BSE Ltd.

SUBSCRIBE

Recommendation
Price Band

Rs. 805 Rs. 806

Bidding Date

23 Jan - 25 Jan

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Book Running Lead Manager

Registrar
Sector

rd

BACKGROUND

th

Axis Capital, Edelweiss

Financial, Jefferies India,
Nomura Financial, Motilal
Oswal, SBI Capital, SMC
Capitals
Karvy Computershare Pvt.
Ltd.
Stock Exchange

Minimum Retail Application- Detail At Cut off Price

Number of Shares
Minimum Application Money

18
Rs. 14,508

Discount to retail
Payment Mode

No discount
ASBA

Consolidated Financials (Rs Cr)

FY15

FY16

Revenue

361.1

426.5

EBITDA

41.7

68.8

Valuations

169.8
Lower
Band

161.8
Upper
Band

Market Cap (Rs. Cr)

4321

4326

EPS (x)*

30.1

30.1

P/E Ratio (x)*

26.72

26.75

ROE (%) (adj)*

6.6%

6.6%

Adj. Net Profit

Enterprise Value (Rs. Cr)

1645.9
*calculated on FY16 numbers (post issue basis)

Others

Objects of the Issue:

Listing of share and exit to some of the existing shareholders.

Valuation and Recommendation:

1640.6

0%
100%

QIB (Including Mutual Fund)

50%

Non-Institutional

15%

Retail

35%

Issue Size (Rs. Cr)

Face Value (Rs.)

Anupam Bafna
Research Analyst
(+91 22 3926 8186)
anupam.bafna@nirmalbang.com

(a) Strong brand recognition with a track record of innovation

(b) Diversified and integrated business model
(c) Diversified sources of revenue and strong financial
(d) Development and introduction of new products
The public issue of BSE consists of offer for sale of 1.54 Cr equity shares
by existing shareholders aggregating to Rs. 1,243 Cr (at upper price band).

Offer structure for different categories

Post Issue Equity (Rs.Cr)

Investment Rationale:

Details of the Issue:

Post Issue Shareholding Pattern

Promoters

BSE Ltd. (BSE or Exchange) is the first stock exchange of Asia,

incorporated in 1875. BSE was the world's largest exchange by number
of listed companies, and India's largest and the world's 10th largest
exchange by market capitalization, with US$ 1.7 trillion in total market
capitalization of listed companies as on Oct 2016. BSE provides a market
for listing and trading in various types of securities. BSE operates in
three segments; (i) listing business consisting of the primary market
relating to the issuance of new securities; (ii) market business: which
consists of the secondary market, which relates to the purchase and
sales of previously-issued securities; (iii) the data business, which
consists of sale and licensing of information products.

10.74
1242 1243
2

Though BSE was the first stock exchange in Asia, incorporated in 1875
but remain much behind NSE and had market share of 15% in cash
segment (as on FY16) and negligible presence in Derivative segments.
Due to lagging behind in adoption of derivative, BSE lost its dominant
position to NSE even in Cash segment as well. Now BSE is trying to
strike first in many of the newer product like Currency Derivative, MF,
Debt Market, International Exchange etc. We feel success of any of the
activity can bring growth for BSE. Anyhow BSE is still second largest
exchange in volume term and world's largest exchange by number of
listed companies. We feel With Market Cap of Rs. 4,326 Cr at upper end
of price band and Free cash of Rs. 2,681 Cr, the Enterprise value of Rs.
1,646 Cr is attractively priced considering the optional value of success
of any new initiative. At Upper band of Rs. 806, BSE is offered at 15.9x
EV/EBITDA and 26.7x PE of H1FY17 annualised earnings. We
recommend subscribing to the issue.
Financial Snapshot
Revenue
YoY Growth(%)
EBIDTA
Margin(%)
Adj. PAT
YoY Growth(%)
P/E (FY16) @ Rs. 806 #

