Q2FY24 Review: BSE: Robust quarter; Options to drive growth

13 Nov 2023 , 03:33 PM

BSE Q2FY24 profits grew by 256% YoY to Rs1.2bn, 30% higher than estimates, driven by strong volume growth and sharp increase in margin money. BSE continue to see traction in the Option segment, and its market share increased to 13% in Nov-23 MTD. So far, BSE was incurring losses in the Equity derivative segment, however post the tariff increase analysts of IIFL Capital Services estimate positive contribution. Analysts of IIFL Capital Services upgrade their FY24-26 EPS by 13-16% to account for strong Q2 performance and better traction in Option segment. Raise TP by 15% to Rs2300, maintain BUY. 

Strong operational performance: 

BSE’s consolidated profits grew by 256% YoY and 60% QoQ to Rs1.2bn – 30% higher than estimates. The beat was largely driven by sharp increase in interest income on margin money (+151% YoY) – analysts of IIFL Capital Services believe there is sharp increase in margin money given implementation of gross margin regulations and up streaming of margin money. In Equity derivative segment, BSE earned revenues of Rs48mn but incurred cost of Rs170mn towards clearing & settlement (paid to NCL). BSE had 1.2% market share in equity option premium turnover. In Equity cash segment, BSE’s volumes grew 25% YoY to Rs59bn ADTO implying a market share of 7.1% in Q2FY24. 

Focus on growing equity derivatives segment: 

BSE has been gaining market share in the Option segment since the re-launch in May-2023, in November (Mtd) its market share stood at 13% but its premium market share was only 4.4%. Volumes are likely to further increase given the traction seen in Bankex volumes post the change in expiry to Monday; management focus is to improve premium ratio by developing liquidity in far period contracts. Thus recent tariff hike (5x to Rs2500/cr of premium turnover), effective from 1-Nov, is on running week Sensex-30 contract only. BSE is also targeting to widen the participant base– from current 350 members to 400-450. Clearing & settlement cost paid to NCL is also likely to decline with increase in volumes, this coupled with tariff increase would improve contribution from Equity derivative segment. 

Upgrade estimates by 13-16%; maintain BUY: 

Analysts of IIFL Capital Services upgrade their FY24- 26 EPS by 13-16% to account for Q2 beat and faster than expected ramp-up in Option segment. Resultantly they also raise their SOTP based target price by 15% to Rs2300. Maintain BUY.