BSE Limited: IPO Review

BSE Limited 
is all set to raise around Rs. 1231 crore though its maiden IPO which will open on January 23 and close on January 25. The IPO consists of a stake sale of about 1.54 crore shares by 262 of BSE’s shareholders. The shares in the IPO will be offered in the price band of Rs 805 to Rs 806. BSE is the oldest bourse in India and provides a market for listing and trading in various types of securities as permitted by SEBI. A quick review of this IPO has been attempted to help investors to decide whether to subscribe or not to BSE Ltd. IPO:

Related Posts: 1) BSE Ltd.: Comparison with Indian Peers 2) BSE Ltd: Run Up to the IPO

Issue Period Issue Opens On: Monday, January 23, 2017
Issue Closes On  :  Wednesday, January 25, 2017
Price Band Rs.805 – 806
Minimum Bid Lot 18 Equity Shares 
Issue Size (Rs.) Rs.1,241.89 – 1,243.43 Crores
Issue size (Shares) Offer for Sale of 15,427,197 Shares
Issue Structure :
QIB* 50% of the Net Offer ( 7,713,598 Shares ) (Rs.620.94~ – 621.72^ Cr)
NIB 15% of the Net Offer ( 2,314,080 Shares ) (Rs.186.28~ – 186.51^ Cr)
Retail 35% of the Net Offer ( 5,399,519 shares ) (Rs.434.66~ – 435.20^ Cr)
Company may allocate up to 60%  Shares of the QIB Portion to Anchor Investors.
Lead Manager Edelweiss Fin, Axis Capital Jefferies India, Nomura Fin Motilal Oswal, SBI Capital, SMC Capitals

About BSE Limited:
BSE Limited owns and operates the BSE exchange platform (formerly, the Bombay Stock Exchange), the first stock exchange in Asia which dates back to 1875. BSE Limited had the largest number of companies listed i.e. 5836 companies were listed at the end of December 2015, with 5,836 companies. However in terms of value of transactions, BSE is far behind international exchanges led by NYSE & NASDAQ. Based on market capitalization, India’s largest and the world’s 11th largest exchange by market capitalization, with US$ 1.52 trillion in total market capitalization of listed companies.

Global exchanges derive their revenue from several sources such as transaction fees, listing, clearing and depository services. The revenue stream of Indian bourses including BSE is rather limited and BSE operates in three primary lines of business namely :
  1. The listing business, which consists of the primary market, which relates to the issuance of new securities. 
  2. The market business, which consists of (i) the secondary market, which relates to the purchase and
    sales of previously-issued securities, (ii) BSE StAR MF (“BSE StAR”), the online platform for the
    placement of orders and redemption of units in mutual funds, (iii) NDS-RST, the platform for the
    reporting of over-the-counter corporate bond trading, (iv) membership, which includes membership in
    the Exchange, membership in the clearing corporation ICCL, and depository participants in the
    depository CDSL, and (v) post-trade services, namely the clearing corporation and depository.
  3. The data business, which consists of the sale and licensing of information products.

Singapore Exchange Ltd, Acacia Mauritius Ltd and Quantum (M) will exit the bourse along with stake sale by total  262 investors in the OFS. Other shareholders who will dilute their their stakes include Atticus Mauritius Ltd, Mauritius investment arm Quantum (M) Ltd, GKFF Ventures, Acacia Banyan Partners Ltd, Canada-based investor Thomas Caldwell’s Caldwell India Holdings Inc., and Bajaj Holdings and Investment Ltd. Being a broker based exchange with long history, BSE has nearly 9,300 stakeholders. Deutsche Boerse, Life Insurance Corporation (LIC), and State Bank of India, who all own stake in the BSE, are not likely to sell their stake through the IPO. BSE  Ltd. shares will be listed on the National Stock Exchange.

BSE – Establishment of India International Exchange (India INX):
In an important development, BSE Ltd. has taken the lead by establishing the ‘India International Exchange’ which will trade in all the products in line with other exchanges in the world such as Singapore, Hong Kong, London, New York etc. i.e currency, equities, commodities derivatives. The exchange shall function for 22 hours on daily basis beginning with the opening of Japanese stock exchange and will close with the closing of Exchanges in the US. INX shall aim to grab a pie of  India’s $48 billion offshore banking activities from Singapore, Dubai and Hong Kong exchanges.

Composition  of Trading at Indian Exchanges :

For Detailed  Financial comparison between BSE , NSE, MCX Click Here 

BSE Position has constantly been challenged by NSE which was incorporated in 1992. NSE is today in a very dominant position and undoubtedly the preferred exchange for institutional investors who contribute a major chunk of the daily business. The mix in Indian equities trade has been getting more and more skewed toward Derivatives where BSE is legging behind NSE.

Comparison of traded volumes of cash equities and equity derivatives

As is evident from above figure, within the equity segment, derivatives volumes are 14 times that of the cash segment. NSE is a clear leader here capturing all the volumes in this space. BSE did try to make some inroads by launching the liquidity enhancement incentive programs (LEIPs) but met with little success and the program is now being wound up .

BSE has trailed behind NSE considerably and as of March 2016, it has a 15% market share in cash equities, 6% market share in  equity derivatives and 36%  market share in currency derivatives etc. as indicated above. Even in case of cash equity segment, which is only around 5% of equity volumes traded the share of BSE is just 14%, even as BSE has nearly 5900 companies listed compared to approx 1800 companies for NSE.  


