Nuvama bullish on BSE, sees 31% upside on market share gains, diverse revenue streams, rising margins; stock jumps 4%

BSE has room to expand its derivatives active customer base, noted Nuvama.

Domestic brokerage Nuvama Institutional Equities joined the leagues of other global and local broking houses to initiate coverage on Asia's oldest bourse BSE Ltd.

Nuvama assigned a 'buy' call on the stock, with a share price target of Rs 6,730, indicating an upside potential of 31 percent from current levels. Despite the tighter index derivates regulations, the BSE is  highly adaptive and shall thrive, noted the brokerage.

The weekly contracts that were discontinued made up only 21.3 percent of its index option premium volumes, compared to NSE's 46.9 percent.  Moreover, BSE has room to expand its derivatives active customer base, which is currently 1.5 million–2 million (monthly) versus NSE’s 4.2 million.

At 9.25 am, BSE shares surged four percent to Rs 4,692 per share.

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Further, the brokerage said that the markets regulator SEBI's regulations on increased contract sizes shall not have a significant impact on BSE’s index option premium volumes as its average number of contracts traded/order is five.

"That said, we expect higher contract sizes to result in lower clearing charges as clearing charges are calculated on the number of contracts cleared, which is likely to reduce. Hence, clearing charges shall drop from Rs 2,013 per Rs 1 crore of premium turnover in FY24 to Rs 734 by FY26E, contributing to EBITDA margin expansion over FY24–27," added Nuvama.

BSE’s revenue is driven by its StAR MF platform, with an 85 percent market share in FY24 and 63 percent YoY growth in MF revenue. StAR MF revenue is projected to grow at a 30.9 percent CAGR to Rs 290 crore by FY27. Contributions from AIPL and the colocation facility are also expected to rise.

Nuvama added that it based its target price on a PE of 50x FY27E EPS plus value of its stake in CDSL. "We believe a 50x PE for the company is apt given duopolistic nature of the industry, and relative valuation of Indian capital market infrastructure plays," said the brokerage.

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