BSE – BUY

Recommendation
upgrade
24 March 2021

Outlook improving; trades inexpensively Company update

We upgrade BSE to BUY, given improvement in its core equity CMP Rs559 Price performance (%)
cash business owing to: 1) BSE posting strong volume growth in 1M 3M 1Y
12-mth TP (Rs) 660 (18%)
FY21, after listing a decline in the last two years; 2) market share
seeing an uptick to 7.5% from the lows of 5%, possibly driven by Market cap (US$m) 347 Absolute (Rs) (3.6) (9.2) 97.2
implementation of the best-price execution rule; 3) tariff upturns Absolute (US$) (3.9) (8.0) 113.8
likely to drive FY22 growth. The stock trades inexpensively, Rel.to BSE Midcap (3.5) (22.9) (6.5)
equivalent to free cash on books and CDSL investments, ascribing Bloomberg BSE IN
nil value to the core business. Given the improvement in core Cagr (%) 3 yrs 5 yrs
business and attractive valuations (~5% dividend yield), we value Sector Exchanges EPS (10.3) (0.4)
the stock at 18x FY23ii EPS, in line with its long-term average.
Shareholding pattern (%) Stock performance
Market share loss seems to be arrested: BSE’s turnover in the cash Promoters 0.0 Vol('000, LHS) Price (Rs., RHS)
equity market grew by 57% YoY in FY21ii, after declining in the last two Pledged (as % of promoter share) 0.0 4,000 800
years, driven by strong market activity. More importantly, BSE’s market
FII 12.4
share, which had been falling since FY17, seems to have bottomed out in 3,000 600
Oct/Nov-20 at 5% and has seen some gains since then (currently at DII 4.6
2,000 400
7.5%). The gains were possibly driven by implementation of best-price 52Wk High/Low (Rs) 658/275
execution (i.e. implementation of Smart Order Routing or SOR by brokers, 1,000 200
Shares o/s (m) 45
as per an SEBI mandate) and/or better volatility in mid- & small-cap 0 0
stocks. In this regard, any risk of volume moderation due to SEBI’s new Daily volume (US$ m) 3.1

Mar-19

Mar-20
Nov-19

Jul-20

Mar-21
Nov-20
Jul-19

Jan-20

Jan-21
Sep-19

Sep-20
May-20
May-19
margin rules could be offset by likely market share gains from the full Dividend yield FY22ii (%) 4.8
impact of SOR in FY22. Separately, from 1-Mar-2021, BSE has increased Free float (%) 100.0
tariffs for its cash equity segment by 15-32% (now in line with the NSE
Financial summary (Rs m)
vs. 7-20% discount earlier), which would drive revenue growth next year.
Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii
New initiatives offer long-term opportunities: Among its multiple Revenues (Rs m) 6,874 6,300 6,530 7,118 7,625
new initiatives, BSE has successfully monetised its MF platform – Star MF Ebitda margins (%) 37.0 25.5 26.8 28.5 29.0
– since FY18. Recently AMCs renegotiated tariffs downwards (40-50%
Pre-exceptional PAT (Rs m) 2,017 1,205 1,312 1,523 1,656
cut) which would weigh on MF revenues, but will be partially offset by
strong volume growth momentum (>50% YoY). BSE intends to sell stake Reported PAT (Rs m) 1,993 1,223 1,407 1,523 1,656
in its MF business, to unlock shareholders’ value. In addition, BSE has Pre-exceptional EPS (Rs) 38.9 26.8 29.1 33.9 36.8
forayed into multiple new opportunities − such as International Exchange Growth (%) (8.5) (31.3) 8.9 16.1 8.7
at Gift City, power exchange, commodities, and insurance distribution −
which may not contribute in the near term, but offer long-term potential. PER (x) 14.4 20.9 19.2 16.5 15.2
Trades inexpensively; upgrade to BUY: We upgrade FY22-23ii EPS by ROE (%) 6.7 4.6 5.5 6.2 6.7
4-6%, to account for the strong volume growth in equities and the tariff Net debt/equity (x) (1.2) (1.5) (1.6) (1.6) (1.6)
hikes, which will be partly offset by lower tariffs in the MF business. At
CMP, the stock trades inexpensively at free cash on books (Rs14bn or
Price/book (x) 1.0 1.1 1.0 1.0 1.0
Rs310/sh) and CDSL investment value (owns 20% stake; implied holdco
disc.: ~20%). Improving prospects of core equity business and attractive OCF/Ebitda (x) (0.1) 3.5 2.0 0.9 0.9
div. yield should drive valuations to its long-term avg of 18x 1-yr fwd P/E. Source: Company, IIFL Research. Priced as on 24 March 2021

