Accumulate National Stock Exchange of India Ltd For Target 1,950 by Prabhudas Liladhar Capital Ltd
Rooting for the Goliath of Capital Markets
We initiate coverage on NSE with ‘Accumulate’ rating and TP of INR1,950 (35x FY29E P/E). NSE dominates the exchange landscape with over ~93% share in cash market and ~100% in stock and index futures (YTDFY27), supported by strong liquidity, robust technology and a comprehensive product suite. Market share in index options has declined to ~65% (YTDFY27) due to regulatory hurdles; introduction of CAS and prop trading rules has impacted volumes further. While revenue grew at 25% CAGR in FY21- 26, we build a CAGR of 11% over FY26-29E due to shrinking share in index options. We expect EBITDA margin to recover to 76% by FY29E (vs. 71% in FY26) as one-offs get adjusted, in-line with PAT CAGR of 11%. NSE’s IPO values it at INR4.4trn, with P/E of 32x on FY29E earnings. We believe the valuation largely captures the premium.
Market leader in the Indian exchange landscape:
NSE dominates Indian exchanges with a near-monopoly in cash equities and future trading volumes. In the cash segment, it has consistently maintained 90%+ market share for several years, which we expect it to sustain. Further, NSE maintains a monopoly in futures, with ~100% share in YTDFY27. However, in index options, NSE’s share has eroded from ~97% in FY24 to ~72% in FY26 and to 65% in YTDFY27, along with decline in notional turnover. Regulatory curbs on weekly expiries, introduction of Closing Auction Session (CAS) and prop trading rules have shrunk overall industry volume, likely to result in lower growth over FY26-29E
Building a diversified growth engine:
While transaction income contributed to 79% of operating revenue in FY26, NSE is focused on a diversified mix with multiple recurring streams. Segments such as listing services, colocation, data feed and index licensing are expected to grow faster at 14% CAGR over FY26-29E (vs. 9% for transaction income). We expect operating revenue to clock 11% CAGR, with dominance in cash/ futures and growing contribution from new segments. However, market share erosion in the lucrative index options continues to be a drag.
EBITDA margin to recover as impact of one-time costs fades:
NSE’s EBITDA margin contracted to 71.3% in FY26 from 77.8% in FY25 due to settlement payments related to pending legal cases. With these cases now resolved, we expect EBITDA margin to normalize to 76% by FY29E. PAT is expected to grow at 11% CAGR over FY26-29E with FY29E RoE of 35%, supported by a capital-light, high-margin business model. Key risk to our estimates would be lower volumes due to regulatory hurdles/ market volatility; our sensitivity analysis highlights a corresponding impact of 6.4%/6.3% on FY27/ FY28E PAT. However, NSE has navigated multiple regulatory changes in the past, demonstrating its ability to adapt while retaining its competitive moat.
Initiate with ‘Accumulate’ at TP of INR1,950 (35x FY29E P/E):
We expect valuation to sustain at these levels, supported by structural factors such as
(1) near-dominance in key segments with high entry barriers
(2) healthy profit growth (11% CAGR over FY26- FY29E)
(3) optionality from new derivative products/ colocation revenue. We value NSE at 35x FY29E P/E to arrive at TP of INR1,950.
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