BSE May Challenge Investec’s ‘Sell’ Report

Shareholders’ Take on Investec’s Report

As per shareholders, analysts in Investec have understated BSE’s holding in CDSL (Central Depository Services) by around Rs. 2,800 crores even after applying for a 25% holding discount in the company.

The shareholders state that this affects BSE’s sum-of-the-parts valuation (SOTP) by Rs. 462 a share. Upon considering this, BSE’s price target should be Rs. 2,182 rather than Rs. 1,720, as provided by Investec.

Shareholders have also reported to BSE that Investec was stealing credit from the stock exchange for profit growth that it has recorded in the previous quarters.

So, what now?

As per sources, shareholders have advised BSE to ask Investec to rectify its oddities or remove this report, as it is incorrect on fundamental verities.

Curtailing BSE Price Target

As per Investec, BSE was at a recurring peak of its earnings and valuations. As a result, the report curtailed BSE’s price target compared to its prevailing market price.

Currently, BSE trades at a substantial premium to global rivals, most of which are prominent names in their respective markets. This makes current valuations indefensible.

Investec said that it would increase its estimates for FY2023 and provide a valuation for BSE depending upon SOTP. Resultantly, the foreign research firm arrived at a price target of Rs. 1,720 and downgraded the rating to ‘sell’. It also revised the EPS by 110% to showcase higher volumes.

Regarding this, existing shareholders of this stock exchange demand a revision on Investec’s SOTP valuations, regarding it being inaccurate.

Do you want to know something even more surprising?

In the listed exchange platform, the Indian Energy Exchange, which is a much smaller space in terms of business mix and volume than BSE, enjoys a PE ratio of 83 with a market cap of around Rs. 22,600 crores.

In addition, Commodity exchange MCX also enjoys a PE 52 and a market cap of over Rs. 8,092 crores.

As far as the unlisted exchange space is concerned, NSE entails a market cap of over Rs. 1 lakh crores and a PE of over 70.

BSE’s Escalating Growth

The same Investec report also mentions that BSE has experienced over 54% YoY growth in terms of revenues during the first half of FY2022. It has also witnessed a 65% rise in EBITDA. However, this report also mentions that valuations have been regraded because of NSE’s listing.

Investec’s report also states that BSE has gained around 10% market share in commodity and equity derivatives on MCX and incumbent NSE. However, most values are simply notional options, and the actual premium capital is at low risk.

Further justifying its ‘sell’ rating on the stock exchange, Investec said that it believes that these reports are not an exact representation of definite liquidity and market activity. This will restrict BSE’s ability to monetize heavy volumes.

Bottom Line

Over the years, BSE has enjoyed a debt-free status and has rolled out a pretty robust dividend payout ratio. As a result, Investec’s recent report is a bit concerning for the stock exchange’s current shareholders.

As of now, emails sent to this foreign research firm regarding report revision remain unanswered. BSE has decided to deny any comments regarding the same.

Frequently Asked Questions

1. What is the current PE and market cap of BSE?

The current market cap of BSE is around Rs. 8,600 crores with a PE of around 48.

2. How much is BSE’s stake in CDSL?

Currently, BSE features a 20% stake in CDSL.

3. How strong are BSE’s financials?

As of Q2 of FY2022, BSE’s revenues increased by 50.5% to reach Rs. 189 crores. Its operating profit increased by 87% to reach Rs. 90 crores. In the same quarter, BSE’s net profit flourished to reach Rs. 65 crores.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.