Devesh Agarwal | devesh.agarwal@iiflcap.com | |

91 22 4646 4647
 BSE – BUY

Figure 1: Equity cash volumes grew >55% YoY in FY21 Figure 3: BSE has increased tariffs for its cash equity segment by 15-32% from 1-Mar-21
BSE BSE NSE
Monthly turnover (Rs bn)
Old tariff New tariff Chg Current tariff
0-7.5 30.0 34.5 15.0% 34.5
7.5-12.5 29.0 34.5 19.0% 34.5
12.5-15.0 29.0 34.0 17.2% 34.0
15.0-25.0 28.0 34.0 21.4% 34.0
25.0-50.0 27.0 33.5 24.1% 33.5
50.0-75.0 26.0 33.0 26.9% 33.0
75.0-100.0 25.0 33.0 32.0% 33.0
100.0-150.0 25.0 32.5 30.0% 32.5
Above 150.0 25.0 32.0 28.0% 32.0
Source: Company, IIFL Research; Note: Tariff are in Rs. for per million of turnover for each side
Source: Company, IIFL Research
Figure 4: MF tariffs were cut by 40-50% in FY21 – This weighed on FY21 MF revenues
Figure 2: BSE’s market-share seems to have bottomed-out at 5% in Oct-Nov 2020

Source: Company, IIFL Research

Source: Company, IIFL Research; Note: In Feb-21, there was a large block trade of Bosch Ltd., of
Rs300bn, which led to overall increase in volumes

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 BSE – BUY

Figure 5: Cash and CDSL investment account for the bulk of BSE valuations
Particulars Rs m Rs/share Comments
Distributable cash on books Excludes SGF, margin money and
14,000 311
(Dec 2020) member deposits
Mkt. value of BSE's 20% stake
10,560 235 After Holdco discount of 20%
in CDSL
Total value 24,560 546 Value of Cash & Investments
BSE M-cap 25,155 559
No value ascribed to the core
% diff 2% 2%
business
Source: Company, IIFL Research

Figure 6: We value BSE at its long term average of 18x P/E

12m fwd PE Avg +/- 1SD

27.0
(x)
24.0
21.0
18.0
15.0
12.0
9.0
6.0
Feb-17 Nov-17 Sep-18 Jul-19 May-20 Mar-21

Source: Bloomberg, IIFL Research

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 Company snapshot BSE – BUY

Background: Established in 1875, BSE (erstwhile Bombay Stock Exchange) is Asia’s first stock exchange and the world’s largest exchange, by number
of listed securities. BSE provides an efficient and transparent market for trading in equity, debt instruments, derivatives, and mutual funds. It also has a
platform for trading in equities of small & medium enterprises (SMEs). Further, BSE provides a host of other services to capital market participants
including risk management, clearing, settlement, market data services and education. BSE also owns stake in Central Depository Services (CDSL) − the
largest depository by demat accounts in India.

Management
Name Designation FY20 Revenue break-up FY20 Expense break-up
Ashishkumar Chauhan MD and CEO Other
Services
Operatin Other Employe
to
Sameer Patil CBO g Income Exp. e Exp.
Corporat
14% 40% 29%
Nayan Mehta CFO es
34%

Tresury Securitie
income Regulato Technolo
s
25% ry Exp. gy Exp.
Services
9% 22%
27%

Assumptions PER
Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii
12m fwd PE Avg +/- 1SD
Gr. in avg daily trades in (28.1) (13.8) 57.0 5.0 10.0
cash segment (%) 27.0
Gr. in avg daily T/O in (53.7) (40.8) 88.0 2.0 10.0 (x)
24.0
Exclusive Cash Segment (%)
21.0
Gr. in avg daily turnover in 61.0 (11.0) (30.0) 10.0 10.0
Currency segment (%) 18.0
Gr. in MF transactions (%) 109.7 60.2 65.0 50.0 35.0 15.0
Transaction charges in MF 8.1 7.8 3.6 3.0 3.0 12.0
(Rs)
9.0
Source: Company, IIFL Research
6.0
Feb-17 Nov-17 Sep-18 Jul-19 May-20 Mar-21