FY14
266.8
-2.6%
24.4
9.2%
185.3
-6.0%

P/BV @ Rs. 806

ROE (%) #
# H1FY17 numbers annualised

FY15
361.1
35.4%
41.7
11.5%
169.8
-8.4%

FY16
426.5
18.1%
68.8
16.1%
161.8
-4.7%
26.8
1.8
6.6%

H1FY17
242.2
# 13.6%
51.8
21.4%
122.8
17.6
1.7
9.8%

Source: RHP

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Business
BSE ltd. (BSE or Exchange) is the first stock exchange in Asia, incorporated in 1875. At the end of
October 2016, the BSE was the world's largest exchange by number of listed companies, and India's
largest and the world's 10th largest exchange by market capitalization, with US$ 1.7 trillion in total
market capitalization of listed companies. BSE provides a market for listing and trading in various
types of securities as may be allowed by SEBI. BSE operates in three primary lines of business,
namely:
1. The listing business: which consists of the primary market relating to the issuance of new
securities;
2. The market business: which consists of the secondary market, which relates to the purchase and
sales of previously-issued securities, placement of orders and redemptions of units in mutual funds,
over-the-counter corporate bond trading, and membership, which includes membership in the
Exchange, membership in clearing corporation ICCL, and membership of depository participants in
depository CDSL, and post-trade services like clearing corporation and depository; and
3. The data business, which consists of the sale and licensing of information products.
Breakup of revenue from the different revenue streams is as under:
Particulars
Securities Services

FY12
218.3
69%
76.3
24%
20.8
7%
315.4

Services to Corporates
Data Dissemination Fees
Revenue from operations
Source: RHP

FY13
193.6
71%
57.9
21%
22.4
8%
273.9

FY14
187.2
70%
59.1
22%
20.4
8%
266.8

FY15
233.7
65%
105.4
29%
22.1
6%
361.1

FY16
243.0
57%
161.1
38%
22.4
5%
426.5

H1FY17
149.7
62%
80.2
33%
12.3
5%
242.2

As on FY16, BSE has a market share of 15% is equity cash, 6% in derivatives, 17% in Interest rate
derivatives, 36% in currency derivatives, 20% on corporate bonds and 23% in ETF.
In addition to the primary business, it also has supporting businesses like providing IT services and
solutions, licensing index products such as the S&P BSE SENSEX, providing financial and capital
markets training etc.
Below table Indicates expanding reach of BSE in various parameters:

Particulars
Number of cities covered
Number of active trading terminals
Average number of orders per day
Average number of trades per day

FY14
1,995
52,596
98,258,925
2,894,108

FY15
2,040
66,713
260,843,398
3,278,603

FY16
2,084
86,507
284,921,361
3,091,339

H1FY17
2,100
95,788
251,911,381
3,289,764

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Details of major Subsidiaries:

Name

% Holding

Revenue (FY16)

PAT (FY16)

Central
Depository
Services (India) Limited

54.20%

116.1

63.4

Indian
Clearing
Corporation Limited

100.00%

69.6

48.3

Marketplace
Technologies
Limited

100.00%

28.8

0.2

CDSL Ventures Limited

54.20%

22.4

11

BSE Institute Limited

100.00%

17.8

0.8

Private

Nature of Business
Setting up, operating and maintaining a national
depository system, regional depository system, subdepositories scripless trading system, providing custodial
facilities in respect of shares, stocks, bonds etc.
Setting up and undertaking the business of clearing and
settlement of various securities and promoting and
assisting in all activities in relation to the stock
exchanges, money markets, financial markets, securities
markets, capital markets and to act as a custodial and
depository participant.
Development, consultation and support services in
computer software, hardware, information technology,
electronic commerce etc.
Setting up and maintaining an electronic system with
suitable electronic connectivity for creating, holding or
maintaining any information or records in electronic
form etc
Offering learning solutions to individuals, corporate,
universities in India and abroad and offering specialised
cutting edge training solutions, testing services

Investment Rationale

Strong brand recognition with a track record of innovation

Established in 1875, BSE is Asia's first stock exchange, and is one of the most recognizable brand
names in India. Its global brand helps in attracting companies to its listing platforms and attracting
retail investors and wholesale participants to BSEs various market and data offerings. As on Oct
2016, it is the world's largest exchange by number of listed companies and the world's 10th largest
exchange by market capitalization, with US$ 1.7 trillion in total market capitalization of listed
companies. BSE ranks third globally in terms of currency options and futures contracts traded in
2015, with 430 million currency derivatives traded.
BSE has met investor's needs through timely introduction of new products and services. In addition,
BSE is the first exchange in India to offer free-float indices. In addition to innovative offerings such as
these, BSE also provide a variety of hi-tech product and service offerings such as co-location services
for algorithmic trading, intra asset management switches, direct pay-out to clients, multiple
payment modes, overnight funds management for liquid mutual funds and XSIP, a platform for
investing in systemic investment plans across mutual fund schemes. Its recent product initiatives
include agreements with Korea Exchange and Bank of New York Mellon to explore and conduct joint
research in areas such as the derivatives markets and support each other in the development of new
products and to provide collateral management solutions

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Diversified and integrated business model

BSE has a diversified and integrated business model including trading, clearing and settlement of
products listed and traded on the BSE, as well as the provision of data products, IT services and
solutions, the setting up of indices and training. It offers listing and trading of a wide variety of
products including equity cash securities such as shares of companies and ETFs, units in closed-end
mutual funds, corporate bonds and government securities, equity derivatives and currency
derivatives, as well as services such as securities lending and borrowing, and platforms to facilitate
offers to buy securities by listed companies and offers for sale of securities by substantial
shareholders of listed companies. By providing such integrated services, it support market
participants and members throughout the entire life-cycle of a trade.

