BSE Limited IPO – Should you invest or not?
BSE 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 805 to Rs 806 per share
Issue size: Rs 1300 Crores (on upper price band)
Market lot: minimum of 18 shares
Minimum investment: Rs 14,490 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.
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.
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 806 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 806 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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Holding this share from IPO period. Though there was listing gain waited for appreciation. but Gradually decreased to 745 CMP. Please suggest if this is a hold or can be sold on loss.
Hello Sivaram, I know that this has not catched investor attention till now. You can hold it for another 1 year or you may exit now and book loss
I can hold it provided it will not fall much and having great fundamentals. Thanks for the guidance.
is there any difference to get a share at IPO and from equity market ? i am interested in long term investment but didnt get a share at IPO so i have to buy from secondary market .