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Lower clearing house costs and opex drive a PAT beat

• BSE reported a 1QFY26 operating revenue of ~INR9.6b (in line), up 59% YoY/13% QoQ, mainly driven by 84% YoY growth in transaction charges.
• Operating expenses stood at INR3.3b, up 4% YoY, led by a 23%/24%/33% YoY growth in regulatory expenses/employee costs/ technology expenses, while clearing house expenses were down 37% YoY. EBITDA stood at INR6.3b, up 122% YoY/29% QoQ, leading to an EBITDA margin of 65.3% vs. our expectations of 59.7% and 46.9% in 1QFY25.
• BSE’s PAT for the quarter surged 104% YoY/9% QoQ to INR5.4b (13% beat), driven by lower-than-expected clearing house expenses.
• BSE has 350 racks currently (75–80% utilization) and plans to add ~140 more racks in two phases in FY26. Effective Jun’25, BSE introduced throttle pricing, reducing free orders per second from 10k to 40; incremental order pricing varies by subscribed speed and starts from INR50k annually.
• We raise our earnings estimates by 7% each for FY26/FY27 to adjust for lower clearing house costs and income from colocation. With a likely market share loss from the shift in expiry from Sep’25 and uncertainty over future regulatory actions, we reiterate our NEUTRAL rating on the stock with a TP of INR2,600 (premised on 45x FY27E EPS).

Surge in transaction revenue fueled by the Sensex derivatives product

• Transaction charges jumped 84% YoY to INR7.4b, due to 147%/28% growth in charges from derivatives/Star MF. These were offset by a 28% YoY dip in cash segment charges.
• Cash ADTO declined 20% YoY to INR72b amid the challenging market environment, while premium ADTO continued to scale a new peak of INR151b in 1Q with a rise in activity during non-expiry days.
• Total transactions processed on the Star MF platform were up 30% to 183m in 1QFY26, crossing ~61m transactions per month in FY25 vs. ~47m last year. July saw the highest ever monthly transactions at ~66.5m.
• On the subsidiaries front, BSE Index Service Private Limited launched 7 new indices during the quarter, including four factor indices, and services 300+ marquee clients domestically and globally. It is also working actively with its subsidiaries on creating a platform for trading in the commodities and agriculture segments.
• Options volumes mix: HFT/Retail/Proprietary and Others at 35%/25- 26%/35-40%
• Revenue from services to corporates grew 11% YoY to INR1.1b, led by 17% YoY growth in listing fees, while the book building fees segment declined 6% YoY.
• Other operating income at INR701m grew 57% YoY, largely driven by strong expansion in the colocation facility.
• Investment income grew 28% YoY to INR791m.
• No additional contribution was made to the core SGF during the quarter
• Clearing and settlement expenses declined sequentially to INR550m from ~INR840m in Q4FY25, due to 1) a shift in volume to non-expiry days driving higher premiums, and 2) larger contract sizes.

Key takeaways from the management commentary

• Common Contract Note has been successfully implemented in India with effect from 27th Jun’25, enabling institutional investors to trade seamlessly across trading venues.
• The expiry shift to Thursday from Tuesday was decided after feedback from market participants, and no negative impact on premium realization is expected by the management.
• BSE platforms continue to be the preferred choice for Indian companies to raise capital, facilitating INR7.6t through equity, debt, bonds, commercial papers, mutual funds, etc.

Valuation and view: Reiterate Neutral

• We expect BSE to lose 300-400bp of premium turnover market share once the weekly expiry shifts to Thursday from Tuesday currently. Any further regulatory moves to curb retail activity in F&O can impact volumes for the exchange.
• We raise our earnings estimates by 7% each for FY26/FY27 to adjust for lower clearing house costs and income from colocation. We reiterate our NEUTRAL rating on the stock with a TP of INR2,600 (premised on 45x FY27E EPS).

Key takeaways from the management commentary

Regulatory trends

• Regulatory changes continue to follow a consultative, co-created process; no new consultations are ongoing currently.
• SEBI’s derivatives regulations 2.0 (including gross/net open position limits) went live in Jul’25; management mentioned it is too early to assess the full impact, though no major disruption has been seen so far
• The expiry shift to Thursday from Tuesday was decided after feedback from market participants, and no negative impact on premium realization is expected.

Business

• Options volumes mix: HFT/Retail/Proprietary and Others at 35%/25-26%/35- 40%
• Total transactions processed on the Star MF platform were up 30% to 183m in 1QFY26, crossing ~61m transactions per month in FY25 vs ~47m last year. July saw the highest ever monthly transactions at ~66.5m
• BSE Index Service Private Limited has a product portfolio of ~170+ indices currently, servicing 300+ marquee clients domestically and globally. Launched 7 new indices during the quarter, including four factor indices, in addition to 20 launched last year
• BSE is actively working with its subsidiaries on creating a platform for trading in the commodities and agriculture segments
• Common Contract Note has been successfully implemented in India with effect from 27th Jun’25, enabling institutional investors to trade seamlessly across trading venues.
• During the quarter, BSE reached the milestone of 600 SME listings to date, with 18 listings raising INR8.8b in Jul’25 alone (highest ever monthly)
• Since the platform's launch, a total of INR106.5b has been raised, with the last 100 SMEs raising INR40.7b, contributing ~38% of the total amount raised.
• In 1QFY26, BSE welcomed 21 new equity listings across the mainboard and SME, raising INR142b
• BSE platforms continue to be the preferred choice for Indian companies to raise capital, facilitating INR7.6t through equity, debt, bonds, commercial papers, mutual funds, etc.
• Under the IPF, BSE conducted ~1,026 awareness programmes during the quarter to promote financial literacy.
• BSE recently collaborated with SEBI on a campaign to raise awareness against financial fraud and protect investor interests
• Recently launched the ‘Nivesh Mitra’ mobile app, aimed at helping users learn how to open trading/demat accounts, assess their personal risk profile, and simulate investments using historical data.
• Rebranded its wholly owned subsidiary ‘Asia Index Private Limited’ to ‘BSE Index Services Private Limited’

Financials

• Revenue from operations grew strongly by 59% YoY, driven by strong performance in transaction-related income, other operating income, and investment-related income.
• Transaction revenues were up 84% YoY, supported by strong volumes in the Sensex derivatives product.
• Operating expenses increased by 5%. Approximately 48% of total operating expenses were attributable to regulatory fees and clearing and settlement expenses, which are directly linked to increasing derivatives volumes.
• No additional contribution was made to the core SGF during the quarter
• Clearing and settlement expenses declined sequentially to INR550m from ~INR840m in 4QFY25, due to 1) a shift in volume to non-expiry days driving higher premiums, and 2) larger contract sizes

Colocation

• BSE has 350 racks currently allocated (75–80% utilization), with plans to add ~140 more racks in two phases during FY26 (one tranche in this month and the other by the end of FY26)
• Rack pricing stands at INR1.2m/year for 6 KVA and INR2.5m/year for 15 KVA. Estimated revenue for 1QFY26 was ~INR120m
• Effective Jun’25, BSE introduced throttle pricing for colocation; free orders per second have been reduced from 10,000 to 40. For incremental orders, pricing depends on the subscribed speed and starts from INR50,000 annually

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