Amit Chandra, Institutional Research Analyst, HDFC Securities.
Exchanges, Staffing and Internet - Recovery on the cards
Exchanges: MCX options ADTV continues to rise (+60% QoQ) while futures ADTV declined -5.2% QoQ. The options ADTV stood at INR 314bn, which is up ~5.2x YoY. The futures volume decline was led by crude (-22% QoQ). The effective ADTV (futures+options) is up 44% YoY, reaching INR 366bn in Q2FY23. MCX revenue is expected to increase by 11.6% QoQ and the margin will expand to 48.4% (+310bps QoQ). We prefer MCX in the exchanges space, aided by continued traction in options volume, healthy new product pipeline (index and gold mini options), approval of FPI participation and expected cost-savings due to change in tech vendor. The extension of the support timeline by the existing technology vendor will ensure a smooth transition. Maintain BUY, with a TP of INR 1,900, based on 35x June-24E core EPS.
BSE market share in the cash/derivatives/currency segment stood at 7.9/1.7/18.6%, which is a slight improvement of +115/53/57 bps QoQ respectively. The cash turnover recovered in Q2 (Aug/Sep-22 strong) after two quarters of decline. The exclusive/non-exclusive cash volume improved by 12/19% QoQ. The mutual fund platform (StAR MF) grew 39% YoY but the pace of growth has deteriorated. BSE is expected to report a +3.4% QoQ revenue growth and an EBITDA margin of 32.3% (+67 bps QoQ). We have increased revenue/EBITDA estimates by 2.7/8.7% for FY24E due to a recovery in transaction volumes. We maintain our ADD rating with a target price of INR 740, based on 25x core June-24 PAT + net cash + CDSL stake (15% discount).
CDSL: CDSL added ~1.7mn BO accounts in Sep-22 and the market share stood at 71.5% (+530bps YoY) in Sep-22. The pace of BO account growth has moderated to ~45% YoY vs >60% last year. CDSL's revenue is expected to rise moderately for the quarter (+4.3% QoQ) on the back of better transaction, IPO/corporate action, and e-voting revenue. Normalised margin (adjusted for one-time bonus) will improve by 156bps to 63.0%. We maintain our ADD rating due to growth moderation in FY23/24E, given a slowdown in market-linked revenue (~60%). However, the recent regulatory requirement for dematerialising insurance policies could provide a boost to revenue and profitability. The stock is trading at a P/E of 35x FY24E core PAT. We have a TP of INR 1,260, based on 35x June-24E core PAT + net cash.
Staffing: Teamlease is expected to post a good quarter, led by ~5% volume growth. We expect the net addition of ~9K associates in general staffing and ~4K NETAP trainees. Revenue is expected to grow 5.3% QoQ and EBITDA margin will expand by 50bps QoQ to 1.8% due to recovery in staffing and HR services margin. The pick-up in economic activity and the festive season has led to higher demand for temp/flexi staffing. However, some signs of weakness were visible in IT hiring, which impacted specialised staffing growth. Overall, we expect ~15-20% organic volume growth in the general staffing business. Fixed markup in the general staffing business will keep the staffing margin under check while margin expansion will come with a change in revenue mix and higher automation. We estimate +23/32% revenue/EPS CAGR over FY22-24E. Maintain BUY, with a TP of INR 4,070, based on 35x June-24E EPS.