IPO NOTE

GEOJIT RESEARCH

RETAIL EQUITY RESEARCH

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BSE Limited
Sensex : 27,309
Nifty

Price Range : Rs805-806

: 8,435

20th January, 2017

Opportunity to grow with India's financial market...
Established in 1875, BSE Limited (BSE) is the oldest stock exchange in Asia.
BSE is the world's largest exchange by number of listed companies. It is
India's largest and the world's 10th largest exchange by market
capitalization. Importantly, it would be the first stock exchange to go public
in India. As of September 30, 2016, BSE had 1,446 unique members across
all segments. BSE derives revenue from a number of sources, including
securities services, services to corporate, data dissemination fees etc. Hence,
its revenue mix is diversified and is not wholly dependent on market
volumes. Notably, BSE can unlock huge value for its stakeholders as most of
its subsidiaries (ICCL, CDSL, BIL etc.) are profit making. Overall financial
performance remained healthy with revenue registering a CAGR of 7% over
FY13-16. Since FY14, overall revenues have picked up due to hike in listing
fees in two successive years. Interestingly, revenues from listing fees have
grown at a stellar CAGR of 65% over FY14-16. Given the under-penetrated
Indian financial markets, we are upbeat on the stock owing to its diversified
revenue mix & continuous focus on introduction of new products & services.
At upper price band of Rs806, it is available at 25.6x FY16 PE, which we
believe is reasonably priced when compared to globally listed exchanges
like Singapore Exchange, Japan Exchange Group, Deutsche Boerse, which
are trading in the range of 20-25x FY16 PE. We recommend Subscribe to
the issue, with a medium-to-long term perspective.
Purpose of IPO
At the upper price band, total issue size stands at Rs1,243.4cr. The issue
consists of only offer for sale (OFS) wherein the existing shareholders will
offload 1.54cr shares. Although BSE will not receive any proceeds from this
offer yet the prime purpose of the issue is to achieve the benefits of listing
equity shares. Besides, this will help BSE to enhance its visibility & brand
image and provide liquidity to its existing shareholders.

Issue Details
Date of Opening

23rd Jan 2017

Date of Closing

25th Jan 2017

Total no. of Shares offered (cr)

1.54

Post Issue No. of shares (cr)

5.37

Price Band

Rs805 806

Face Value

Rs2

Bid Lot

Multiples of 18 shares

Listing

NSE
Motilal Oswal, SBI Capital
& SMC Capitals

Lead Managers
Registrars

Karvy Computershare

Issue size (at upper price)

1,243.4

Net Issue

1,243.4

Shareholding (%)

Pre Issue

Promoters

Post Issue

Others

100

100

Total

100

Issue structure

100
Size Rs cr
(at upper band)

Allocation %

Retail

35

435.2

Non Institutional

15

186.5

QIB

50

621.7

Total

100

1,243.4

Y.E March (Rs cr)

Key Risks...
Volatility in the Indian markets may hamper demand for BSEs services.
Electronic trading platform may be vulnerable to security risks and cyber
attacks.
Business environment is exposed to the risk of rapid technological change.

Rs cr

Offer For Sale

FY15

FY16

H1FY17

Revenue

584

616

353

EBITDA

264

258

163

Adj. PAT

180

169

126

7.3

6.9

5.0

Adj. EPS (Rs.)

33.6

31.5

23.4

P/E (x)

24.0

25.6

34.4

ROE (%)

Peer Valuations
Company

BSE
MCX
Singapore Exchange*

Revenue FY16
(Rs cr)

616
235
3,867

MCap
(Rs cr)

FY16
PE (x)

FY16
ROE%

4,327
6,170
38,545

25.6
56.5
23.1

6.9
9.1
35.5

Source: Geojit Research, Bloomberg; Note: Valuations of BSE are based on upper end of the price band
*Revenue, MCap and EPS of Singapore exchange has been converted from SGD to INR

EPS

FY15
33.6
24.6
15.4

EPS Growth (%)

