Q3FY24 Review: BSE: SGF contribution masks strong operating perf.

6 Feb 2024 , 11:59 AM

BSE Q3FY24 consol PAT grew 110% YoY to Rs1.2bn, but missed estimates due to one-time SGF contribution. Adjusting for this operational performance was strong and ahead of estimates. With the tariff increase in Nov-23, BSE’s equity derivative segment has turned profitable; company remains confident of further ramping up volumes. Analysts of IIFL Capital Services trim FY24 EPS by 5% to account for SGF contribution; but maintain FY25-26 estimates. BSE’s EPS to grow at 35% pa over FY24-26 driven by equity derivative segment. At CMP, BSE trades at 43x FY26 EPS – pricing in base case earnings. Stock is likely to consolidate; re-rating hereon would be driven by next leg of earnings upgrades (tariff increase, new revenues, etc). 

SGF contribution mars otherwise strong operating perf.: 

BSE’ Q3FY24 profits is up 110% YoY to Rs1.1bn; however this was 20% below estimates given Rs917mn SGF contribution for the currency segment. Adjusting for this, profits more than doubled to Rs1.7bn – 25% higher than estimates. Higher than expected revenues from corporate services and tight control over operational cost drove adjusted PAT beat. Sharp increase in transaction revenues (up 163% YoY) has been a key driven of the profits – 1) Equity cash volumes are up 57% YoY to Rs66bn ADTO, 2) MF transaction grew by 62% YoY to 110m, and 3) Equity option volumes was up 70x QoQ to Rs25.5bn ADTO premium turnover. The tariff increase in equity option segment from 1st Nov led to 12x QoQ jump in revenues to Rs567mn and turned derivative segment profitable. 

Expanding colo facilities; derivative segment to be a key driver: 

BSE’s Equity Option market-share jumped 3x QoQ from 4.2% to 12.1% in Q3 (Rs335trn ADTO). Premium market-share too improved from 1.23% to 4.3%. Mgmt. has upped platform capacity by 7-8x to meet higher volumes in derivative segment. BSE is also increasing colo racks from 100 to 300 over the next 12-15 months. Further BSE is engaging with FPIs to increase liquidity in the far month contracts – this would improve its premium market-share. Ramp-up in Bankex volumes to also drive growth in 4Q (0.2mn UCC participate in Bankex vs 0.7mn in Sensex). 

Tweak FY24 estimates:

Analysts of IIFL Capital Services trim FY24 EPS by 5% as they build-in SGF contribution; however maintain FY25-26 estimates as incremental SGF contribution are offset by tight control over other operating costs. At CMP, stock trades at fair valuation; however given the earnings optionality (tariff increase, colocation revenues, etc.) there is a potential for earnings upgrades. Thus analysts of IIFL Capital Services continue to remain positive on the stock.