Bse LTD (Bse) : Endow in Pioneering Exchange

BSE Ltd (BSE)
Endow in Pioneering Exchange
15th February, 2017

Initiating Coverage Endow in Pioneering Exchange
CMP : Target Price : Potential Upside Market Cap (INR Mn)

BSE Ltd (BSE) INR 1004 INR 1310.3 30.5% 53,788.21
Company Profile: BSE Ltd (BSE) own and operate the BSE exchange platform (formerly, the Bombay Stock
Exchange), the first stock exchange in Asia, which was formed on July 9, 1875. At the end of October 2016, the
BSE was the world's largest exchange by number of listed companies, and India's largest and the world's 10th
largest exchange by market capitalization, with US$ 1.7 trillion in total market capitalization of listed
companies. It regulates listed issuers and provides a market for listing and trading in various types of securities
as may be allowed by SEBI from time to time.
MARKET DATA Investment Rationale
Shares outs (Mn) 107.36  Strong brand recognition

Equity Cap (INR
Mn)
28501.3  Government allowed EPFO to invest in equity market
Mkt Cap (INR Mn) 53,788.21  Trend of Market Capitalisation to GDP
52 Wk H/L (INR) 1200/998
 Introduction of new products and Strategic tie-up with international
Volume Avg (K) 219.51 exchange
Face Value (INR) 2
 Growing demand for financial assets
Bloomberg Code BSE IN
 Potential Disinvestment in Central Depository Services Limited
(CDSL)
SHARE PRICE PERFORMANCE
 Establish an international exchange and an international clearing
110 corporation at GIFT City
 Indian market in Sweet Spot
100  Scope to grow in currency market
View & Valuation
90 BSE operates a diversified and integrated business model including trading,

clearing and settlement of products listed and traded on the BSE, as well as
Feb-17
Feb-17
Feb-17
Feb-17
the provision of data products, IT services and solutions, index products and
training. Such an integrated approach benefits and keeps costs low for its
Sensex BSE Ltd
participants and members by providing efficiencies that are associated with
having a wide range of services integrated under one entity.
SHARE HOLDING PATTERN (%)
India’s exchange sector is still at nascent stage as compared to developed
Particulars Feb17 and developing economies. We believe that there is significant growth
potential for BSE due to steady growth of the Indian economy, growing
Ownership (Institutional) 5.32% awareness regarding the stock market, increased participation by foreign
institutional players as well as domestic retail investors and increased
Ownership (Retail & Other) 94.68% penetration of share market trading services across India are some of the
key factors which contributed to this growth. At cmp Rs.1004 is trading at
2.2x TTM P/BV, as compare to other player its valuations are moderate in
terms of P/B. Hence we recommend ‘Buy’ based on 2.5x P/BV FY18E for
investors looking for stable companies with growth prospectus.
2
Analyst KRChoksey Research 022-6696 5555
Dinesh Gupta, pms@krchoksey.com, 022 66965609 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
Overview – Indian Stock Exchange Sector
India has a history of stock trading dating back to around 200 years ago. Initially, the East India Company was
the dominant institution and business in its loan securities used to be transacted. Gradually, the trading list
broadened as the number of participating brokers increased with time. Subsequently, a formal stock
exchange was established in 1875 as "The Native Share & Stock Brokers Association" (which later became BSE
Limited). It is the first stock exchange in India to obtain permanent recognition in 1957 from the Government
of India under the Securities Contracts (Regulation) Act, 1956. Later, NSE was founded in 1992 and started
trading in 1994.
Products Traded on Major Indian Exchanges
The BSE and NSE offer trading primarily in equity, debt instruments, exchange traded funds and derivative
products of equities, interest rate and currencies. Commodity trading activity in India is dominated by Multi
Commodity Exchange and National Commodity Exchange.
Metropolitan Stock
BSE Ltd NSE Ltd MCX Ltd NCDEX Ltd Exchange of India Ltd
Commodity Commodity
Equity Cash Equity Cash Equity Cash
Futures Futures
Equity Equity Commodity Commodity Equity

Derivatives Derivatives Options Options Derivatives
Debt
Equity Indices / Equity Indices /
Instrument
Global Indices Global Indices
s
Debt Currency
Debt Instruments
Instruments Derivative
Mutual Fund / Mutual Fund /

ETFs ETFs
Currency Currency
Derivative Derivative
Interest Rate Interest Rate

Derivative Derivative
SME Platform SME Platform
Source – BSE RHP, KRChoskey PMS research
3
Stock exchange turnover is dominated by Equity & Equity derivative segment
The equity derivatives market, which accounts for more than 85% of the total traded turnover on Indian
exchanges, has seen greater participation by investors since FY2012.
Indian Stock Exchange turnover