FY16
31.5
21.4
15.7

FY15
(7.9)
(18.0)
6.2

FY16
(6.3)
(13)
2

Company Description
Established in 1875, BSE is the oldest stock exchange in Asia. It regulates listed issuers and provides a market for listing and
trading in various types of securities as may be allowed by SEBI from time to time. BSE is the world's largest exchange by
number of listed companies (5,868). At the end of October 2016, it was India's largest and the world's 10th largest exchange
by market capitalization, with USD1.7trillion in total market capitalization of listed companies. As of September 30, 2016,
BSE had 1,446 unique members across all segments. In FY16, BSE accepted an average of ~285mn orders and 1.55mn trades
in equity shares per trading day, placing it as the 12th most active exchange in the world in terms of electronic book trades in
equity shares. BSE operates in three primary lines of business, namely: (1) The listing business, which consists of the
primary market related to the issuance of new securities, (2) The market business, which consists of (a) the secondary
market, which relates to the purchase and sales of previously-issued securities, (b) BSE StAR MF ("BSE StAR"), its online
platform for the placement of orders and redemptions of units in mutual funds, (c) NDS-RST, its platform for the reporting
of over-the-counter corporate bond trading, (d) membership, which includes membership in the exchange, membership in its
clearing corporation ICCL & depository participants in its depository CDSL and (e) post-trade services, namely the clearing
corporation & depository and (3) The data business, which consists of the sale and licensing of information products.
Revenue Mix
Rs.Cr
Securities
Services
Services to
Corporates
Data
Dissemination
Fees
Income from
Investments
& Deposits
Revenue

Electronic book orders in equity shares over the years

FY14

FY15

FY16

H1FY17

187.2

233.7

243.0

149.7

59.1

105.4

161.1

80.2

20.4

22.1

22.4

12.3

218.3

222.6

189.7

111.2

485

584

616

353

Source: RHP, Geojit Research

Strong brand equity coupled with sound innovation track record

BSE has a strong brand recognition in India. According to CARE Research, it ranks third globally in terms of currency
options and futures contracts traded in 2015, with 430mn currency derivatives trades. During FY14-16, the total number of
currency contracts traded on the BSE increased from 87mn to 420mn. Further, its turnover from the interest rate derivatives
market grew by leaps & bounds over the past two years. It grew from Rs26bn in FY14 to Rs1,141bn in FY16. Moreover, BSE
keeps abreast by introducing new products & services from time to time such as BSE STAR & BSE SME. The former was
introduced in 2009 & as of September 30, 2016, it offers a platform to invest in and redeem from 39 AMCs with 6,303 openended mutual fund schemes. Notably, BSE SME (launched in 2012) offers a platform for the listing and trading in shares of
small and medium enterprises (SMEs).

Integrated business model

BSE operates a diversified and integrated business model including trading, clearing and settlement of products listed &
traded on BSE, as well as the provision of data products, IT services & solutions, setting up of indices and training. By
providing such integrated services, it supports market participants and members throughout the entire life-cycle of a trade.
This integrated approach benefits and keeps costs low for the participants and members by providing efficiencies that are
associated with having a wide range of services integrated under one entity.

Diversified revenue mix

BSE derives its revenue from a variety of sources viz., revenue from trading activities on the exchange including trading fees
and trading tariffs, revenue from post-trade services such as clearing, settlement, depository, custody & nominee service
fees, initial & recurring listing fees from equity, debt and derivative products and subscription fees from data products. Its
diversified revenue base makes it relatively immune to market fluctuations. For instance, it not only generates market

turnover-related revenue such as transaction charges, auction charges and depository charges, but also non-market turnoverrelated revenue including investment income, training income, software income and rental income.

