Buy BSE Ltd for the Target Rs. 7,600 by Motilal Oswal Financial Services Ltd
Strong revenue growth and SGF reversal boost PAT
* BSE reported 4QFY25 operating revenue of ~INR8.5b (12% beat), up 75% YoY, driven by 113%/22%/81% YoY growth in transaction charges/ service to corporate/other operating income. FY25 revenue jumped 115% YoY.
* Operating expenses came in line with our estimate at INR3.6b, down 7% YoY, affected by 47%/24%/32% YoY growth in employee expenses/ technology expenses/clearing house expenses and offset by 45% YoY decline in regulatory costs.
* EBITDA margin expanded to 57.2% vs. our expectation of 52.6% and 19.8% in 4QFY24. Along with revenue beat, SGF reversal of INR1.1b resulted in a 40% beat in PAT at INR4.9b (+366% YoY). For FY25, reported PAT grew 73% YoY.
* BSE aims to add 200 colocation racks before the end of FY26, taking the total count to 500 racks. While the company has introduced a per-order rate on a pilot basis, the aim is to develop a flexible revenue model for different customer cohorts.
* We have revised our premium ADTO estimates to INR157b/INR190b for FY26/27, with further headroom for increase as premium ADTO for Apr’25 was at INR155b. We raise our earnings estimates by 9%/13% for FY26/FY27. We reiterate our BUY rating on the stock with a TP of INR7,600 (premised on 45x FY27E EPS).
Transaction revenue surges as non-expiry day volume scales up
* Transaction charges jumped 113% YoY to INR6.1b, due to 318%/44% growth in charges from derivatives/Star MF. These were offset by 43% YoY decline in cash segment charges.
* Cash ADTO declined 44% YoY to INR55b amid the challenging market environment, while premium ADTO continued to scale a new peak of INR118b in 4Q with rise in activity during non-expiry days. Star MF maintained its strong momentum, with 179m orders in 4Q (+47% YoY).
* Revenue from services to corporates grew 22% YoY to INR1.3b, driven by 20%/17% YoY growth in listing fees/book building fees.
* Other operating income at INR654m grew 81% YoY, largely driven by strong expansion in the colocation facility.
* Investment income grew 34% YoY to INR797m (22% beat).
* SGF reversal of INR1.1b was reported due to excess SGF in currency segment, which is being utilized for the derivatives segment.
Key takeaways from the management commentary
* Future trajectory for contribution to NCL is difficult to predict as the SGF contribution is a complex calculation and does not have a linear correlation with volumes.
* BSE started with 100 colocation racks a few years back, which have now reached 300. 200 racks were allocated over the past few years and are optimally utilized. The utilization of recently added 100 racks will improve over the next couple of months. With a mix of 15Kva and 6KVa racks, the capacity will be equivalent to 650 racks of 6KVa by FY26.
* A common contract note will ensure level playing field and protect customer interests by ensuring best price execution. Some institutions have asked for further time for testing, and hence the implementation has been pushed to 1st Jul’25.
Valuation and view: Reiterate BUY
* F&O regulations have been beneficial for BSE with respect to a rise in non-expiry trading activity, leading to improvement in premium turnover. Decline in notional turnover boosted the profitability with lower regulatory costs. Increased member participation, colocation monetization, and sustained momentum in premium turnover will be key growth drivers for BSE.
* We have revised our premium ADTO estimates to INR157b/INR190b for FY26/27 with further headroom for increase as premium ADTO for Apr’25 was at INR155b. We raise our earnings estimates by 9%/13% for FY26/FY27. We reiterate our BUY rating on the stock with a TP of INR7,600 (premised on 45x FY27E EPS).
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