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Published on 7/12/2018 9:55:08 AM | Source: Motilal Oswal Securities Ltd

Buy BSE Ltd For Target Rs.800.00 - Motilal Oswal

Posted in Broking Firm Views - Long Term Report| #Broking Firm Views Report #BSE #Motilal Oswal #Quarterly Result

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PAT dragged by one-time expenses…

…Progress on new streams of revenues remains steady

Below estimate on low-cash yields and one-time costs :

BSE’s 2QFY19 consolidated operating revenues grew 1.2% YoY to INR1.12b, below our estimate of INR1.2b. The miss was on account of lower “other” revenues which includes Rent, Training, Recovery charges, etc. Operating revenues exclude Treasury Income from Clearing Corporation. EBITDA at INR93m was below our estimate of INR167m, but included one-time charges totaling INR74m from [1] provision for investment in IL&FS, and [2] provision for bad debts. Adjusted for the same, EBITDA would have been in line. PAT was INR459m (-31% YoY), 12% miss, which again would have been in line adjusted for the one-offs. 


Market cycle affecting equity transaction revenues :

While overall operating revenue grew 1% YoY, revenues from equity cash transactions fell 33% YoY to INR218m, owing to prevailing market conditions. 1HFY19 revenues are down 29%. The base for 2H is only higher, and hence YoY comparison could worsen (our estimate is 35%). The same is the case for Book Building services too, down 28% YoY to INR72m. Annual listing fees, an annuity in nature, grew 10% YoY to INR472m.


Valuation view :

BSE has been focused on scaling new segments, which should continue driving growth in earnings, notwithstanding the cycles. We value BSE on an SOTP basis ascribing value to [1] core operations ex-cash income (INR260/share), [2] implied value from CDSL’s market price @20% holding company discount (INR90/share), [3] owned unencumbered cash (INR290/share), and [4] floating income from encumbered/margin money (INR160/share). Our target price of INR800 implies a 28% upside. Maintain Buy.


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