MOSL: BSE (Neutral)- Continued thrust in new segments but dependence on this is still too low

​BSE:Continued thrust in new segments but dependence on this is still too low

(BSE IN, Mkt Cap USD0.9b, CMP INR987, TP INR1100, 11% Upside, Neutral)

• Overall beat led by higher revenue: BSE’s 2QFY18 revenue declined 11.5% YoY to INR1,232m, better than our estimate of INR1.132m (-18.7% YoY). The revenue beat also led to a higher-than-expected EBITDA margin of 31.2% (-160bp YoY; est. of 16.3%). PAT declined by 4.2% YoY to INR672m, as against our estimate of INR592m (-15.6% YoY).
  
• Super-normal growth continues in smaller segments: In our view, excluding CDSL, BSE’s operating revenue rose 22% YoY. Growth was majorly led by a rise of 24% YoY in equity transactions income and 41% YoY in listing fees. Growth was much higher in currency derivatives (3.4x) and interest rates futures (4.8x); however, this did not result in material delta on the overall performance given that these segments contribute only ~2% of revenues.
  
• An update on new initiatives: [1] BSE and Ebix, the world’s largest insurance exchange, signed an MoU to set up a JV to develop an insurance distribution network to cover the entire insurance lifecycle. [2] Volumes on the IFSC grew from inception till July 2017 driven by new product launches; however, because of a temporary slowdown in regulatory thrust, volumes saw a decline in August and September. [3] Market share in equity declined to 13% from 17% earlier, despite a change in the pricing mechanism, primarily because of lower volumes on the derivatives front compared to NSE.