State-of-the-art infrastructure and technology

BSE has electronic systems for entry, trading, clearing and settlement and depository services and it
continually seek to improve its core IT capabilities, the reliability and consistency of which help BSE
to maintain competitive position. BSEs electronic systems include:
(i) BOLT+, a fully-automated online trading platform through which all trades on the equity cash,
equity derivatives and currency segments of exchange are executed, and
(ii) Precision time protocol, a time synchronization standard that BSE adopted to ensure accurate
and reliable time synchronization across trading infrastructure.
It has also implemented functional improvements to its infrastructure and technology, including
tick-by-tick order data, multi-legged orders, and "straddle" strategies for currency derivatives and
equity derivatives. Furthermore, all of its platforms are interconnected and operated through the
same network and workstation, which helps to provide market participants with a seamless
experience and efficient operations. BSE has also implemented real-time risk management system,
which conducts real time calculations of members' margins and limits.

Diversified sources of revenue and strong financial

In order to provide a stable stream of revenue to support fiscal policy, BSE has sought to diversify its
revenue streams. As an operator of a derivatives and securities exchange and clearing, settlement
and depositary services, BSE has multiple contact points with members and market participants,
providing it with the ability to generate revenue at multiple levels of its business. BSE derive revenue
from a variety of sources including revenue from trading activities on the exchange, such as trading
fees and trading tariffs, revenue from post-trade services, such as clearing, settlement, depository,
custody and nominee service fees, and initial and recurring listing fees from equity, debt and
derivative products, and subscription fees from data products. Mix of business provides BSE with
diverse sources of revenue that are not all dependent on market volumes.
BSE has a net worth of Rs. 2552.9 Cr and surplus cash balance of Rs. 2680.5 Cr as on H1FY17 which
signifies healthiness of balance sheet of the exchange. This gives BSE additional source to generate
income supporting the bottom line of BSE.

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Development and introduction of new products

Though BSE was the first stock exchange in Asia but lost its benefit of first mover advantage to NSE
on account of late entry into derivative segment and delayed adoption of newer technology. But in
recent time BSE is trying to capture its lost ground by introducing newer products like index
contracts, currency derivative, Interest rate derivative, Corporate Bond, platform for Mutual Fund,
international Exchange in Gift City. BSE is also looking to add commodity derivatives to its current
portfolio of product offerings. BSE is also trying to become largest paler in these new initiatives.
Success in any of these initiatives will help BSE regain its market share and generate additional
stream of revenue.

Capture growth in the underpenetrated Indian financial markets

With a growing young population in India, more investors are likely to enter the market in the
coming years. In order to capture growth in the Indian market, BSE undertake routine outreach and
advertising programs, it also plan to design platforms and products targeted towards specific
demographics in India, such as a mobile phone enabled trading platform, targeted towards the
growing number of mobile phone users in India. Its efforts in this regard align with the efforts of the
Government of India, who have offered tax breaks and financial schemes to encourage securities
investment. BSE is positioned, as a well-known exchange, to increase the number of investors
trading on exchange as first-time investors begin taking advantage of such government schemes.

Key Risk and Concerns

Business and financials of BSE can be materially adversely affected by any of the factors stated
below:
The business, financial condition and results of operations are highly dependent upon the
volume of financial assets traded, the number of listed securities, the number of new listings and
subsequent issuances, liquidity and similar factors, as a significant portion of its revenue
depends, either directly or indirectly, on trading, listing, clearing and settlement transactionbased fees.
Success of new initiative
the availability of alternative investment opportunities;
changes in tax policy (including transaction tax) and tax treaties between India and other
countries;
the level and volatility of interest rates;
legislative and regulatory changes, including the potential for regulatory arbitrage among
regulated and unregulated markets if significant policy differences emerge among markets;
the perceived attractiveness, or lack of attractiveness, of Indian capital markets; and
As per guidelines of SEBI, BSE need to divest its holding in CDSL and bring it down from 50.5% to
24%. In H1FY17 Out of consolidated EBITDA of Rs.51.8 Cr, Rs.42.1 Cr is contributed by CDSL and
post this divestment the reported EBITDA will come down substantially.

