BSE (Bombay Stock Exchange)- Bet on Financialization?

Stock Opportunities
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Management has guided 90-95% of operating profits will be paid out as dividends. This I believe will exclude profit from investment and other income. Last year dividends were 152 cr which at the current market cap. of 4320 cr is 3.5%.

Assuming this 152 cr to be 90% of operating profit, then last years operating profits come out to be 170 cr. While net profit was 220 cr.

To calculate expected dividend yield going forward you can take TTM or FY18 projections and use the operating profit to net profit proportions above. You could go back a few years and calculate the average proportion of these profits as well.

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BSE has been paying 93% of standalone profits as dividends (incl div tax) for last two years which is also in line with the management comment of paying 90-95% of operating profits…so, it is possible that when they said operating profits they actually meant standalone profits excl exceptional items. So, if they close this year with around 243cr of standalone PAT (assuming another 56cr PAT in q4, same as q3, plus 9-mths std profits of 187cr plus) excl. exceptional items like CDSL, etc. then the total dividend could be 30-35 per share for this year. Whether they treat buyback as part of dividends remains to be seen.

Rgds
RR
Disc: Not invested

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No, dividends are separate from buyback and during one of the concalls (i think), Ashish Chauhan said they will maintain dividend separately. Considering they’ve paid out 5 rupees interim dividend (same as last year), one can expect another 23 rupees like last year to be paid out as final dividend. Of course, the number may be up or down by 1-2 rupees depending on the actual profit numbers.

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This makes BSE an attractive dividend yield stock of around 3.5%. It quotes at IPO price right now.
Downside risk looks low here.
Views invited.

Disc: Not invested.

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Currently all moving averages are trending down, I wonder if we can start to catch the knife now in small tranches, or wait for some indicators to start trending up.

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Disc: Invested.

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Well, you can’t predict the bottom of the downside. It went from 1100, to 1000, to 900 to 800 and now below 800. Who knows if it can go down to 700 or 600 too? The perception of BSE as a company is that of a has-been, whereas the reality is very different now. Till the perception changes, it can keep drifting downwards slowly without any bottom. The market can remain irrational for quite long. It is for investors to decide when they want to start buying. Nobody is going to come and blow a trumpet for the bottom.

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News on NSE Listing (which had been dragging on for a long time)

NSE IPO roadshow and the interest will certainly generate interest in BSE as well, since they are in duopoly (the other exchanges are yet to take off in an equal scale).

Discl. No holding in BSE, however, tracking. Indirect investment in NSE thru PE funds and hence the interest in NSE listing. Obviously NSE Ltd will only be listed in BSE to start with.

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Could you elaborate why bse is not has been.??? These days every body is in mutual fund and so the volumes have increased. What happens when the markets falls and the everybody takes out there money out. Would bse. Still maintain this current run.

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Future of financial market is bright. With no avenues left for investment, people are doing their investments in stock markets. Property , gold, and bank interest are going down. Companies like RIL , tata are performing stable …exchanges will always get benefit out of this trend.

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In short -

BSE Ltd. is not just about equities. There are at least 10 other financial platforms/products where BSE has invested in last few years and is actively pursuing volumes and revenues. Revenue contribution from those platforms and products is currently meager, but is growing or is expected to grow gradually as momentum builds. Equity forms a large part of the revenues, no doubt. Any slow down in equity markets will impact trading revenues for sure.

Though, one should take note of the listing revenues; This will increase going forward with more and more companies listing on SME platforms and then eventually shifting to the main platform. Also, there is a fair chance of increase in listing fee every 3-4 years (in sync with the market leader NSE).

Moreover, companies are increasingly looking towards raising money in debt market. You can see huge increase in volumes in this segment. This will gain much more traction as India story unfolds.

Star MF platform has decent share of the overall MF volumes. This is all about volumes! They have started charging from a few MFs. I believe this trend will increase going forward.

Currency market is also going to get traction as the size of Indian GDP gets bigger. Target - 5 trillion economy in next 7-8 years. More imports, more exports, leading to more and more hedging requirements. Currency trading market is nascent at the moment.

We already know all about INX. We will see something happening there in 3-5 years. It is in investment stage and is competing with NSE (much ahead of the competition in fact). Favorable tax changes in this budget for Gift City exchanges is going to help improve volumes there.

