January 16, 2017

IPO - Note

BSE Limited
Recommendation: SUBSCRIBE

Exchange
BSE Ltd is world's largest exchange by number of listed companies. It is also India's largest and world's 11th largest exchange by
market capitalization, with USD 1.52 trillion in total market capitalization of listed companies. BSE regulate listed issuers and
provide a market for listing and trading in various types of securities as may be allowed by SEBI from time to time. It derives
revenue from 4 streams namely Securities Services (39% of revenue in FY16), Services to Corporates (26%), Data Dissemination
Fees (4%) and Income from Investments and Deposits (31%). As on 30th June 2016, BSE had 1440 unique members across all
segments. In FY16, BSE accepted an average of 284.92 mn orders and 1.55 mn trades in equity shares per trading day, placing it as
the 12th most active exchange in the world. BSE reported revenue and PAT CAGR of ~7% and 1% respectively during FY13-16.
Issue Snapshot

Investment Rationale

Issue Open

23-Jan-17

Issue Close

25-Jan-17

Price Band

INR 800 - 850

Issue Size

INR 12342 - 13113 mn

Market Cap

INR 43671 - 46400 mn

Particulars
OFS Issue Size (No. of shares) *

15.43 mn

QIBs

50% of Net Issue

Non-institutional

15% of Net Issue

Retail

35% of Net Issue

Capital Structure
Pre Issue Equity

INR 109 mn

Post Issue Equity

INR 109 mn

Bid Lot

17

Minimum Bid Amount @800

INR 13600

Minimum Bid Amount @850

INR 14450

Shareholding Pattern (%)

Promoters

Pre Issue (%)

Post Issue (%)

0.0

0.0

Other

100.0

100.0

Total

100.0

100.0

Particulars
Face value
FY16 PE *

INR 2.0
37.9

FY17 Annualized PE *
Book Value (30th June,2016)

28.0
INR 490.5

* Upper band

Objects of the issue

Offer For Sale (OFS)

The company will not receive any proceeds

from OFS.

Amod Joshi
Amod.Joshi@spagroupindia.com
Ph. No. 91 22 4289 5600/ Ext. 215

Strong brand recognition

BSE is one of the most recognizable brand names in India. According to CARE
Research, the BSE ranks third globally in terms of currency options and futures
contracts traded in 2015, with 430 mn currency derivatives traded (up 103%
YoY). Further, its turnover from the interest rate derivatives segment grew
from INR 26 bn in FY14 to INR 1141 bn in FY16. BSE has introduced new
products and services from time to time like BSE StAR and BSE SME. BSE StAR
offers a platform to trade and redeem in 39 AMCs with 6112 different mutual
fund schemes. BSE SME provides a platform for the listing and trading in shares
of SMEs.
Diversified and integrated business model
BSE operates 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, index products and
training. By providing such integrated services, BSE supports its members
throughout the entire life-cycle of a trade. Such an integrated approach
benefits and keeps costs low for our participants and members by providing
efficiencies that are associated with having a wide range of services integrated
under one entity.
State of the art infrastructure and technology
BSE provides electronic systems for entry, trading, clearing, settlement and
depository services. It is always looking to improve its IT capabilities, the
reliability and consistency of which helps it to maintain competitive position.
BSEs electronic systems include BOLT+ and precision time protocol. BSEs
platforms are interconnected and operated through the same network and
workstation, which helps to provide market participants with a seamless
experience and efficient operations. To boost investor confidence and
transparency, it has also implemented real-time risk management system,
which conducts real time calculations of members' margins and limits.
Outlook & Valuation
BSE India's largest and world's 11th largest exchange by market capitalization,
with USD 1.52 trillion in total market capitalization of listed companies. Indias
exchange sector is still at nascent stage as compared to developed and
developing economies. Equity as % of financial savings in India is mere 5%
compared to 14% in China, 15% in Brazil, 20% in Indonesia and 42% USA. This
participation is only going to increase going ahead and that will boost the
exchange business. We believe that there is significant growth potential for BSE
given - a) Governments efforts on increasing retail and EPFO participation in
capital markets, b) New products and innovations such as REITs, commodity
trading and infrastructure investment trusts and c) Information services
segment which currently contributes ~4% of revenue vis--vis global revenue
contribution of ~10-25%. At the upper end of the price band, the stock is
available at P/E of 28x based on annualized FY17E earnings. Its nearest
comparable MCX is trading at P/E of 39x based on FY17E earnings. We
recommend SUBSCRIBE to the issue with long term perspective.

