BSE Upgraded To 'Buy' By Investec On Rising Options Market Share
Despite the near-term volatility in markets, BSE continues to print strong options volumes on both Friday and Monday expiry.
BSE Ltd. was upgraded to 'buy' by Investec, citing continuing growth in equity derivatives volumes. The oldest stock exchange in Asia saw its share in options market jump nearly threefold to over 15% in March 2024.
The brokerage maintained the target price at Rs 2,800 apiece, implying an upside of 45.4%.
While regulatory risks around F&O remain, BSE's medium-term growth story is protected by the large total addressable market in equity options revenues and its momentum in gaining market share, Investec said.
The exchange trades at around 24 times FY26e P/E after the recent 20% correction, the brokerage said. It has the potential to achieve a 45–50% earnings per share CAGR (FY24–26E), along with an improving return profile and strong cash flow generation, it said,
Despite the near-term volatility in markets due to regulatory interventions, BSE continues to print strong options volumes on both Friday and Monday expiry with the exchange sustaining 65-70% market share on Fridays and remains on track to achieve a similar market share from the current 30% levels, the research firm said in a March 20 note.
Expect Clarity On Margins And Profitability
BSE missed its third-quarter earnings due to Rs 91 crore of settlement guarantee fund charges towards foreign exchange, Investec said. "Given that the FX volumes are not growing on the exchange, we believe this may be a one-off charge and not a recurring cost," the note said.
"Given that intermediaries are using NSE's clearing corporation for trading on BSE, the SGF liability remains with NSE rather than BSE. Hence, the growing open interest in BSE may not be an immediate liability for BSE," it said.
However, BSE is incurring clearing charges paid to the NSE at the rate of Rs 140 per Rs 10 lakh of premium, which reduced by 30% quarter-to-quarter (thus suggesting strong improvement to profitability already).
"We expect a more stable margin profile during Q4 2024e as both of these metrics stabilise, thus establishing strong earnings growth for the next few years," it said.
The stock rose as much as 8.84% during the day to Rs 2,215 apiece on the NSE. It was trading 8.21% higher at Rs 2,200 per share, compared to a 0.75% advance in the benchmark Nifty 50 at 1:24 p.m.
The share price has risen 404.46% in the last 12 months. The total traded volume so far in the day stood at 1.32 times its 30-day average. The relative strength index was at 48.42.
Five out of the seven analysts tracking the company have a 'buy' rating on the stock and two recommend a 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 37.3%.
