BSE (Bombay Stock Exchange)- Bet on Financialization?

(AmitContrarian) #21

Which P&L you are looking at ? I feel you are looking at stand alone. Which i would not prefer to see the true ROE of the business.
In FY 17 they did 372 Cr of Revenue from operations.

I feel this Sep Q numbers represent the true story as all the gains they made through CDSL IPO etc has gone.
They made around 66Cr of profits EPS 12, Its safe to assume if they do EPS of 48 in FY18 then its trading around 20 times earnings.

I am more confused about the Cash in the balance sheet -

The Cash seems to be 557 Cr now compared to 1163 Cr and bank balance went down too.
Where it went ?

I see some cash went to investment in Associates around 380 CR, Also the balance sheet size shrunk why is that ?


(Mridul) #22

Current/non current investments have gone up by almost same amount.

My way to look at this company is completely linked to India growth story. If the later plays out, financial activities are bound to rise in India, which in turn will lead to more equity trading, more currency hedging/trading, more raising money through bonds, more foreign fund flow, more mutual funds participation by retail investors, more inx volumes, more data dissemination, more corporate listings, novel commodity trading products.

The thing is that BSE is investing in many new projects at the moment such as MF platform, INX, insurance platform setting up JV with world’s leading insurance platform, bond platform, along with trying to build volumes in equity and currency derivatives (recent changes to fee structure). They are not charging anything/much for everything other than equity trading/listings/depository at the moment. As volumes build up, many of these streams will start contributing to profits. We are seeing this theme play out at the moment with currency derivatives already.

A lot of investments are being made to maintain the technological edge of BSE.

Another point, which we all know, is the duopoly. If universal exchange theme is implemented, it would be three players. But than field will open for commodity trading as well. Huge entry barriers, investment/cash ~ 2500 cr (half the mkt cap), reasonable valuation (20x trailing…much lower ex-cash), very good mgmt at helm (Mr. Ashish Chouhan), are some of the things which make it a safe (High MOS) investment bet.

Risks are of course there -

  • India story doesn’t play out (highly unlikely)
  • BSE is unable to make a dent in segments where NSE is present (equity and equity derivatives)
  • They have put a huge bet (investments planned for next 5 years) on INX (NSE has their onw INX). We cannot be sure who will come out on top here.
  • Till now they have been unable to milk (convert into revenues) their super MF Platform. Talks happened but AMFI didn’t budge. Mr. Chouhan has said they will try to work around this issue in order to monetize the platform.

(Gaurav Agarwal) #23

I think the investor of BSE must take of note of this news

I could not understand what was the locus of BSE to plea Government to remove long-term capital gains tax exemption. Also surprising was BSE did not talk anything about STT, which to my knowledge is a unique tax only levied in India. This amazing tax STT is levied on all transactions (when you buy shares & when you sell shares) irrespective of Investor making loss or gain on her investment.

People expressed their surprise on twitter

(kv) #24

I am looking at 2017 FY consolidated P&L.
I was comparing total of investment income and other income which makes up the bulk of the PBT it looks like. I am basically trying to separate the ROE of the core business with earnings due to the cash they are/were holding.

(naruto) #25

Just trying to put myself in BSE’s shoes: Removing LTCG will reduce long term holdings and increase trading. More money to earn.

Convoluted logic.

(TT) #26

Actually, removing the LTCG exemption takes away a large surveillance function that the exchange has to do because of tax evasion schemes to exploit the zero tax situation in LTCG. This surveillance costs resources in terms of technology and manpower. It’s a headache for the exchange.

I think that’s BSE’s perspective, nothing else. And seriously, you make a profit, you pay some tax. There is no big deal with tax on LTCG, it’s not a birthright to get an exemption!

(Gaurav Agarwal) #27

@naruto You are right.

@Leading_Nowhere No problem as far as paying taxes are concerned. I never said I have problem with paying tax. What I am saying are two things -

  1. Taxes are based on some logic. You cannot have both STT and LTCG.
  2. BSE has no locus in proposing such a thing to Govt.

(TT) #28
  1. On the taxes, agreed.

  2. On the locus - disagree. Exchanges have a lot of onus to curb money tax evasion through listed securities. They are stakeholders and have locus to express a view that removal of the exemption will have certain benefits both to the govt and themselves. The same way we express views that the exemption has benefits for us and the economy.

(Gaurav Agarwal) #29

As far as I know curbing tax evasion is the responsibility of Income tax department. I do not have any knowledge how Exchanges have any role to play in curbing tax evasion.

(TT) #30

Well, the Income Tax department works with SEBI closely to figure out tax evasion through penny shares and manipulation of shares. For example:

This is also the reason why the SEBI and the exchanges have elaborate surveillance mechanisms, recently this was introduced as the Graded Surveillance Measure (GSM) mechanism. This requires a lot of effort and oversight on the part of the exchange.

I am sure if you Google a little, you will understand what I am talking about.

(Ashish) #31

Double taxation of STT and LTCG does not hold any merit with government. They know that upper middle class of India doesn’t have voting power and they can be looted as much as possible. One example is tax on Dividends which has triple tax incidence actually… dividends are paid from profit after tax, are taxed and then additionally taxed for higher income group. In my opinion, in India govt can do anything with groups which are neither voting nor lobbying blocks.

(abhishkjain2626) #32

I’m somewhat mystified at the huge amount of cash equal to nearly half of share price? Any significant capex needs in the future? Definitely the downside looks limited from here on, but what in terms of opportunity costs if this stock continues to fail to catch the market’s attention?

(AmitContrarian) #33

How big you people think INX could turn out to be ?

I feel volume migration from BSE to NSE has played out, i don’t think any further migration will happen.

They own 24% of CDLS which turns out to be 800 Cr today + Cash they got ( not sure how much this is yielding) .
seems like a safe bet at todays valuations but not sure whats going to be the growth driver for the company ?

(Sreekanth) #35

BSE (1).pdf (801.3 KB)

Can you elaborate on this?

(AmitContrarian) #37

I was just going through Q2 call transcript -

They mentioned total Cash is around 1,345 Cr

In Q1 FY18 call they said its around Rs 2,400 Cr

Any one know where 1000 Cr of cash went ?

Now what is the total Cash they got ? I see in this thread people came up with Rs 700 /- Cash per share value , now this mush have gone down considerably.

(Sreekanth) #38

Hi Amit

Appreciate your concerns but what you are looking at is the standalone figures…

As per the conso. Numbers

The cash/investments translates to ABT 3700crs (2900crs if u exclude restricted cash)



Capital reserve as mentioned in concall transcript cannot be touched (766 crores as per 31.03.17) and cannot be distributed back to shareholders until rules are changed.
There’s also a core settlement fund (278 crores) on consolidated basis on the liabilities side which cannot be touched however I believe company is earning treasury income on it.

If the company insists on giving a dividend rather than going for a buyback then you can further reduce 20.9% from cash through dividend distribution tax.

From Annual report.
17.2 Capital reserve
Pursuant to the BSE (Corporatisation & Demutualisation) Scheme, 2005, (the Scheme) the balance in Contribution by Members, Forfeiture of Members Application Money, Technology Reserve, Stock Exchange building, Seth Chunnilal Motilal Library, Charity, Income and Expenditure Account as at 19th August, 2005 as appearing in the Exchange are transferred to Capital Reserve being reserves which shall not be used for purposes other than the operations of the Exchange.

(Storyteller) #40

(azardeen) #41

Very clear and detailed report. Thanks for sharing!

(rahulshetty0088) #42

BSE to consider buyback on 15th Jan