Equity Cash Segment
The two major stock exchanges in India are the BSE and the NSE. The market capitalisation of both stock
exchanges has gradually increased in line with a rise in trading activities and increasing share prices for listed
companies. NSE is leader in equity cash segment.
Market Capitalisation (Rs in bn)

4
Turnover in Equity Cash Segment (Rs in bn)
5
Investment
Initiating Rationale
Coverage Endow in Pioneering Exchange
Huge scope for BSE

of capture market
share from current
market share of 14%.
Primary Market
The number of listed companies in the BSE and the NSE has grown over the period of
FY2012 to FY2016, resulting in the rise of market capitalisation of both exchanges.
From 5,133 companies listed on BSE in FY2012, this number has increased to 5,911 in
FY2016. On NSE, the number of listed entities increased from 1,646 in FY 2012 to 1,808
in FY2016. As at the end of September 30, 2016, there were 5,844 and 1,822 listed
entities on the BSE and NSE, respectively.
Details of funds raised in the primary market in India
Category – wise
Total
Public Rights
Period
Amount Amount Amount
No. of No. of No. of
(INR. (INR. (INR.
comp. comp. comp.
Million) Million) Million)
FY2011 68 5,81,050 23 95,030 91 6,76,090
FY2012 55 4,60,930 16 23,750 71 4,84,680
FY2013 53 2,35,100 16 89,450 69 3,24,550
FY2014 75 5,10,750 15 45,760 90 5,56,520
FY2015 70 1,24,520 18 67,500 88 1,92,020
FY2016 95 4,89,280 13 92,390 108 5,81,670
1HFY2017 67 4,12,100 3 6,180 70 4,18,280
Source - RHP
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Investment
Indian Exchanges comparable with global players
General Overview of the Exchange Sector
Globally, there are over 70 major stock exchanges with a market capitalization of more
than US$5 billion. The total global market capitalization of WFE member exchanges
aggregated to US$66 trillion at the end of June 2016. The Intercontinental Exchange:
NYSE dominates with a market capitalization of about US$18.7 trillion at the end of
June 2016. In terms of turnover, the Shanghai Stock Exchange topped the list with a
turnover of about US$21.3 trillion in 2015. The BSE Limited was the largest exchange in
the world in terms of number of listed companies at the end of December 2015, with
5,836 companies.
Analysis with major macroeconomic variables
In the chart seen below, it can be noted that Bombay Stock Exchange has lowest
figures in both the variables i.e. value of equity turnover (USD Bn) and market
capitalization of listed companies (USD Bn). BSE has market cap of listed companies at
around USD 1516 Bn in FY15 with value of equity turnover at USD 121 Bn while NSE has
market cap of listed companies at USD 1485 Bn in FY15 with accelerating value of
equity turnover at USD 677 Bn. This shows poor performance of BSE in equity segment
compared to country peer National Stock Exchange (NSE) which even though having
similar market capitalization of listed companies has almost 5x value of equity
turnover.
Global comparable peers

3000 LSE
Value of Equity turnover (USD Bn)
Group
2500
Korea Exchange
2000 Nordic
Exchange
1500
Swiss Exchange
1000
Nordic Exchange National Stock Exchange
500
Bombay Stock Exchange
0
0 1000 2000 3000 4000 5000
Market capitalization of listed companies (USD Bn)
Source – RHP, PMS Research
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Investment
Company Profile
BSE Ltd (BSE) own and operate the BSE exchange platform (formerly, the Bombay Stock
Exchange), the first stock exchange in Asia, which was formed on July 9, 1875. At the
end of October 2016, the BSE was the world's largest exchange by number of listed
companies, and India's largest and the world's 10th largest exchange by market
capitalization, with US$ 1.7 trillion in total market capitalization of listed companies. It
regulates listed issuers and provides a market for listing and trading in various types of
securities as may be allowed by SEBI from time to time.
BSE has 1,446 unique members across all segments, and in FY2016 the BSE accepted an
average of 284.92 million orders and 1.55 million trades in equity shares per trading day,
placing it as the 12th most active exchange in the world in terms of electronic book
trades in equity shares.
BSE operate in three primary lines of business
• Listing business, which consists of the primary market