Exchange
Investment Rationale
Strong brand recognition

corporate bonds and government securities, equity derivatives

BSE is one of the most recognizable brand names in India. BSEs

and currency derivatives, as well as services such as securities

global brand helps in attracting companies to its listing platforms.

lending and borrowing. It provides platforms to facilitate offers

As of June 30, 2016, BSE is world's largest exchange by number of

to buy securities by listed companies and offers for sale of

listed companies and India's largest and the world's 11th largest

securities by substantial shareholders of listed companies. By

exchange by market capitalization, with USD 1.52 trillion in total

providing

market capitalization of listed companies. According to CARE

participants and members throughout the entire life-cycle of a

Research, the BSE ranks third globally in terms of currency

trade. Such an integrated approach benefits and keeps costs low

options and futures contracts traded in 2015, with 430 mn

for our participants and members by providing efficiencies that

currency derivatives traded, up 103% YoY. Further, its turnover

are associated with having a wide range of services integrated

from the interest rate derivatives segment grew from INR 26 bn

under one entity.

in FY14 to INR 1141 bn in FY16.

BSEs diversified and integrated business model provides an

BSE has introduced new products and services from time to time

active relationship with market participants. BSE has jointly

like BSE StAR and BSE SME. BSE StAR is an online platform for the

established a 128 series of investor education programs with

placement of orders and redemptions of units in mutual funds,

members and broker associations to have open communications

which provides investors with a single platform to invest and

with members and to increase its exposure to investors.

redeem in a wide selection of mutual fund schemes. As at June

Moreover, in order to promote algorithmic traders, BSE bears

30, 2016, BSE StAR offers a platform to invest and redeem in 39

the software license costs for algorithmic trading & market

AMCs with 6112 different mutual fund schemes. BSE also

access, the infrastructure costs on co-location rack space, costs

launched the BSE SME platform in March 2012, a platform for the

associated with algorithmic trading services at the co-location

listing and trading in shares of SMEs. In addition, the company is

and internet connectivity between its co-location and members'

developing BSE Hi-Tech, a platform for the listing and trading in

offices. BSEs efforts to actively engage with market participants

shares of young, fast-growing companies, in order to provide

have led to an increase in the number of unique members rising

them with equity capital to finance their growth. In addition to

from 1375 in FY14 to 1440 as of June 30, 2016.

innovative offerings, BSE also provides a variety of hi-tech

State of art infrastructure and technology

product and service offerings such as co-location services for

such

integrated

services,

BSE

helps

market

BSE has electronic systems for entry, trading, clearing and

algorithmic trading, intra asset management switches, direct pay-

settlement and depository services and it is always looking to

out to clients, multiple payment modes, overnight funds

improve its IT capabilities, the reliability and consistency of

management for liquid mutual funds and XSIP, a platform for

which help it to maintain competitive position.

investing in systemic investment plans across mutual fund

schemes.