State of the art infrastructure and technology

BSE has electronic systems for entry, trading, clearing, settlement and depository services. It continually seeks to improve the
core IT capabilities, the reliability and consistency of which helps it to maintain the competitive position. BSEs electronic
systems include BOLT+ (a fully-automated online trading platform) and precision time protocol (a time synchronization
standard adopted to ensure accurate and reliable time synchronization across trading infrastructure). Besides, 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. Further, to boost investor confidence & transparency, it has
also implemented a real-time risk management system, which conducts real time calculations of members' margins and
limits. BSE also uses the standard portfolio analysis of risk (SPAN) margin system, an industry-standard margin system used
by over 30 exchanges and clearing organizations worldwide that is designed to evaluate the overall risk in a portfolio and
accurately match margins to risk.

Expanding cross-border reach by entering into strategic alliances

BSE is expanding its cross-border reach by entering into strategic alliances. Internationally, it has signed an agreement with
Deutsche Boerse whereby they sell and market BSE market data and information services to international clients. Further, it
is a member of the BRICS Exchanges Alliance, whereby leading exchange in Brazil, Russia, India, China and South Africa
cross-list futures products based on the flagship indices of each of the other exchanges. Likewise, options and futures based
on the S&P BSE SENSEX are listed and traded on Eurex & the Dubai Gold and Commodities Exchange. Similarly, it has
entered into MoU with the Korea Exchange to cooperate in other areas such as research, product development and
information technology. BSE has also partnered with IFC, a member of the World Bank Group, to develop a corporate
governance scorecard, which allows companies to assess their corporate governance performance against national and
international benchmarked practices. The enhanced ease of trading and access that results from such ventures will
strengthen its ability to attract cross-border investors and issuers to its exchange.

Opportunities galore for BSE in the underpenetrated Indian financial market

Indias favourable demographics is a major strength of the economy, especially as the working age population (population in
between 15 to 60 years) constitutes more than 60% of the overall population. With a growing young population in India,
more investors are expected to enter the market in the coming years. Moreover, in contrast to the past when physical assets
such as gold and real estate were the preferred options for investment, now the retail investors are slowly moving towards
equity investments due to specific tax breaks for equity investors and financial awareness programmes conducted by mutual
fund houses and stock exchanges. BSE undertakes several investor awareness activities targeted towards youth to teach
them about the benefits of investing in securities. Notably, BSE has jointly established a 128 series of investor education
programs with members and broker associations to have open communication with members and to increase its exposure to
investors. Besides, government initiatives such as granting permission to the Employee Provident Fund Organisation (EPFO)
to begin investing in equity markets is also expected to boost equity investments in India. Notably, BSE has set up a Global
Exchange at GIFT city in Gandhinagar.

Experienced top management

BSE has a highly skilled board of Directors. The Exchange currently has 11 Directors, comprising of one Managing Director,
six Public Interest Directors and four Shareholder Directors. Mr. Sudhakar Rao is the Chairman and Public Interest Director.
He has been an integral part of the board since 2011. Besides holding a master's degree in Arts (Economics) from University
of Delhi, he also possesses a master's degree in Public Administration from Kennedy School of Government, Harvard
University. Moreover, he is a retired Indian Administrative Service (IAS) Officer and retired as the chief secretary of the State
Government of Karnataka.
Mr. Ashishkumar Manilal Chauhan is the Managing Director and Chief Executive Officer. He has been with the board since
2012. He has completed his B.Tech. in mechanical engineering from Indian Institute of Technology, Bombay. He has also
completed a post graduate diploma in management from the Indian Institute of Management, Calcutta. At present, he is the
chairperson of the board of governors of National Institute of Technology, Manipur. Prior to joining the Exchange, he has
served on several committees constituted by Department of Posts, Direct Taxes, SEBI, Forward Market Commission and he
was the group chief information officer of the Reliance Industries Limited. He was awarded the 'Indian Business Leader of
the Year' award in 2015 by PricewaterhouseCoopers and Horasis.