• Market business, which consists of
 Secondary market - Purchase and sales of previously-issued securities
 BSE StAR MF ("BSE StAR") - online platform for orders and
redemptions of units in mutual funds
 NDS-RST - platform for the reporting of over-the-counter corporate
bond trading,
 Membership in the exchange, clearing corporation and depository
participants
 Post-trade services, namely the clearing corporation and depository
• Data business, which consists of the sale and licensing of information products
In addition to the primary lines of business, BSE also have supporting businesses,
including (i) providing IT services and solutions, (ii) licensing index products such as the
S&P BSE SENSEX, (iii) providing financial and capital markets training and (iv) operating
corporate and social responsibility portal. Moreover, it has an active treasury function
focused on managing cash, including both its own funds as well as funds that it hold on
behalf of third parties (such as margins placed by clearing members).
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Investment
Investment Rationale
Strong brand recognition

BSE is Asia’s first and one of the most recognisable brand names in India, which enables
it to attract companies to its listing platforms and retail investors along with other
market participants. As of October 2016, BSE was the world's largest exchange by
number of listed companies and tenth largest exchange by market capitalisation.
According to World Federation of Exchange (WFE), BSE ranks third globally in terms of
currency options and futures contracts traded in 2015 with 430 mn currency derivatives
traded.
Rank Currency options and futures contracts

No. of
Exchange in traded in 2015
companies
2015
Rank Exchange Million
BSE 5836 1
1 Moscow Exchange 1005
BME Spanish
Exchange 3651 2 2 NSE 612
TMX Group 3559 3 3 BSE 430
Japan Exchange 4 CME Group 220

Group 3513 4
5 BM&FBOVESPA 113
NASDAQ 2859 5 Total 2533
Domestic Market Capitalisation
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Investment
Government allowed EPFO to invest in equity market
Government of India allowed the Employee Provident Fund Organisation (EPFO) to

begin investing in equity markets to boost equity investments in India. EPFO
investment in the stock market is expected to help the equity market as it gives greater
stability and adds liquidity to the stock market. It also reduces dependency on FIIs.
Along with LIC and domestic mutual fund companies, the EPFO can counterbalance FII
investments. Other measures, like the recent passage of the goods and services tax,
which would simplify the tax structure in India, are expected to boost overall GDP
growth in the medium to long term and are further positive steps for the overall
growth of the Indian economy in the long term.
Recently, the union cabinet has given its approval to raise the foreign shareholding
limit in Indian stock exchanges from 5% to 15% for a stock exchange, depository,
banking company, an insurance company and a commodity derivative exchange. This
will help to enhance competitiveness of Indian stock exchanges by facilitating the
adoption of the latest technologies and global best practices; leading to the overall
growth and development of the Indian capital markets.
Trend of Market Capitalisation to GDP
Interpreting from the below chart, it suggest that the market capitalization to GDP
ratio is flirting around the 10-year historical mean level of 81.5%and there might be
some room left for markets to rise and reach market cap to GDP ratio of 90%. This
would lead to increase in volumes on bourse and correlating it with the revenue would
indicate higher exchange fees for BSE.
190 Mean riverting India Historical Market Cap to GDP indicator
140 147
86 96
90 96
73
53 55 69 61 76
40
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Market Cap to GDP Ratio Mean
India’s market capitalisation to GDP ratio is lower than the world average of 98.7% and
is also lower than the average of 88.2% for BRICS countries (which comprise Brazil,
Russia, India, China and South Africa), which indicates that there is room for domestic
market capitalisation to grow.
Market Cap to GDP ratio of major world economies in 2015

150.0% 139.7%
World average - 98.7%
88.6%
100.0% 75.4% 71.3%
73.1%
51.1%
50.0% 27.6% 29.7%
0.0%
Australia Brazil China Germany India RussiaSouth United
Africa States
Market Cap to GDP Ratio World average
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Investment
Introduction of new products and Strategic tie-up with international exchange
BSE continually strive to diversify its product and service offerings to serve investors'
needs by developing new products and bringing new types of financial instruments.
Even though stock exchanges in India have seen business growth in the past, there
are product gaps which exist in certain segments. There is room to introduce
innovative derivative products like weather derivatives, energy derivatives and credit
derivatives, which are currently traded in major exchanges worldwide. The availability
of such new products would bring additional business volumes on the exchanges.
BSE is expanding its overseas presence through strategic alliances. It entered into
strategic partnership with S&P Dow Jones Indices LLC (USA) to grow its index
business by licensing its index products. Further, BSE has signed agreement with
Deutsche Börse to sell and market BSE market data and information to global clients.
It is also a member of BRICS Exchanges Alliance, whereby leading exchanges in the
member counties (Brazil, Russia, India, China & South Africa) cross-list futures
products based on the flagship indices of each of the other exchanges.
Growing demand for financial assets
Share of savings in financial assets from household savings rose to 42.5% in FY16 from
40.2% in FY15. According to the RBI’s statistics, savings in financial assets witnessed
12% CAGR in last 15 year. According to the RBI statistics, the percentage of net
investment in shares, MFs and debentures witnessed 54% CAGR over FY12-FY16. Total
net investment in shares, MFs and debentures is 6.2% of total household savings
invested in financial assets.
Trend in Financial Assets (in Rs bn)

