in FY24. Its market share improved from 5.5% in Apr’23 to 8.5% in Mar’24. The exit ADTO stands at Rs90-100bn, implying a strong start to FY25. The Star-MF platform remains the preferred platform for MF distributors – FY24 volumes grew by 59% YoY to 421mn.

Upgrade EPS by 8-20%:

Given the strong all-round performance across its key segments, analysts of IIFL Capital Services increase their volume assumptions; leading to FY24/25 /26 EPS upgrade of 7.7%/16.6%/19.9% respectively. In analysts of IIFL Capital Services revised estimates, they assume, BSE to increase Bankex tariffs (currently at Rs500 per crore of premium turnover), to Sensex-30 tariff of Rs2,200 (range of Rs2,000-3,800) in the next two to three months. BSE is likely to further gain market share in the Equity Option segment, with traction in the Bankex contract (currently 22-23%). Segment profitability is likely to increase from Rs500mn in FY24ii to Rs4bn in FY26. In Equity Cash, conservatively analysts of IIFL Capital Services build ADTO of Rs83bn (+30% YoY gr.) with exit run-rate of Rs90-100bn ADTO. BSE has targeted a market share of 15% vs 8.5% now.

Profits can double under blue-sky scenario:

Despite earnings upgrade, BSE offers multiple earnings optionality such as tariff increase in Equity Options (currently 35% lower than NSE), additional income from colocation services (Rs7-8bn for NSE vs negligible for BSE), faster-than-expected market-share gains in both Equity Cash & Option segments, and possibility of rationalisation of clearing & settlement cost. Key risk to the estimates could be from ad-hoc increase in SGF contribution as seen in case of NSE.