HDFC Securities sees BSE sustaining 3 times gain on derivatives boost- QHN

Shares of BSE (formerly Bombay Stock Exchange) have jumped nearly three times this year amid a successful derivatives segment re-foray. Domestic brokerage HDFC Securities sees the stock sustaining the gains with the derivative segment underpinning growth going ahead.

“BSE has witnessed success with the Sensex contract in the much larger equity derivatives segment, dominated by NSE. The Sensex contract is currently catering to about 40 per cent of NSE’s derivatives volume (Nifty) but with the launch of the Bankex contract, BSE will address about 95 per cent of NSE’s derivative volume. With a single contract, the exchange has reached about a 9/3 per cent notional/premium market share, which is impressive,” said HDFC Sec in a note.

The brokerage has maintained a buy call on the stock with a price target of Rs 1,600. Shares of BSE on Thursday closed at a new record high of Rs 1,545, with a gain of 3.85 per cent over its previous close.

From nearly zero in June 2023, the active clients on BSE’s derivatives platform have reached 400,000. The number is expected to rise further as more discount brokers start offering BSE derivatives on their platform.

Under its new CEO, Sundararaman Ramamurthy, BSE relaunched the Sensex and Bankex in May with smaller lot sizes and weekly expiries. To attract more traders towards its platform, BSE kept its pricing at only a fraction of that of NSE, which until recently enjoyed a monopoly in the derivatives segment.

HDFC Sec is of the view that BSE will increase its prices, which will underpin its revenue growth going ahead.

“BSE option pricing is currently one-seventh of NSE, which is not sustainable. We expect the pricing reset to happen soon and have increased options pricing by about three times; still, it’s at a 57 per cent discount to NSE. Assuming a premium market share of about 9 per cent in FY26E and a pricing hike, derivatives will contribute about 25 per cent of BSE’s total revenue, 35 per cent of Ebitda and 75 per cent of incremental growth. We expect a revenue/EPS compound annual growth rate (CAGR) of about 26/31 per cent over FY23-26E, led by a revival in transaction revenue,” said the note by HDFC Sec.

The brokerage has increased BSE’s earnings estimate by 15 per cent for FY25 and FY26. Further, it has re-rated the stock from 28 times earnings to 33 times earnings.

“We maintain our buy rating and assign a sum of the parts-based target price of Rs 1,600, based on 33x core FY26E PAT and CDSL stake and net cash ex-settlement guarantee fund,” HDFC Sec said.

Currently, BSE holds a 15 per cent stake in depository firm CDSL, which is valued at Rs 2,100 crore.

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