  Rs. Crore
Particulars HY2017 2016 2015 2014 2013
Revenue from Operations 242.2 426.5 361.1 266.8 273.9
Investment Income 111.2 189.7 222.6 218.3 235.6
Total revenue 383.47 658.27 624.75 529.82 552.94
EBITDA  193.1 300.5 305.3 287.5 310.9
EBITDA Margin (%)  50.40% 45.70% 48.90% 54.30% 56.20%
Profit Before Tax 147.1 191.6 195.1 193.4 182.2
Net Profit 104.9 122.5 129.7 135.2 118.8
NPM % (on Tot Revenue) 27.36% 18.61% 20.76% 25.52% 21.49%
Share Capital 10.736 10.736 10.736 10.736 10.736
Reserves 2,542.20 2,438.50 2,450.20 2,360.40 2,278.60
Net Worth 2,552.90 2,449.30 2,460.90 2,370.80 2,288.90
FV 2 2 2 2 2
RoNW (%) 4.10% 5% 5.30% 5.70% 5.20%
NAV (Rs. per share) 467.7 448.7 450.8 448.4 432.9
EPS (Annualised) 39.08 22.82 24.16 25.19 22.13
Price (IPO) 806 806      
PE Ratio 20.62 35.32      
P/BV 1.72 1.8      
CAGR Sales 3 Years 5.98      
CAGR Profit 3 years   1.03      


  • With the advent of NSE, BSE has been steadily losing market share. 
  • With rising ascendancy of derivatives in cash trade and near total dominance of NSE in this, BSE today stands much below NSE.  BSE has not been able to make any headway & seems to have almost given up in the equity derivatives segment, which happens to be the biggest money-spinner for NSE.
  • Further even in cash segment, BSE market share stands at 15% only which raises questions about its ability to compete.
  • At present, invariably all companies are seeking a listing on BSE which is a major contributor to revenue of BSE. With ascendancy of NSE this could change going forward.
  • With lower interest rates, Income from Investments for BSE are likely to witness a lower contribution.
  • Along with Singapore Stock Exchange some others who are exiting their stake completely in BSE Ltd. Include Citigroup,Centrum, JM Financial, Emkay Global, Keynote ,Progressive Share Brokers etc.
  • In terms of profit margins, BSE earns a net profit margin  of 20% in FY16  while the margins for NSE are > 40%. Some improvement has been seen in  margins in HY2017. 
  • However BSE has done better in new areas such as its mutual fund investment platform, currency derivatives and its SME (small and medium enterprises) exchange. But the revenues from these areas is quite small compared to overall  Exchange revenue. 
  • It is only in currency options and futures contract that BSE has put up a respectable show. As per CARE Research, BSE ranks third globally in terms of currency options and futures contracts traded in 2015. During the period FY14 to FY16, the total number of  currency contracts traded on the BSE increased from 87 million to 420 million. This is more creditable as BSE was a late entrant in this area and has a market share of 37% as of January 2017.
  • BSE Ltd. HYFY17 performance has shown a marked improvement in revenues and margins. However lower interest rates pose a risk to income from investments in future. 
  • BSE has given a generous dividend of 750% in FY15-16 and indicated that it may continue to maintain this high ratio.
  • BSE Ltd. holds a 50.05 per cent stake in Central Depository Services (India) (CDSL) and 100 per cent stake in Indian Clearing Corp (ICCL).The forthcoming IPO of CDSL is likely to unlock some value for BSE Ltd..
  • BSE has  stolen the march by establishment of India International Exchange (India INX) at GIFT City which is an important initiative.
  • Equity penetration is at low level in India as compared to developed and developing economies. Share of Equity as % of financial savings satnds merely at 5% and thus can be expected to go up and thus bring in more revenue for Exchanges like BSE.
  • BSE Ltd. is likely to gain from Government’s policies aimed to boost retail, institutional and EPFO participation in capital markets. Further new innovations and products like REITs, infrastructure investment trusts, Disinvestment of Government stake through ETFs  etc bode well for BSE.
  • There is scope for BSE to broaden and diversify its revenue stream in line with international Exchanges.
  • Out of 9,300 stakeholders in BSE Ltd, only 262 are selling their stake. Deutsche Boerse, Life Insurance Corporation (LIC), and State Bank of India, who  all own stake in the BSE, are selling their stake in the IPO. 
  • BSE Ltd. agreement with Deutsche Boerse who is also a shareholder can help to broaden its product range. BSE is also seeking tie up with several other Exchanges. 
  • At  the upper end of the price band, the stock is available at P/E of 21 x based on annualized FY17E earnings. It’s nearest comparable MCX is trading at P/E of 43.7 x based on annualized HYFY17  earnings. NSE is expected to come with an IPO price in region of Rs. 900/- which translated to a PE of multiple of 43.2. Thus BSE IPO is priced fairly.
  • The P/BV ratio of BSE Limited (1.72) is quite low compared to NSE & MCX(>5). This is on account of huge amount of reserves on books of BSE, being a much older exchange. This factor also justifies the pricing of BSE IPO.
  • Profitability ofn Exchanges including BSE may improve in the coming year, as SEBI has exempted stock exchanges from transferring 25 per cent of profits to the Settlement Guarantee Fund (SGF) of clearing corporations
  • Past Performance of BSE fails to instill confidence as major marker players have shifted to NSE  and BSE continues to lose market share. Hence the long term prospects of BSE Ltd. appear hazy.
  • While BSE lags behind NSE on many counts and NSE may be having much better prospects, BSE IPO pricing provides comfort and appears reasonable and appears to have left something on the table for the investors at least for now.
  • Keeping all factors in mind, I am likely to subscribe without any iota of dobt to this IPO.

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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