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 BSE – BUY

Financial summary
Income statement summary (Rs m) Balance sheet summary (Rs m)
Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii
Revenues 6,874 6,300 6,530 7,118 7,625 Cash & cash equivalents 35,894 35,597 38,047 38,454 38,954
Ebitda 2,545 1,604 1,749 2,031 2,210 Inventories 0 0 0 0 0
Depreciation and amortisation (511) (510) (580) (603) (668) Receivables 490 700 700 700 700
Ebit 2,034 1,094 1,170 1,428 1,542 Other current assets 2,134 2,480 2,480 2,480 2,480
Non-operating income 0 0 0 0 0 Creditors 0 0 0 0 0
Financial expense (9) (24) (95) (95) (95) Other current liabilities 15,682 20,323 22,335 22,335 22,335
PBT 2,025 1,070 1,075 1,333 1,447 Net current assets 22,837 18,454 18,892 19,300 19,799
Exceptionals (25) 18 95 0 0 Fixed assets 1,662 1,527 1,447 1,344 1,176
Reported PBT 2,000 1,089 1,170 1,333 1,447 Intangibles 0 0 0 0 0
Tax expense (300) (149) (193) (240) (260) Investments 4,302 3,862 3,862 3,862 3,862
PAT 1,700 940 977 1,093 1,187 Other long-term assets 182 219 219 219 219
Minorities, Associates etc. 292 283 430 430 469 Total net assets 28,983 24,062 24,420 24,725 25,056
Attributable PAT 1,993 1,223 1,407 1,523 1,656 Borrowings 0 0 0 0 0
Other long-term liabilities 0 186 186 186 186
Ratio analysis Shareholders equity 28,983 23,877 24,235 24,539 24,870
Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Total liabilities 28,983 24,062 24,420 24,725 25,056
Per share data (Rs)
Pre-exceptional EPS 38.9 26.8 29.1 33.9 36.8 Cash flow summary (Rs m)
DPS 30.0 17.0 23.3 27.1 29.4 Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii
BVPS 559.5 530.6 538.5 545.3 552.7 Ebit 2,034 1,094 1,170 1,428 1,542
Growth ratios (%) Tax paid (300) (149) (193) (240) (260)
Revenues (1.7) (8.4) 3.7 9.0 7.1 Depreciation and amortization 511 510 580 603 668
Ebitda (21.0) (37.0) 9.0 16.1 8.8 Net working capital change (2,583) 4,086 2,012 0 0
EPS (8.5) (31.3) 8.9 16.1 8.7 Other operating items 0 0 0 0 0
Profitability ratios (%) Operating cash flow before interest (338) 5,541 3,568 1,791 1,950
Ebitda margin 37.0 25.5 26.8 28.5 29.0 Financial expense (9) (24) (95) (95) (95)
Ebit margin 29.6 17.4 17.9 20.1 20.2 Non-operating income 0 0 0 0 0
Tax rate 15.0 13.7 16.5 18.0 18.0 Operating cash flow after interest (347) 5,517 3,473 1,696 1,855
Net profit margin 24.7 14.9 15.0 15.4 15.6 Capital expenditure (525) (371) (500) (500) (500)
Return ratios (%) Long-term investments (341) 439 0 0 0
ROE 6.7 4.6 5.5 6.2 6.7 Others (1,907) (4,951) 526 430 469
ROCE 6.8 4.1 4.8 5.8 6.2 Free cash flow (3,119) 635 3,499 1,627 1,824
Solvency ratios (x) Equity raising (3) (14) 0 0 0
Net debt-equity (1.2) (1.5) (1.6) (1.6) (1.6) Borrowings 0 0 0 0 0
Net debt to Ebitda (14.1) (22.2) (21.7) (18.9) (17.6) Dividend (1,865) (918) (1,049) (1,219) (1,325)
Interest coverage NM 46.2 12.3 15.1 16.3 Net chg in cash and equivalents (4,987) (297) 2,450 408 499
Source: Company data, IIFL Research Source: Company data, IIFL Research

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 BSE – BUY

Disclosure : Published in 2021, © IIFL Securities Limited (Formerly ‘India Infoline Limited’) 2021
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 BSE – BUY

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Analyst Certification: (a) that the views expressed in the research report accurately reflect part of her compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained
in the research report.

A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp, www.bseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes.
(Choose a company from the list on the browser and select the “three years” period in the price chart).

Name, Qualification and Certification of Research Analyst: Devesh Agarwal(PGDBM)

IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: L99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91-
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Key to our recommendation structure

BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.

SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.

Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.

Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.

Distribution of Ratings: Out of 236 stocks rated in the IIFL coverage universe, 123 have BUY ratings, 8 have SELL ratings, 74 have ADD ratings and 30 have REDUCE ratings

Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as
comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there
is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such
demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in
certain industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social
conditions. This discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.

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 BSE – BUY

Date Close price Target price Rating

BSE Ltd: 3 year price and rating history (Rs) (Rs)
(Rs) Price TP/Reco changed date 05 Oct 2020 540 585 ADD
1,200 04 Aug 2020 511 540 ADD
1,000 22 May 2020 433 500 ADD
800 05 Aug 2019 481 600 ADD
600 05 Nov 2018 625 715 ADD
06 Aug 2018 823 950 ADD
400
07 May 2018 818 1070 BUY
200
0
Mar-18
May-18

Mar-19
May-19

Mar-20
May-20

Mar-21
Nov-18
Jan-19

Nov-19
Jan-20

Nov-20
Jan-21
Jul-18
Sep-18

Jul-19
Sep-19

Jul-20
Sep-20

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