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Nuvama has implied BSE’s share price target based on a projected financial year 2027 price-to-earnings multiple of 50 times, reflecting the duopolistic nature of the industry, along with BSE’s stake in CDSL. The brokerage called the multiple “appropriate”, citing the relative valuation of other capital market-linked stocks like CDSL, Kfin Tech, MCX and CAMS.
BSE’s 15% stake in CDSL is valued at ₹5,450 crore, contributing 5.9% to the price target.
Despite stricter regulations on index derivatives, BSE is expected to continue thriving, Nuvama wrote about Asia’s oldest stock exchange, calling it well-equipped to adapt.
The brokerage says that even after accounting for the impact of these regulatory changes, BSE will achieve a compounded annual growth rate (CAGR) of 39.9% in revenue and 70.8% in adjusted profit after tax (APAT) between financial year 2024 to 2027. This growth is also expected to boost its return on equity (RoE) to 37.9%.
“We believe BSE is better equipped to face the impact of changes in market structure brought about by SEBI’s November 2024 circular reforming the index derivatives market. We argue BSE can continue to grow index option volumes considering that discontinued contracts comprise only 21.3% of its index option premium volumes (ADPTVs) versus NSE’s 46.9%,” it said.
Moreover, BSE has room to expand its derivatives active customer base, currently between 1.5–2 million monthly, compared to NSE’s 4.2 million.
Nuvama believes that higher contract sizes will lead to lower clearing charges, as these charges are calculated based on the number of contracts cleared. Consequently, clearing charges are expected to decrease from ₹2,013 per ₹1 crore of premium turnover in financial year 2024 to ₹734 by financial year 2026. This reduction is likely to drive EBITDA margin expansion from 28.8% in financial year 2024 to 57.6% by financial year 2027.
Key risks for the company, as per the brokerage, include any adverse regulatory changes; over-dependence on equity index options segment; any large-scale macroeconomic slowdown; and technology infrastructure or security risks.
Earlier on Tuesday, Jefferies had upgraded BSE shares to ‘Hold’ from its earlier rating of ‘Underweight’. What caught the Street’s eye more though, was the fact that it raised its price target on BSE to ₹5,250 from ₹3,500 earlier, a 50% hike from previous levels. However, the stock is already above those levels.
Jefferies said that exchanges are likely to see earnings upgrades. However, brokers may need to implement price hikes to adapt to the evolving market environment.
Another brokerage firm Goldman Sachs had recently initiated coverage on BSE with a ‘Neutral’ rating and a price target of ₹5,060.
It said that BSE stands to benefit from strong growth tailwinds in India’s equity capital markets. It noted that robust nominal growth in the earnings of Indian listed corporations acts as a powerful compounding factor.
Out of the 10 analysts that have coverage on BSE, six of them have a ‘Buy’ recommendation, while three have a ‘Hold’ and one say ‘Sell’.
Shares of BSE Ltd. ended 5.5% higher on Tuesday at ₹5,440. The stock has surged nearly 145% over the last 12 months.
