IGI Logo

Strong operating performance led to PAT growth

* BSE reported a strong performance in 1QFY25 with a PAT of INR2.64b, an increase of 160% YoY and 148% QoQ (6.5% beat).

* Transaction charges grew 45% QoQ and 455% YoY at INR 3.66bdtiven by the derivatives segment, where charges jumped 113% QoQ to INR2.4b (6% higher than our estimates).

* Star MF continued to report a healthy performance, with 72% YoY jump in volumes and revenue surging 2x YoY to INR479m.

* BSE continues to gain market share in the derivatives segment as acceptance of products gets widespread. The momentum for stock futures and options launched in Jul’24, is still at a nascent stage. Considering the uncertainty on the eventual F&O regulations that are likely to be announced, we have maintained our Neutral rating on the stock with a 1- year TP of INR2,700.

Strong growth in transaction income

* Transaction charges surged 45% QoQ and 455% YoY to INR3.7b, while services to corporates increased 34% YoY to INR952m.

* Transaction charges for the cash segment were INR755m, +93% YoY, but a 12% miss, while those of the equity derivatives segment were INR2.4b, a 6% beat.

* Star MF recorded a jump of 72% YoY in total number of transactions to 141m in Q1FY25 from 83m in 1QFY24. The revenue from this segment grew 101% YoY to INR 479m in 1QFY25 from INR238m in 1QFY24.

* Opex came in line at INR3.2b, but surged 123% YoY. This was on account of provision for SEBI regulatory fees of INR 1.7b (in 1QFY24 the provision was on premium turnover, which was changed to notional turnover). Nevertheless, EBIDTA margins grew to 46.7% vs. our expectations of 46% and 19.7% in 4QFY24.

During the quarter, no contributions were made towards SGF.

* Investment income stood at INR666m, which increased 20% YoY (11% above our estimates).

* BSE has opted to shift to a new regime of taxation. Thus the tax rate was higher in the previous year (adjustments of non-availability of accumulated MAT credit and deferred tax impact due to the change in tax rates).

* In 1QFY25, it acquired 50% stake from the JV partner (Asia Index Private Limited). Consequently, AIPL has become a wholly owned subsidiary w.e.f. 1st Jun’24. The BOD accorded an in-principle approval for divestment in its wholly owned subsidiary, BSE Institute Limited.

Key takeaways from the management commentary

* BSE is working on uniform charges across client segments, and the same shall be declared separately. The charges will be closer to the unit realization earned and would not hit the company’s revenue.

* BSE is facing challenges related to differential regulatory fees and clearing & settlement charges. It has requested the regulators to reconsider the differential regulatory fees and the reply is still awaited. Any relief would positively impact BSE.

Valuation and view: Reiterate Neutral

* The relaunch of BSE derivatives products has proved to be a trend-changing measure. Increased member participation, new product launches (stock derivatives), rising awareness about products, and a recent launch of stock derivatives would continue to drive market share gains for BSE.

* Other levers that will support growth over the medium term include: 1) colocation revenues, 2) continued momentum in the STAR MF business, 4) growth in the cash segment, 5) possibility of levying a fee for listing of debt securities, 6) start of operations at its Power Exchange, and 7) commencement of revenue from its Gold Spot exchange.

* BSE continues to gain market share in the derivatives segment as acceptance of products gets widespread. The momentum for stock futures and options launched in Jul’24 is still at a nascent stage. Considering the uncertainty on the eventual F&O regulations that are likely to be announced, we have maintained our Neutral rating on the stock with a one-year TP of INR2,700.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412