Maintain BUY on BSE - Regaining lost ground - HDFC Securities

Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities and Mr. Mohit Motwani, Institutional Research Analyst, HDFC Securities

BSE delivered the best quarterly performance over the past four years with revenue growth of 26% QoQ and a margin of 30.3% (multi-quarter high). Growth was driven by market-linked revenue, with core transaction/book building increasing by 46.7/81.2% QoQ. BSE gained some lost ground in the cash segment (market share increased by 140bps to 7.1%), supported by interoperability. The exchange is also trying to rebuild the derivatives volume, as the current market share is only ~6%; it is expected to support cash volumes and is a potential revenue driver. New initiatives like the insurance platform, power, and spot exchange are promising, but currently they lack clarity. Revenue growth will be led by continued growth in transaction volume, StAR MF and stable listing revenue. INX, which is growing exponentially (~2x in FY21), can be a revenue driver if BSE starts charging. We increase EPS estimate by +4.3/5.1% for FY22/23E, based on volume uptick and better margin. We assign an SoTP-based target price of INR 840 by assigning 10x to core Dec-22E PAT (INR 188/share), INR 280/share for the CDSL stake, and adding net cash of INR 372/share. Maintain BUY.

4QFY21 highlights: Revenue was up 26.2% QoQ to INR 1.52bn vs. estimate of INR 1.33bn. Cash transaction revenue was up 63% QoQ, supported by a price hike of 20%. StAR MF realisation declined to INR 3.7/order (-53% YoY due to price negotiation) but volume was up 61% YoY in FY21. Listing/Data Feed revenue was up 5.8/12.7% QoQ. INX ADTV stood at USD 16.2bn (+537% YoY) and the number of daily trades was at 301k (+352% YoY). EBITDA margin expanded 2040bps to 30.3% in the quarter, supported by revenue growth and lower technology spend (-24.5% QoQ). For FY21, revenue was up 11.3% YoY and EBITDA margin stood at 14.5%.

Outlook: We expect revenue growth of 13.9/17.0% and EBITDA margins of 19.4/25.3% in FY22/23E respectively. We are assuming INX contribution of INR 0.07/0.28bn and StAR MF revenue of INR 0.50/0.73bn in FY22/23E. Core PAT for FY22/23E is INR 0.38/0.84bn.

Source : Equity Bulls

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