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Valuation and Recommendation

Though BSE was the first stock exchange in Asia, incorporated in 1875 but remain much behind NSE
and had market share of 14% in cash segment and negligible presence in Derivative segments. Due
to lagging behind in adoption of derivative, BSE lost its dominant position to NSE even in Cash
segment as well. Now BSE is trying to strike first in many of the newer product like Currency
Derivative, MF, Debt Market, International Exchange etc. We feel success of any of the activity can
bring growth for BSE. Anyhow BSE is still second largest exchange in volume term and world's largest
exchange by number of listed companies. We feel With Market Cap of Rs.4,326 Cr at upper end of
price band and Free cash of Rs.2,681 Cr, the Enterprise value of Rs. 1,646 Cr is attractively priced
considering the optional value of success of any new initiative.

Peer Comparison
Particlurs
M Cap
Long Term Investments
Current Assets
Current Liablities
Surplus cash
EV
Core EBITDA
EV/ EBITDA
CMP
EPS
BV
PE
PBV
ROE

BSE
(H1 annulised)
4,326.5
1,363.9
2,723.9
1,407.3
2,680.5
1,645.9
61.5
26.7
806.0
43.4
475.4
18.6
1.7
5.0%

MCX
(TTM)
6,169.5
299.3
1,421.8
561.5
1,159.6
5,009.9
85.2
58.8
1,209.8
25.8
256.5
46.9
4.7
10.1%

Source: RHP. Company Data, Nirmal Bang Research

At Upper band of Rs. 806, BSE is offered at 26.7x EV/EBITDA of H1FY17 annualised earnings and
18.6x PE. We have compared BSE with MCX, only listed exchange in India which is trading at
58.8x/46.9x EV/EBITDA and PE resp. Thus, we recommend subscribing to the issue.

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Financials

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Particulars
Income
Revenue from operations
Securities Services
Services to Corporates
Data Dissemination Fees
Total Revenue from operations
YoY Growth

FY12

FY13

FY14

FY15

FY16

H1FY17

218.3
76.3
20.8
315.4

193.6
57.9
22.4
273.9
-13.1%

187.2
59.1
20.4
266.8
-2.6%

233.7
105.4
22.1
361.1
35.4%

243.0
161.1
22.4
426.5
18.1%

149.7
80.2
12.3
242.2
# 13.6%

Expenses
Employee benefits expense
Administration and Other Expenses
Total expenses

74.9
143.9
218.8

77.2
164.8
242.1

85.4
157.0
242.4

99.9
219.6
319.4

111.6
246.2
357.8

64.0
126.4
190.4

EBITDA
EBITDA Margin

96.53
30.6%

31.85
11.6%

24.42
9.2%

41.70
11.5%

68.78
16.1%

51.82
21.4%

Income From Investments and Deposits

Other income
Depreciation and amortisation expense
Finance Costs

222.4
41.0
34.1
1.4

235.6
43.4
28.3
2.5

218.3
44.8
32.4
0.4

222.6
41.0
58.8
0.7

189.7
42.1
61.7
0.7

111.2
30.1
24.6
0.6

Profit before exceptional Items

324.4

280.1

254.7

245.9

238.2

167.9

60.5
-

97.9
0.5

61.3
0.6

50.8
-

46.6
-

20.8
-

263.9

181.7

192.9

195.1

191.6

147.1

64.3

37.7

34.0

43.8

32.4

22.4

199.7
26.8
172.9
218.6
37.8%

144.0
24.9
0.4
119.6
197.2
35.7%

158.9
24.4
0.3
134.8
185.3
35.0%

151.4
21.3
0.4
130.4
169.8
27.2%

159.2
36.4
0.3
123.1
161.8
24.6%

124.8
19.8
0.3
105.2
122.8
32.0%

10
2
33.4
42.2
19.1
429
1.9
9.8%

10
2
23.1
38.0
21.2
441
1.8
8.7%

10
2
26.0
35.7
22.6
457
1.8
8.0%

11
2
24.3
31.6
25.5
459
1.8
7.0%

11
2
22.9
30.1
26.8
456
1.8
6.6%

11
2
19.6
22.9
17.6
475
1.7
9.8%

Total Exceptional Items

Extraordinary Items
Profit before exceptional item and tax
Total Tax expense
Profit after Tax
Share of Minority
Share of Loss of Associate
Consolidated Profit after Tax
Adj. Consolidated Profit after Tax
PAT Margin (%)
Equity share capital
Face Value
EPS
Adj. EPS #
Adj. PE @ Rs. 806/BV
P/BV @ Rs. 806/ROE% #
Source: RHP

