BSE Limited IPO – Should you invest or not?

BSE Limited IPO ReviewBSE Limited IPO – Should you invest or not?


Long awaited Bombay Stock Exchange (BSE) Limited IPO would open for subscription from 23rd January, 2017. BSE Limited is first stock exchange in Asia where Indian company securities (stocks) are listed. Its consolidated revenues grown at 3% CAGR in last 3 years. It earned 24% profits in FY16 and FY15. What are the positive factors in BSE Limited IPO? What are the hidden factors in Bombay Stock Exchange (BSE) Limited IPO?  In this article, I would provide some interesting insights about BSE Limited IPO and review this IPO.

About BSE Limited


They own and operate the BSE exchange platform (formerly, the Bombay Stock Exchange), the first stock exchange in Asia, which was formed on July 9, 1875. As of June 30, 2016, the BSE was the world's largest exchange by number of listed companies, and 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.  

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As the operator of the BSE, they regulate listed issuers and provide a market for listing and trading in various types of securities as may be allotheyd by SEBI from time to time. they operate 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"), their online platform for the placement of orders and redemptions of units in mutual funds, (iii) NDS-RST, their platform for the reporting of over-the-counter corporate bond trading, (iv) membership, which includes membership in the Exchange, membership in their clearing corporation ICCL, and depository participants in their depository CDSL, and (v) post-trade services, namely the clearing corporation and depository; and

3) The data business, which consists of the sale and licensing of information products.

In addition to their primary lines of business, they also have supporting businesses, including (i) providing IT services and solutions, (ii) licensing index products such as the S&P BSE SENSEX, (iii) providing financial and capital markets training and (iv) operating their corporate and social responsibility portal. Moreover, they have an active treasury function focused on managing their cash, including both their own funds as theyll as funds that they hold on behalf of third parties (such as margins placed by clearing members).

Issue details of BSE Limited IPO


IPO opens: 23-January-2017

IPO closes: 25-January-2017

Face Value: Rs 2 per share

Issue price band: Rs 800 to Rs 850 per share

Issue size: Rs 1300 Crores (on upper price band)

Market lot: minimum of 18 shares

Minimum investment: Rs 13,600 on lower price band

Leading Managers: Edelweiss Capital, Axis Capital, Jefferies, Nomula Intl, Motilal Oswal, SBI Capital markets and SMC Capital

Listing: Only NSE (it cannot list on its own BSE stock exchange as of now)

Download BSE Limited IPO DRHP Prospectus at this link.

Objects of the BSE Limited IPO issue


The objects of the Offer are to achieve the benefits of listing the Equity Shares on NSE and for the sale of Equity Shares by the Selling Shareholders. Further, BSE Limited expects that listing of the Equity Shares will enhance its visibility and brand image and provide liquidity to its existing Shareholders. The BSE Limited will not receive any proceeds of the Offer and all the proceeds of the Offer will go to the Selling Shareholders in the proportion of the Equity Shares offered by them.

Company Financials (reinstated-consolidated)


The company generated revenue of Rs 578.66 Crores for the year ended Mar-12 and Rs 658.27 Crores for the year ended Mar-16.

The company posted a profit of Rs 199.66 Crores for the year ended Mar-12 and profit of Rs 159.15 Crores for the year ended Mar-16.

Its consolidated restated basic EPS for FY ending Mar-16 is Rs 11.2 and last 3 years average EPS Rs 11.7.

BSE Limited IPO - Financials - Consolidated

Company Financials (reinstated-unconsolidated)


The company generated revenue of Rs 402.8 Crores for the year ended Mar-12 and Rs 515.89 Crores for the year ended Mar-16.

The company posted a profit of Rs 111.6 Crores for the year ended Mar-12 and profit of Rs 131.9 Crores for the year ended Mar-16.

Its consolidated restated basic EPS for FY ending Mar-16 is Rs 12.1 and last 3 years average EPS Rs 9.5.

BSE Limited IPO - Financials - UnConsolidated

Strenghts of BSE Limited


Strong brand recognition with a track record of innovation

Diversified and integrated business model and active relationship with market participants

State-of-the-art infrastructure and technology

Financial strength and diversified stheirces of revenue

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Reasons to invest in BSE Limited IPO


Its consolidated revenue grew at 3% CAGR in last 5 years. Its un-consolidated revenue grew at 6% CAGR in last 5 years.

Good profits of 24.2% in the last couple of years (consolidated).  However, one should note that there is decline in margins in the last 2 years compared to 2012 to 2014 (which was in the range of 26% to 30%).

Strong brand as BSE.

Reasons not to invest in a BSE Limited IPO


Broad market trends and other factors beyond their control could significantly reduce demand for their services and harm their business, financial condition and results of operations.

There can be no assurance that they will be successful in implementing their current and future strategic plans.

Their proposed international exchange in GIFT City is subject to numerous contingencies and uncertainties they operate in a business environment that continues to experience significant and rapid technological change

Trading on their equity derivatives segment is less than that on the NSE and there is no guarantee that they can successfully compete in the equity derivatives segment against the NSE.

Damage to their reputation could materially adversely affect their business.

Any current and future strategic investment, alliance, joint venture or other business combination may materially adversely affect their financial condition and results of operations their electronic trading platform, networks and those of their third-party service providers may be vulnerable to security risks and cyber-attacks.

Certain of their critical trading infrastructure and software agreements are licensed from third parties.

Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 19 onwards.

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Recommendation / Investment strategy – BSE Limited IPO


On the upper price band of Rs 850 and on consolidated FY16 EPS of Rs 12.1, P/E ratio works out to 70x. Similarly, on last 3 years consolidated EPS of Rs 9.5, P/E Ratio works out to 89x. Means, company is asking for higher price band or Rs 850 in P/E ratio of 70x to 89x. Even in unconsolidated EPS computations, the P/ E ratio works out to be between 72x to 75x.

There is no listed peer in India who is in similar business for comparison, hence we cannot say whether the issue price is over priced or under priced.

Company revenues grew at 3% CAGR in last 3 years. It generated profits of 24% in FY16. BSE is a good brand. It would be only listed company in India in Stock Exchange business after listing. While revenue growth is not that great, considering higher margins and investor sentiments, this IPO can create investor attention for IPO subscription. High risk investors can invest in this IPO with 2-3 years time frame. If investors can get listing gains, they can do party.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

BSE Limited IPO – Should you invest or not

9 comments

  • Anshu

    Very informative. Thanks for posting. Would you please compare this IPO with ensuing IPO of NSE for the benefit of your readers.

  • Shashi

    The issue size is 1300 crore, this is what percent of the total capitalisation of BSE. The existing shareholders are selling, who are the major sellers and how much percent of BSE shares these shareholders hold now? Which other sector or company has such high P/E ratio?

  • Naveen

    Hi Suresh,

    Could you please post info on CPSE ETF.

    Regards
    Naveen

  • santonu

    Very useful information. sir can you compare
    the P/E to that MCX

  • Raj Kumar

    Nice review Mr.Suresh
    But making confusion also because of High PE

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