Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities.
BSE reported lower-than-expected revenue and margin performance in the quarter due to a fall in listing income (-20% QoQ). The core revenue stream improved (transaction charges +20.7% QoQ), led by a jump in cash volume and StAR MF. EBITDA margin was in negative territory (-7.6%) due to a drop in revenue and fixed cost structure. BSE cash market share declined to 6.2% (-113bps YoY) despite a jump in volumes, which we believe can be regained through smart order routing. The StAR MF platform is witnessing strong volume growth (+52% YoY), but realisation will fall from 2Q due to lower pricing. BSE is trying to fight back and build the derivative volume again, but it's still early days. New initiatives like insurance platform, spot exchange and INX are promising, but there is no revenue visibility from them in the near term. The revival of derivatives volume on BSE, smart order routing and interoperability are key triggers to transaction revenue. The value proposed value unlocking of the StAR MF platform is positive and will be closely watched. We arrive at a SoTP-based target price of Rs 565 by assigning 10x multiple to core June-22E PAT (Rs 57/share), Rs 110/sh for the CDSL stake and adding net cash excluding SGF and clearing cash (Rs 397/sh). BSE has net cash of Rs 18bn (~78% of market cap) and a dividend yield of ~5%, which limits downside. Maintain ADD.
1QFY21 highlights: Revenue was down 13.7% QoQ to Rs 1.03bn (vs. estimate of Rs 1.20bn) led by 20.7% growth in transaction revenue offset by 20.7% drop in annual listing fees (reduction in companies). StAR MF revenue stood at Rs 0.14bn (+19.3% QoQ). Currency derivative market share has declined sharply to 30.5% (-59bps QoQ). INX ADTV stood at USD 1.9bn (+2% YoY), and the number of daily trades was 82K (+88% YoY). Hopefully, INX will start contributing to revenue from FY22E. EBITDA margin will improve will growth in transaction charges.