# (H1FY17 annualised)

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BSE Ltd.
Particulars
EQUITY AND LIABILITIES
EQUITY
Equity share capital
Reserves and Surplus
Shareholders' Funds

FY12

FY13

FY14

FY15

FY16

H1FY17

10.4
2,209.4
2,219.7

10.4
2,278.6
2,288.9

10.4
2,360.4
2,370.8

10.7
2,450.2
2,460.9

10.7
2,438.5
2,449.3

10.7
2,542.2
2,552.9

Share Application Money Pending Allotment

Core Settlement Guarantee Fund paid
Minority Interest

0.0
0.2
155.3

0.0
0.8
173.3

0.0
5.6
187.5

0.0
111.3
198.6

0.0
176.1
222.3

0.0
192.1
227.7

LIABILITIES
Non-current liabilities
Deferred tax liabilities (net)
Long-term Borrowings
Other Long-term Liabilities
Long-term Provisions
Deposits from Trading Members
Total non-current liabilities

5.6
29.3
0.9
253.0
288.8

5.5
31.7
0.4
243.5
281.1

9.6
1.3
28.6
0.4
31.0
71.0

2.7
3.6
45.0
0.8
19.0
71.0

0.2
1.9
52.1
0.8
19.0
73.9

0.2
53.7
1.1
17.3
72.3

Current liabilities
Short-Term Borrowings
Trade payables
Other Current Liabilities
Short-term Provisions
Total current liabilities

306.1
43.1
840.2
83.3
1,272.7

0.9
37.1
1,102.6
60.1
1,200.7

47.0
1,330.9
58.2
1,436.0

58.1
1,214.4
83.1
1,355.6

69.7
1,139.1
76.7
1,285.4

77.4
1,293.7
36.2
1,407.3

TOTAL LIABILITIES

1,561.5

1,481.7

1,507.0

1,426.6

1,359.3

1,479.6

TOTAL EQUITY AND LIABILITIES

3,936.7

3,944.8

4,070.9

4,197.4

4,207.0

4,452.3

Non-current assets
Investment in associates/ joint venture
Goodwill on Consolidation
Non-current Investments
Deferred Tax Assets (net)
Long term Loans and Advances
Other Non-current Assets
Total non-current assets

118.8
85.0
818.6
3.2
30.7
1.5
1,057.8

129.2
85.0
527.3
5.4
56.4
1.9
805.2

139.2
85.0
1,125.2
4.7
79.1
2.9
1,436.2

169.2
85.0
1,410.2
6.3
85.6
2.1
1,758.5

164.6
85.0
1,525.1
10.8
120.4
1.5
1,907.4

166.8
85.0
1,363.9
11.4
100.7
0.6
1,728.4

Current assets
Current Investments
Trade receivables
Cash and cash equivalents
Short term Loans and Advances
Other Current Assets
Total current assets

568.8
33.9
2,220.3
11.0
45.0
2,878.9

826.3
34.4
2,048.4
14.9
215.6
3,139.7

1,061.1
34.4
1,469.5
16.9
52.9
2,634.7

866.0
36.0
1,452.5
24.7
59.7
2,438.9

537.3
48.0
1,610.1
19.7
84.6
2,299.6

800.0
63.9
1,692.1
54.3
113.6
2,723.9

Total Assets

3,936.7

3,944.8

4,070.9

4,197.4

4,207.0

4,452.3

Source: RHP

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BSE Ltd.

Disclaimer:
Nirmal Bang Securities Private Ltd. (hereinafter referred to as NBSPL) is a registered Member of National Stock Exchange of India Ltd., Bombay
Stock Exchange Ltd. and MCX stock Exchange Ltd. We have been granted certificate of Registration as a Research Analyst with SEBI.
Registration no. is INH000001766 for the period 23.09.2015 to 22.09.2020 .NBSPL or its associates including its relatives/analyst do not hold any
financial interest/beneficial ownership of more than 1% in the company covered by Analyst (in case any financial interest is held kindly disclose)
NBSPL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBSPL
/analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity of
the company covered by Analyst. The views expressed are based solely on information available publicly and believed to be true. Investors are
advised to independently evaluate the market conditions/risks involved before making any investment decision

Nirmal Bang Research (Division of Nirmal Bang Securities Pvt. Ltd.)

B-2, 301/302, Marathon Innova,
Opp. Peninsula Corporate Park
Off. Ganpatrao Kadam Marg
Lower Parel (W), Mumbai-400013
Board No. : 91 22 3926 8000/8001
Fax. : 022 3926 8010

9|P age