8 August 2020
2QFY21 Results Update | Sector: Others
BSE
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
BSE IN
47
22.6 / 0.3
608 / 275
-15/-1/-10
125
CMP: INR502
TP: INR680 (+36%)
Buy
Operational beat led by strong market activity
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
present meaningful opportunity over the long term.
We find BSE to be a tactical play. Confidence on the structural story would
only come after a meaningful scale-up in adjacent revenue streams.
Reiterate
Buy.
BSE reported revenue growth of 18% YoY. The EBITDA margin stood at
19.7% v/s -5.3% in 2QFY20.
2QFY21 revenue of INR1.3b was above our estimate, led by higher listings
and book-building fees.
Strong growth in transactional income (~73% YoY) was partially offset by
58% decline in income from Star MF. Lower income in Star MF was largely
led by one-time rate negotiations with various AMCs.
A higher EBITDA margin was largely attributable to positive operating
leverage in the business.
During the quarter, BSE incurred a one-time expense of INR145.3m. This
resulted from arbitration and legal cost from an attempt to terminate the
index licensing agreement with S&P Dow Jones. It was offset by tax reversal
during the quarter, resulting in a tax credit of INR192m.
This led to an increase of 25% YoY in PAT to INR460m.
The Star MF platform is seeing strong traction in volumes. The number of
orders processed grew 56% YoY in 2QFY21.
However, led by one-time rate negotiations, BSE took a hit in September.
Oct onward, all of the AMCs would transact on the revised rate by the
company, which is lower than the realization in the previous quarters.
NSE’s competitive pricing has impacted BSE’s ability to charge in the Star
MF, INX, and Commodity Derivatives segments. BSE would approach the
regulator to intervene on anti-competitive practices; until then, it would
continue with its liquidity enhancement schemes and no/low charges (Star
MF).
Financials & Valuations (INR b)
Y/E Mar
2020 2021E 2022E
Net Sales
4.5
5.0
5.5
EBIT
-0.5
0.2
0.3
PAT
1.4
2.1
2.2
EPS (INR)
24.9
37.9
47.3
EPS Gr (%)
-32.5
52.0
25.0
BV / Sh (INR)
494
543
566
Ratios
RoE (%)
5.0
7.0
8.4
RoCE (%)
7.9
10.6
11.7
Valuations
P/E (x)
20.1
13.2
10.6
P/BV (x)
1.0
0.9
0.9
Operations above estimates
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
0.0
0.0
0.0
9.9
10.5
13.6
42.0
42.5
44.1
48.1
47.0
42.3
FII Includes depository receipts
Key highlights from management commentary
Research Analyst: Anmol Garg
(Anmol.Garg@MotilalOswal.com)
11 February
are
Investors
2020
advised to refer through important disclosures
1
made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.