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MOSL: BSE (Buy)-Strong performance; better outlook

BSE: Strong performance; better outlook

(BSE IN, Mkt Cap USD0.7b, CMP INR1218, TP INR1430, 17% Upside, Buy)

 

• BSE reported strong operational revenue growth of 48% YoY in 1QFY22. Growth was led by a 180% YoY increase in equity transaction charges - on account of strong volumes and an increase in transaction pricing (by 10%). This was partially offset by revenue decline in Star MF on moderation in realization on the platform on a YoY basis. The robust increase in margins was the function of operating leverage in the business.
• Revenue from the Star MF platform declined 30% YoY due to a meaningful reduction in pricing, while overall volumes (number of orders) increased 90% YoY. With pricing headwinds now behind, a strong sequential increase in volumes led to a 106% increase in revenue for Star MF sequentially.
• BSE witnessed an increase in market share in both the Cash Equity and Derivatives segments, led by interoperability and best price execution implemented by some of the brokers. With the expectation of a further increase in interoperability penetration, we can expect a gradual increase in BSE's market share, which would drive equity volumes for the company.
• Cross-subsidization by the competition presents limited monetization opportunities for BSE in the INX and Commodity Derivatives segments in the near term. While the announced additional income streams may be small currently, some of these have the potential to present meaningful opportunity over the long term.
• We continue to see BSE as a tactical play that is a combination of the core business and the potential value from revenue scale-up in new segments (Star MF, Commodities, and INX). Increased margins would further add to the bottom line on account of high operating leverage. Reiterate Buy.