Financials (Consolidated)
Profit & Loss Account

Balance Sheet

FY14A

FY15A

FY16A

H1FY17A

Revenue

485

584

616

353

% change

(4.8)

20.3

5.6

EBITDA

243

264

258

163

% change

(9.3)

8.9

2.2

32

59

62

25

210

206

197

138

45

41

42

30

255

246

238

168

Y.E March (Rs cr)

Depreciation
EBIT
Interest cost
Other income
PBT
% change
Tax
Tax rate (%)

(9.1)

(3.5)

(3.1)

34

44

32

22
13.3%

13.3%

17.8%

13.6%

Reported PAT

135

130

123

105

Adj.

(61)

(51)

(47)

(21)

Adjusted PAT

196

180

169

126

% change

(9.8)

(7.9)

(6.3)

No. of shares (cr.)

10.4

10.7

10.7

10.7

Adj. EPS (Rs.)

36.5

33.6

31.5

23.4

% change

(9.8)

(7.9)

(6.3)

DPS (Rs.)

7.9

10.2

15.2

1.7

Cash Flow
Y.E March (Rs cr.)

FY14A

FY15A

FY16A

H1FY17A

193

195

192

147

Depreciation

34

58

64

26

210

(176)

(82)

129

(210)

(183)

(149)

(91)

Tax paid

(55)

(48)

(73)

C.F.O

173

(153)

(49)

214

Capital exp.

(45)

(73)

(62)

(30)

(621)

(92)

193

(86)

Other invest.CF

591

533

34

(130)

C.F - investing

(75)

369

165

(246)

Issue of equity

(1)

Issue/repay debt

(2)

(1)

(61)

(61)

(124)

(68)

Other finance.CF

(212)

12

C.F - Financing

(271)

(45)

(122)

(68)

Chg. in cash

(173)

170

(6)

(100)

Closing cash

1,469

1,452

1,610

1,692

Others

Change in inv.

Dividends paid

FY14A
1,469
34
70
2,186
105
34
85
(5)

FY15A
1,452
36
84
2,276
166
4
85
4

FY16A
1,610
48
104
2,062
162
3
85
11

H1FY17A
1,692
64
168
2,164
158
9
85
11

82

88

122

101

4,061
1,436
1

4,195
1,356
4

4,207
1,285
2

4,452
1,407
-

60

65

72

72

10
2,360
2,371
188

11
2,450
2,461
199

11
2,439
2,449
222

11
2,542
2,553
228

111

176

192

4,061
441.9

4,195
458.7

4,207
456.5

4,452
475.8

Key Ratios

Pre-tax profit.

Changes in W.C

Y.E March (Rs cr)

Cash
Accounts Receivable
Inventories
Other Current Assets
Investments
Net Fixed Assets
CWIP
Intangible Assets
Deferred tax assets (net)
Other non-current
assets
Total Assets
Current Liabilities
Provisions
Total debt
Other non-current
liabilities
Equity Capital
Reserves & Surplus
Shareholders Fund
Minority Interest
Core settlement
guarantee fund
Total Liabilities
BVPS (Rs.)

Y.E March
Growth (%)
Net Sales
EBITDA
Net Profit
Profitabl. & Return
EBITDA Margin (%)
EBIT Margin (%)
PAT Margin (%)
ROE
ROCE
W.C. & Liquidity
Receivables (days)
Inventory (days)
Payables (days)
Current ratio (x)
Quick ratio (x)
Turnover & Levg.
Gross asset turnover (x)
Adj. debt/equity (x)
Valuation ratios
EV/ Sales (x)
EV/ EBITDA (x)
P/E (x)
P/BV (x)

FY14A

FY15A

FY16A

(4.8)
(9.3)
(9.8)

20.3
8.9
(7.9)

5.6
(2.2)
(6.3)

