MOSL: BSE (Buy)-Star MF – key revenue driver-Operating profit misses estimate
BSE: Star MF – key revenue driver; Operating profit misses estimate
(BSE IN, Mkt Cap USD0.4b, CMP INR481, TP INR650, 35% Upside, Buy)
- Below estimate on low listing charges, high other expenses: 1QFY20 operating revenue declined 8% YoY (missing our est. of 10% growth). EBITDA margin was at 2.6% (slight improvement sequentially), as against >20% level two years ago, given lower volumes and operating leverage in the business. PAT before share of profits from CDSL, declined 20% to INR414m (well below our est. of INR552m). While revenues from transaction charges improved 17% YoY, revenue from services to corporate declined 12% YoY on lower primary market activity. Operating EBITDA came in at INR29m (lower than our est. of INR260m), mainly on account of higher other expenses at INR390m (v/s est. of INR267m).
- 'Star MF' platform scaling up - potential mover of revenue needle: BSE has been expanding aggressively in the Star MF segment, despite weakness in the mutual fund business. Total income from the segment stood at INR 119m, an increase of 130% YoY, which was led by both increase in volumes and realization. Realization improved to INR9.8/transaction from INR7.8/transaction (increase in pricing effective 1st Apr'19). Currently, over 12% of all transactions are carried out through the BSE's Star MF program, with the BSE having a market share of 75% in the segment.
- Valuation view: Our 'Buy' thesis on BSE is centered on (a) it being a value play (combination of dividend and buyback) at low valuations, and (b) the option value from new segments, such as the MF platform, commodities and INX, over and above the SOTP value of its segment. Our SOTP methodology for BSE ascribes value to (a) core operations ex-cash income (INR165/share), (b) implied value from CDSL's market price at 20% holding company discount (INR85/share), (c) owned unencumbered cash (INR200/share), and (d) float income from encumbered/margin money (INR200/share). Our target price of INR650 implies 35% upside. Maintain Buy.
BSE Limited (BSE) is an India-based stock exchange company. BSE provides a transparent market for trading in equity, debt instruments, derivatives and mutual funds. The Company consists of two business segments: Stock Exchange activity and Depository activity. Stock exchange activity is engaged in facilitating trading of securities and the activities incidental there to, and Depository activity provides depository-related services. It also has a platform for trading in equities of small and medium enterprises (SME). BSE also provides various services to capital market participants, including risk management, clearing, settlement, market data services and education. The Company's subsidiaries include Marketplace Technologies Private Limited, Central Depository Services (India) Limited (CDSL), Indian Clearing Corporation Limited (ICCL) and CDSL Ventures Limited. The Company offers the SCORES system, which is a Web based system where investors can lodge their complaints online.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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