Buy BSE; target of Rs 1230: HDFC Securities

HDFC Securities' research report on BSE

BSE has witnessed initial success in the much larger equity derivatives segment, currently dominated by NSE, driven by the launch of a weekly index options contract (SENSEX) in May 2023. Impressively, BSE market share in the equity derivatives segment reached 3.4% in August (vs. zero in April). BSE expiry day market share has reached ~11% without any liquidity enhancement scheme (LES). The derivatives volume is organic and is driven by 219 members (proprietary and retail) and the active UCCs on the BSE derivatives platform have reached 0.17mn, from nearly zero in three months. We expect BSE derivative market share to reach ~10% in Q4FY24E, driven by the on-boarding of large member brokers, the launch of new weekly index contracts, hedging activity and a continued increase in active traders. The increase in derivatives volume will boost cash volumes. The steps taken by the new management are yielding results and will boost growth and margin. We expect a revenue/EPS CAGR of ~19/25% over FY23-26E, led by a revival in transaction revenue.

Outlook

We increase our EPS estimates by ~7/11% for FY24/25E, increase core multiple to 28x (vs 25x), and upgrade rating to BUY. We assign a SoTP-based target price of INR 1,230, based on 28x core Sep-25E PAT + CDSL stake + net cash ex SGF.

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