Maintain BUY on BSE - Strong operational performance - HDFC Securities

Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

We maintain BUY on BSE based on better-than-expected revenue and operational performance. Revenue growth of 21.5/15.2% QoQ/YoY was led by improvement in core revenue (cash transaction +51.8% QoQ) and higher listing fee (+20.7% QoQ). EBITDA margin improved to 17.8% vs. -7.8% QoQ (highest in the past nine quarters) due to the rise in revenue and a decline in fixed cost (-7.2% QoQ). The StAR MF platform witnessed strong growth (+67% YoY), but the fall in realisation impacted revenue in 2Q, which should normalise from 3Q onwards. BSE cash market share declined to 5.9% (-80bps YoY) despite the jump in volumes. It is trying to build the derivative volume again, the market share of which is currently at 4%. The revival of derivatives volume on BSE, smart order routing, and interoperability are key triggers to transaction revenue (market share gain). New initiatives like insurance platform, spot exchange and INX are promising but do not provide revenue visibility in the near term. We arrive at an SoTP-based target price of Rs 680 by assigning 10x multiple to core Sep-22E PAT (Rs 125/share), Rs 160/share for the CDSL stake (25% discount) and adding net cash excluding SGF and clearing cash (Rs 395/share). BSE has net cash of Rs 17.8bn (~79% of market cap) and a dividend yield of ~5%, which limits downside. The stock is trading at a P/E of 12.0/10.3x FY21/22E EPS.

2QFY21 highlights: Revenue was up 21.5% QoQ to Rs 1.25bn (vs. the estimate of Rs 1.12bn), led by 48.3% growth in services to corporates (listing fee + book building). StAR MF revenue declined to Rs 37mn due to realisation drop and clubbing of discounts. INX ADTV stood at USD 3.09bn (+35% YoY) while the number of daily trades was 104K (+51% YoY). EBITDA margin will improve with growth in transaction revenue. There was a one- off expense of Rs 145.3mn related to the settlement of arbitration with S&P Dow Jones Indices and SPDJ Singapore Pte Ltd. Tax write-back of Rs 181.2 mn resulted in a negative tax rate in the quarter.

Outlook: We expect revenue growth of +11.9/+15.3% and EBITDA margin of 13.6/19.5% in FY21/22E respectively. We are assuming INX contribution (Rs 0.28bn) and StAR MF revenue of Rs 0.67bn (12% of revenue) in FY22E.

Source : Equity Bulls

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