50.0
43.4
40.4
8.4
10.1

45.3
35.2
30.9
7.3
9.2

41.9
31.9
27.4
6.9
8.5

25.9
70.7
1.1
1.1

22.5
66.3
1.2
1.2

28.4
71.1
1.4
1.4

4.5
0.0

3.5
0.0

3.8
0.1

6.3
12.6
22.1
1.8

5.5
12.1
24.0
1.8

5.1
12.1
25.6
1.8

Investment Rating Criteria

Large Cap Stocks;
Buy
Hold
Reduce

Mid Cap and Small Cap;

Buy
Upside is 15% or more.
Accumulate*
Upside between 10% - 15%.
Hold
Absolute returns between 0% - 10%.
Reduce/Sell
Absolute returns less than 0%.
To satisfy regulatory requirements, we attribute Accumulate as Buy and
Reduce as Sell.
The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is
possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating.
* For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being
upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.
-

Upside is 10% or more.

Upside or downside is less than 10%.
Downside is 10% or more.

Geojit BNP Paribas Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant
disclosures are available hereunder. However, Geojit BNP Paribas's research desk have reviewed this report for any untrue statement of material fact or any
false or misleading information.

General Disclosures and Disclaimers

I, Rohit Joshi, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed
in this research report (report) reflect my personal views about any or all of the subject issuer or securities.
Disclaimer
This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the
report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without
consideration.
Geojit BNP Paribas Financial Services Limited has outsourced the assignment of preparation of this report to Dion.
Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely
for the purpose of information.
Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty,
express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating
system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based.
Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not
be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure
that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise
of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the
information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report
from time to time.
Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or
otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted
to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent
investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that
any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion.
REGULATORY DISCLOSURES:
Dion is engaged in the business of developing software solutions for the global financial services industry across the entire transaction lifecycle and
inter-alia provides research and information services essential for business intelligence to global companies and financial institutions. Dion is listed
on BSE Limited (BSE) and is also registered under the SEBI (Research Analyst) Regulations, 2014 (SEBI Regulations) as a Research Analyst vide
Registration No. INH100002771. Dions activities were neither suspended nor has it defaulted with requirements under the Listing Agreement and /
or SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with the BSE in the last five years. Dion has not been debarred from
doing business by BSE / SEBI or any other authority.
In the context of the SEBI Regulations, we affirm that we are a SEBI registered Research Analyst and in the course of our business, we issue research
reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken
against us or our Analysts in connection with our business activities.
In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the
reader before making an investment decision:

1. Disclosures regarding Ownership

Dion confirms that:
(i)

Dion/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein at
the time of publication of this report.

(ii)

It/its associates have no actual / beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end
of the month immediately preceding the date of publication of this report.

Further, the Research Analyst confirms that:

(i)

He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other
material conflict in the subject company at the time of publication of this report.

(ii)

He, his associates and his relatives have no actual/beneficial ownership of 1% or more securities of the subject company (ies) covered
herein at the end of the month immediately preceding the date of publication of this repo

2. Disclosures regarding Compensation:

During the past 12 months, Dion or its Associates:
(a) Have not managed or co-managed public offering of securities for the subject company (b) Have not received any compensation for investment
banking or merchant banking or brokerage services from the subject company (c) Have not received any compensation for products or services other
than investment banking or merchant banking or brokerage services from the subject. (d) Have not received any compensation or other benefits from
the subject company or third party in connection with this report.
3. Disclosure regarding the Research Analysts connection with the subject company:
It is affirmed that I, Rohit Joshi employed as Research Analyst by Dion and engaged in the preparation of this report have not served as an officer,
director or employee of the subject company
4. Disclosure regarding Market Making activity:
Neither Dion /its Research Analysts have engaged in market making activities for the subject company.
Copyright in this report vests exclusively with Dion.

ROHIT JOSHI

Digitally signed by ROHIT JOSHI

DN: c=IN, o=Personal, cn=ROHIT JOSHI,
serialNumber=5180587d88e0e6997d180a4b21afe3b9c77d53632e69f1f222
5fb732909332e0, postalCode=226006, st=UTTAR PRADESH
Date: 2017.01.20 13:44:41 +05'30'

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