BSE shares soar 10%; up 409% in one year; here’s why

Shares of stock market exchange BSE Ltd surged as high as 10% today following a rating upgrade by brokerage company Investec. The brokerage recommended a "buy" rating on the stock, with a price target of ₹2,800, an upside potential of 38% against the last closing price. The trigger in share price is also attributed to BSE's inclusion in NSE’s key indices, including Nifty Midcap 150 and Nifty Midcap 100, Nifty 200, Nifty LargeMidcap 250, Nifty Smallcap 50 and Nifty Smallcap 100 indices. The BSE replaced PSU firm IREDA as it breached one of the requirements of SEBI Portfolio Concentration Norms for Equity Exchange Traded Funds (ETFs) and Index Funds related to impact cost, said the NSE.

Brokerage Investec has cited good traction in equity derivatives volumes and a three-time boost in options market share as reasons for the latest upgrade in the BSE scrip. It expects margins to improve in the subsequent quarters, along with gains in terms of market share.

The BSE stock opened a gap up today at ₹2,086 and surged to an intra-day high of ₹2,232.95, up 8.9%. The stock currently trades 14.3% lower as compared to the 52-week high of ₹2,598.95 touched on February 5, 2024. As the rally in BSE share continues, the company's m-cap has also soared to ₹30,151.02 crore. At 2.39 pm, the BSE stock was trading at ₹2,227.2, up 194.05 points or 9.54%.

The BSE stock has risen a whopping 409.92% in the past year alone. The stock was trading at ₹435.35 on March 21, 2023, and has given a four-fold return in one year. The six-month return on the stock is 89%.

BSE reported a profit of ₹106 crore in Q3 FY24, up 124% YoY but down 10% QoQ, mainly owing to its contribution of ₹91.7 crore to SGF for the currency derivatives segment. Its operating revenue grew 18% QoQ and 82% YoY to ₹370 crore.

Motilal Oswal, in its February update on BSE, had said after the relaunch, derivative contracts (Sensex and Bankex) were seeing significant traction from market participants. BSE also increased transaction charges on Sensex options (only on near expiry), which it believed could lead to strong revenue growth from the derivative segment.

Motilal Oswal had maintained "neutral ratings" on the stock, with a price target of ₹2,725. "We have upgraded our EPS estimates by 7%/6% for FY25/FY26 to factor in the higher volume trajectory for its equity derivatives segment. Reiterate our Neutral rating with a one-year TP of INR 2,725 (based on 35x FY26E EPS)."

According to HSIE Institutional Research's report, the derivative segment would be the prime revenue driver for BSE, with a premium market share of 3.8/9/13% in FY24/25/26E. The clearing cost was high but will gradually come down with scale, it says. Maintaining a "BUY" rating, the brokerage has given a price target of ₹3,050 on the stock. "We expect a revenue/PAT CAGR of ~43/57% over FY23-26E led by options revenue. We increase our EPS estimates by ~6/10% for FY25/26E and assign a SoTP-based TP of INR 3,050, based on 40x core FY26E PAT + CDSL stake + net cash ex SGF. The stock is trading at a core P/E of 39/31x FY25/26E."

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