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Investing for the future
We maintain BUY on BSE based on in-line revenue and better margins. Increasing revenue contribution from StAR MF platform and rise in listing fee (exclusively listed) are positives. Buyback of Rs 4.6bn will be completed and tax applicable is only Rs 0.12bn (~3%). We arrive at a SoTP of Rs 655 at 25x core FY21E PAT plus Rs 134/share for stake in CDSL plus net-cash (ex-buyback and with 20% discount).
HIGHLIGHTS OF THE QUARTER
* Revenue is down 3.1% QoQ to Rs 1.12bn (vs. est. of Rs 1.15) led by 7.7% fall in services to corporate offset by 21.3% QoQ rise in transaction revenue.
* StAR MF revenue stood at Rs 119mn (+43.4% QoQ) led by price hike (+25%, Rs 9.8/transaction) and higher volumes (+14.1% QoQ). BSE’s investment in StAR MF platform is yielding results. There is pricing power and it operates at a higher margin (~50%).
* BSE is struggling to maintain its equity cash market share, down 114/248 bps QoQ/YoY to 7.4%. However, interoperability of clearing corporations (effective July19) might help in gaining some share (still a hope).
* EBITDA margin improved to 4.9% (est. 1.2%) vs. 2.1% last quarter, led by growth in higher-margin StAR MF. Investments in new initiatives and a drop in revenue led to steep fall in margins YoY (1060bps).
* BSE has taken ~20% hike in annual listing fees for exclusively listed companies which will boost the annuity revenue stream (~40% of rev).
* INX is currently in investment mode (burning ~Rs 0.32bn annually). INX ADTV stood at USD 1.9bn (+9% QoQ) and number of daily trades was 44K (+79% QoQ). Revenue from INX will start contributing from FY21E. Near-term outlook: Transaction revenue will grow fueled by StAR MF. EBITDA margin will recover gradually with growth and cost control.
STANCE: Traditional channel under stress, value emerging
BSE has been investing in future growth drivers like INX, Insurance distribution, SME and StAR MF. Out of these only StAR MF has started generating revenue while the rest would need more time. Incremental revenue from StAR MF, volume revival and higher listing fee should lead to revenue growth of 11.1/11.8% in FY20/21E. We expect some operating leverage to play out with growth (EBITDA margin of 11.4/15.8% for FY20/21E). The stock is down 23% in the last 3M due to stress in the tradition revenue stream, continued investments despite slowdown and buyback tax. Value is emerging with net cash of Rs 20bn (~80% of MCap) and a dividend yield of ~7%. Risks include a rise in competition, loss of market share and an increase in investments.
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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