BSEs electronic systems include (i) BOLT+, a fully-automated

online trading platform through which all trades on the equity

Diversified and integrated business model

cash, equity derivatives and currency segments of our exchange

BSE operates a diversified and integrated business model

are executed and (ii) precision time protocol, a time

including trading, clearing and settlement of products listed and

synchronization standard that it adopted to ensure accurate and

traded on the BSE, as well as the provision of data products, IT

reliable time synchronization across trading infrastructure. The

services and solutions, index products and training. The company

company has also implemented functional improvements in

offers listing and trading of a wide variety of products such as

shares in companies and ETFs, units in close-end mutual funds,

infrastructure and technology, including tick-by-tick order data,

Exchange
multi-legged orders, and "straddle" strategies for currency

Outlook and Valuations

derivatives and equity derivatives. Furthermore, all of its

platforms are interconnected and operated through the same

BSE is India's largest and world's 11th largest exchange by

network and workstation, which helps to provide market

market capitalization, with USD 1.52 trillion in total market

participants with a seamless experience and efficient operations.

capitalization of listed companies. Indias exchange sector is still

at nascent stage as compared to developed and developing

To boost investor confidence and transparency, it has also

economies. Equity as % of financial savings in India is mere 5%

implemented real-time risk management system, which conducts

compared to 14% in China, 15% in Brazil, 20% in Indonesia and

real time calculations of members' margins and limits. BSE also

42% USA. This participation is only going to increase going ahead

uses the standard portfolio analysis of risk margin system, an

and that will boost the exchange business. We believe that there

industry-standard margin system used by over 30 exchanges and

is significant growth potential for BSE given - a) Governments

clearing organizations worldwide that is designed to evaluate the

efforts on increasing retail and EPFO participation in capital

overall risk in a portfolio and accurately match margins to risk.

markets, b) New products and innovations such as REITs,

Financial strength and diversified sources of revenue

commodity trading and infrastructure investment trusts and c)

BSE derives revenue from a variety of sources including revenue

Information services segment which currently contributes ~4%

from trading activities on the exchange, such as trading fees and

of revenue vis--vis global revenue contribution of ~10-25%. At

trading tariffs, revenue from post-trade services, such as clearing,

the upper end of the price band, the stock is available at P/E of

settlement, depository, custody and nominee service fees, and

28x based on annualized FY17E earnings. Its nearest comparable

initial and recurring listing fees from equity, debt and derivative

MCX is trading at P/E of 39x based on FY17E earnings. We

products and subscription fees from data products.

recommend SUBSCRIBE to the issue with long term perspective.

It has diverse sources of revenue and is not wholly dependent on

market volumes. It generates market turnover-related revenue,
such as transaction charges, auction charges and depository
charges, but also non-market turnover-related revenue, such as
investment income, training income, software income and rental
income. In FY16, revenue from operations (comprised of revenue
from securities services, services to corporate and data
dissemination fees), income from investments and deposits and
other income comprised of 64.8%, 28.8% and 6.4% of total
revenue, respectively. In Q1FY16, revenue from operations,
income from investments and deposits and other income
comprised of 63.4%, 26.5% and 10.1% of total revenue,
respectively. Further, BSEs turnover from the interest rate
derivatives market grew from INR 26 bn in FY14 to INR 1141 bn in
FY16.

Exchange

Income Statement
Y/E (INR mn)

Net Sales
Growth
Cost of Goods Sold
Employee Cost
Other Optg. Exps.
Total Optg. Exps.
EBIDTA (excl OI)
Growth
EBITDA Margin
Dep./Amortization
EBIT
EBIT Margin
Interest Expense
Other Income
Exceptionals
EBT
Tax Expenses
PAT
Minority Interest
Adjustment to PAT
APAT
Growth
APAT Margin

FY14

FY15

FY16

Q1FY17

4851
-4.81%
0
854
1570
2424
2427
-9.27%
50.03%
324
2,103
43.36%
4
448
(607)
1,940
340
1,600
248

5837
20.34%
0
999
2196
3194
2643
8.89%
45.27%
588
2,055
35.21%
7
410

6162
5.56%
0
1116
2462
3578
2584
-2.21%
41.94%
617
1,968
31.93%
7
421

1603
NA
0
304
641
945
658
NA
41.03%
118
540
33.67%
2
180

(508)

