HDFC Securities sees BSE sustaining 3 times gain on derivatives boost
Shares of BSE (formerly Bombay Stock Exchange) have risen almost three times this year, amid a successful revival of the derivatives segment. Domestic brokerage HDFC Securities sees the stock maintaining gains while the derivatives segment supports future growth.
“BSE has witnessed success with the Sensex contract in the much larger equity derivatives segment, dominated by NSE. The Sensex contract currently accounts for about 40 percent of NSE’s (Nifty) derivatives volume, but with the launch of the Bankex contract, so will BSE. handles about 95 percent of NSE’s derivatives volume. With a single contract, the exchange has achieved a notional/premium market share of around 9/3 percent, which is impressive,” HDFC Sec said in a note.
The brokerage has maintained a buy call on the stock with a price target of Rs 1,600. Shares of BSE closed at a new high of Rs 1,545 on Thursday, with a gain of 3.85 percent over the previous close.
From almost zero in June 2023, active customers on BSE’s derivatives platform have reached 400,000. This number is expected to rise further as more discount brokers start offering BSE derivatives on their platform.
Under its new CEO, Sundararaman Ramamurthy, BSE relaunched Sensex and Bankex in May with smaller lot sizes and weekly expiry dates. To attract more traders to its platform, BSE kept its prices at just a fraction of NSE, which until recently had a monopoly in the derivatives segment.
HDFC Sec believes that BSE will increase its prices, which will support future revenue growth.
“The pricing of BSE options is currently one-seventh of the NSE, which is not sustainable. We expect the price change to happen soon and have increased the pricing of options by about three times; yet this is a discount of 57 percent versus NSE. Assuming a premium market share of around 9 percent in FY26E and price appreciation, derivatives will contribute around 25 percent of BSE’s total revenue, 35 percent of Ebitda and 75 percent of incremental growth. We expect compound annual growth revenue/EPS growth ( CAGR) of around 26/31 percent over FY23-26E, led by revival in transactional revenues,” said HDFC Sec note.
The brokerage has raised BSE’s earnings estimate for FY25 and FY26 by 15 percent. Furthermore, the company has re-rated the stock from 28 times earnings to 33 times earnings.
“We maintain our buy rating and assign a sum of components-based target price of Rs 1,600, based on 33x core FY26E PAT and CDSL stakes and net cash ex-settlement guarantee fund,” HDFC Sec.
Currently, BSE has a 15 percent stake in depository company CDSL, which is valued at Rs 2,100 crore.