BSE: Can BSE pull it off?

8 Sep 2023 , 12:29 PM

Analysts of IIFL Capital Services upgrade BSE’s FY25-26 EPS by 12-35% as they bake-in contribution from the Eq. Derivative segment. In 16 weeks since relaunch, BSE has achieved a market share of 5% on notional turnover (1.5% on premium turnover) in the eq. options. In base case, analysts of IIFL Capital Services build-in a gradual increase in market-share and tariffs; however given strong traction, they see upside risk to their estimates. In a bull-case scenario i.e. at 10% premium turnover market-share and NSE equivalent tariff of Rs3,000, BSE’s FY25 EPS would increase by 160% to Rs75, and TP would be 2.2x. Analysts of IIFL Capital Services believe BSE to increase tariffs sooner (equivalent to NSE) and build a 50% probability of this leading to Rs380 contribution to their base SOTP. 

BSE crosses 5% market share in Equity Options: 

In 16 weeks (since the re-launch of BSE Sensex-30 contracts in mid- May 2023), BSE’s notional option turnover grew by 86% WoW to Rs16trn; implying a 5.3% market share. The growth has surpassed all expectations; and analysts of IIFL Capital Services expect the momentum to continue as more brokers activate Sensex contracts. They believe the success of Sensex-30 contract is owing to: 1) Friday expiry – as Nifty and Bank Nifty expires on Thursday, traders switch to Sensex contract on Friday (lower premium due to same-day expiry means traders are able to take higher leverage). 2) Clearing corporation inter-operability – traders are able to utilise their margins seamlessly. 3) BSE focusing on the entire trading ecosystem ensuring Sensex contracts are available on all platforms – Zerodha, the largest retail broker and BSE shareholder, going live in June-23 aided volume growth. 

Tariff increase must for value additions: 

BSE currently charges Rs500 per crore of premium turnover vs ~Rs3,000 (blended) by NSE. As bulk of the clearing happens through NSE’s clearing corporations – BSE is required to pay a clearing and settlement fees. Resultantly, at the current tariffs, analysts of IIFL Capital Services don’t expect BSE to make any significant PBT contribution. Also, with increasing volumes, there may be additional SGF requirements (current corpus of Rs1bn for the Equity Derivative segment) that would eat into profits. However, as bulk of clearing is through NSE, the SGF contribution expected to increase gradually. On tariffs, analysts of IIFL Capital Services expect BSE to increase it in near future as tariffs are no more at discount to NSE in any segment. 

Upgrade EPS by 12-35% with potential upside risk: 

Analysts of IIFL Capital Services upgrade BSE’s FY25-26 EPS by 12%/35% as they build market share gains from 2% to 5%, and tariff to rise from Rs500 to Rs1,500 over FY24-26. Given the strong traction in Derivative segment, analysts of IIFL Capital Services see upside risk to their estimates. A 1% market share gain leads to 4% EPS change; while a Rs500 change in tariff results in 12% change in EPS.