(466)

(136)

1,951
438
1,514
216

1,916
324
1,592
366

582
99
483
69

1,352
13.76%
27.87%

1,297
-4.03%
22.23%

1,225
-5.56%
19.89%

414
NA
25.83%

Key Ratios
Y/E (INR mn)

Per Share Data (INR)

Adj. EPS
Growth (%)
CEPS
BVPS
Return Ratios (%)
RoACE
RoANW
Liquidity Ratios
Net Debt/Equity
Interest Coverage Ratio
Current Ratio
Valuation Ratios
P/E (x)*
P/BV (x)*
P/CEPS (x)*
EV/Net Sales (x)*
EV/EBIDTA (x)*

FY14

FY15

FY16

Q1FY17

Balance Sheet
Y/E (INR mn)

FY14

23.77
-4.00%
34.53
471.17

22.45
-5.55%
33.74
480.92

7.58
NA
9.74
490.52

5.69%
5.70%

5.04%
5.06%

4.67%
4.69%

1.55%
1.55%

-0.07
553.53
1.10

-0.13
311.36
1.16

-0.13
293.66
1.37

-0.06
269.80
1.43

34.33
1.95
27.70
9.22
18.42

35.76
1.80
24.62
7.37
16.28

37.86
1.77
25.19
6.99
16.67

28.03
1.73
87.27
28.00
68.24

FY16

Q1FY17

Share Capital
Reserves and Surplus
Total Networth
Minority Interest
Secured
Unsecured
Total Debt
Deferred Tax Liability
Other Liabilities
Sources of Funds

104
23660
23764
1875
0
13
13
96
601
26349

107
25614
25721
1986
0
36
36
27
648
28418

107
26146
26253
2223
0
19
19
2
719
29215

107
26670
26777
2148
0
14
14
2
705
29647

Net Block
CWIP
Investments
Current Assets
Current Liabilities
Net Current Assets
Deferred Tax Assets
Other Assets
Application of Funds

1918
324
21863
15736
14360
1376
47
820
26349

2512
31
22762
15729
13556
2173
63
877
28418

2490
6
20624
17623
12854
4769
108
1219
29215

2423
70
20521
18093
12659
5435
106
1093
29647

Cash Flow
Y/E (INR mn)

24.76
13.73%
30.69
435.32

FY15

EBT
Less: Other Income/Exceptionals
Add:Depreciation
Add: Interest paid
Direct taxes paid
Change in Working Capital
Cash Flow from operations (a)
Change in Fixed Assets
Change in CWIP
Change in Investments
Others
Cash Flow from Investing (b)
Change in Equity
Debt Raised/(Repaid)
Dividend paid
Interest paid
Others
Cash Flow from Financing (c )
Net Change in Cash (a+b+c)
Opening Cash
Closing Cash

* Upper band

FY14

1934
2088
324
4
(548)
2103
1728
(305)
(123)
(2080)
1761
(748)
10
4
(607)
(2)
(2117)
(2711)
(1730)
3438
1707

FY15

1951
1838
588
7
(480)
(1756)
(1528)
(1015)
293
2314
2095
3687
10
23
(607)
(7)
127
(455)
1704
1707
3412

FY16

Q1FY17

1916
1472
617
7
(733)
(825)
(491)
(646)
25
626
1642
1646
0
(17)
(1244)
(7)
51
(1217)
(62)
3412
3350

582
330
118
2
81
(321)
132
(64)
(64)
(1489)
357
(1260)
0
(5)
(670)
(2)
(2)
(679)
(1807)
3350
1543

Exchange
Sharad Avasthi

Head - Equity Research

sharad.avasthi@spagroupindia.com

Tel.: +91-33-4011 4800

Ext.832

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Yes/No
No
No
No
No

No

No
No

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