There are many other revenue streams such as data dissemination, CDSL, which will get better over time.

Bottomline - A country’s exchange is a proxy play on country’s economy and GDP growth. If one believes in India story (despite India’s political environment), BSE is a good place to remain invested in. Though, this is a multi-decade investment one should sleep over. Available at very good valuation, good war chest, and superb management at the helm.

Disclaimer: Invested. Added more in last 3 months.

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Just received this email from BSE…not sure how much impact it would have on BSE volumes & bottomline.

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They are trying hard to get a larger pie in equities but NSE is so dominant that despite BSE’s best efforts the percentage is going down (on absolute terms, volume is increasing). Exchange is a game of volumes. Volume brings volumes!

I don’t think this will have much impact.

By the way, i would be interested in knowing how Star MF platform would contribute to revenues and Profits going forward. I know about the transaction charges, but anyone got any estimates on the contribution to numbers?

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Excerpts from Interview of Ashishkumar Chauhan with DSIJ Feb 2018 edition

1.BSE went with Opensource technology 7-8 years back which allowed them to save a significant cost on technology implemmentation
2.BSE provides a response time of 6 microseconds which gives a scale of 5 lakh orders in a second, 3 Crore orders per minute, 180Cr orders per hour and 1200 crore orders in a trading session of 6 hours. This is 500 times faster than what previously they were doing. And the implementation was done in such a way that the cost for setting up the infrastructure was just 30 percent of the earlier cost.
3.Commodities Trading will be allowed in exchanges from October
4.Turning BSE into a distribution exchange from a trading exchange
5.In last 25 years trading volumes have grown 700 times but in next 25 years that growth is not possible
6.BSE considers itself as a Fintech and not as a pure exchange only
7.SME platform has 225 companies as of now and it also has a incubator with a funding raised for over 146 companies
8.Globally exchanges are struggling to generate revenues so BSE is exploring newer avenues like Distribution
9.Star MF platform was started 7-8 years back and today it accounts for 20 percent of all mutual fund money that flows into equities
10.StarMF is the largest distribution platform in the country with national distributors, FIIs, stock brokers and now banks are coming to the platform
11.Last year the share of StarMF platform was 8 percent, and last to last year it was 2 percent. StarMF has grown 500 percent in last 3 years. It is five times the nearest competition
12.The Ebix insurance distribution tieup will allow the trade in all categories of insurance in general health and and life using BSE member network across the country
13. BSE has worked on its image to make it compliant in all terms

@Mridul From the interview it is clear that 20 percent MF transactions are flowing through StarMF. Can we get the data of overall MF transactions and from that we can try to figure out the number.

My take from the Interview-
BSE was considered as an exchange with old values and beliefs with lot of loopholes with less compliance but now they are trying to change the perception. They are moving from a pure trading to a distribution platform. The results of it is not reflecting in numbers right now but it will reflect in near future.

Disc: Not invested… still in tracking mode

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BSE Mutual Funds Turnover : https://www.bseindia.com/markets/keystatics/Keystat_MF.aspx?expandable=0

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Anazing growth. But revenue is based on no. Of transactions. Any stat on transaction volume? Iven if we assume base case of 6 inr per transaction, we can have an idea.

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I guess orders received = transactions. They clocked nearly 20 lakh transactions in February. It was 1 crore transactions this fiscal till mid Dec 2017.

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Anyone has more info on management’s MF monetisation plan in case of smaller SIP transactions. In case for sub 10000 rs. SIP 6 rs. Transaction fee would be bothersome.

Also, in q1fy18 concall management said, "The management has said they will charge only for new scheme that will be listed. Revenues will accrue as new schemes build up over several years.

AMFI agrees to pay the fee to MF utility for transactions, which is promoted by AMFI but bars their members from paying BSE & NSE. It is an anti-competitive activity on behalf of AMFI."

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One possible reason for this downfall in BSE could be the unlocking of pre IPO shares. I too had few shares from pre IPO days and they got locked in for 1 year from the IPO date and got unlocked only in Feb 2018. It is very much possible that some long term shareholders offloaded their stock now.

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I read somewhere that average realisation per trade for mutual fund is Rs 10. Approximately 1.5 Cr transactions happened in last 12 months which can bring 15 Cr annual revenue.

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