7%
6%
6%
5%
4%
4% 4%
3%
2% 2%
2%
1%
0%
0%
Shares & debentures
Source – RBI, PMS Research
The financial savings of Indian investors shift from hard assets (gold and real estate)
to financial instruments. The market share of mutual fund equities is gradually
increasing. There is huge scope ahead. Equity MFs are less than ~2% of the total
savings of the country.
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Investment
Average Mutual Fund Aum (Rs in trillion)
Source –AMFI, PMS Research
Potential Disinvestment in Central Depository Services Limited (CDSL)
BSE has divested a 4.15% stake in CDSL to LIC at Rs 78.93 per share aggregating to Rs.
342.3 mn valuing it Rs 8248.1 mn, currently hold 54.2% stake in CDSL. Pursuant to
Indian law, effective April 1, 2017 stock exchanges will be prohibited from holding
more than a 24.0% stake in depositories, as a result of which BSE is required to divest
26.05% of stake in CDSL. The disinvestment of stake in CDSL will significantly impact
revenue.
Establish an international exchange and an international clearing corporation at

GIFT City
BSE to investing about ~Rs 500 crore in the international exchange over the next
three years, International exchange in GIFT City (Ahmadabad) may turn into major
success due to first-mover advantage. Establishing this exchange will increase BSE’s
brand's profile and also provide with additional sources of revenue. BSE intends to
offer across equity and index derivatives, currency derivatives and commodities in
foreign currency. It will also offer interest rate futures, fixed income securities and
provide an electronic trading platform.
The exchange will be a beneficiary of several tax sops, including exemptions from
stamp duty, service tax, dividend distribution tax, as well as commodity and securities
transaction tax (STT). STT is one of the biggest sore points for investors participating
in derivatives trading and the new exchange will eliminate that. A lot of Indian traders
dealing in equity derivatives from Singapore and Dubai may be tempted to set up
desks here. At present, sellers of options contracts have to pay an STT of 0.05 per
cent on the premium value. In addition, STT on buying options that get exercised is
0.125 per cent of the entire contract value. For futures contracts, sellers have to pay
an STT of 0.01 per cent.
Indian market in Sweet Spot
India is in sweet spot and one of the preferred global investment destinations given
its macro-economic stability, long-term growth prospects and ongoing economic and
social reforms. With India's GDP growing at a rate of 7% to 8% in the current financial
year, India is one of the fastest growing economies in the world compared to the
relatively muted growth of other major global economies. We expect the growth of
the Indian economy to attract foreign investments in coming years. Global events
such as Brexit are also expected to attract new investors to India given slower growth
in the European continent. Given the rise in the Indian capital markets, 269 new
Foreign Portfolio Investors ("FPIs") registered with SEBI in April 2016.
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Investment
Scope to grow in currency market

In FY16, BSE generated estimated revenue of Rs.33.1 mn on turnover of Rs.27639 Bn
from currency futures business. BSE charged transaction fees of Rs.10 for brief period
in FY16. The journey of price hike is interesting in case of BSE. BSE had launched its
currency derivatives platform in November 2013 and did not levy any transaction fees
for trades done on this segment for almost a year. However, since December 2014 it
began charging for currency derivatives. Since October 2015, the exchange has been
levying a transaction fee of Rs 10 on the currency derivative trades.
80000 70
Price inelastic growth in turnover 68775
70000 60
57312
60000
50
47760
50000
39800 40
40000 33167
27639 30
30000
19085 20
20000
10000 10
2443
0 0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Turnove (Rs. in billion) Forecasted turnover (Rs. in billion)

Transaction charges (Rs) Forecasted transaction charges (Rs)
Source – PMS Research
We are positive on currency derivatives segment because of two reasons.
 The currency derivatives market has just started its dream run and it is able to
deliver exponential growth in next 5 years.
 BSE’s pricing is far below competitor NSE’s fee structure. While BSE charges Rs.12
per crore, NSE levies humongous Rs.110 per crore. This gives BSE enough scope to
scale up its price from current Rs.12 to Rs.80 in phased manner (3-4 years) and
without impacting its market share.
Two above assumptions lead us to mind-boggling results. Assuming a modest growth

of 20% in turnover and conservative transaction fees of Rs.65 per crore would generate
Rs.447.0 mn in revenue and translate to approximate profit from currency segment of
Rs.150 mn. Since most of the incremental revenue would be generated due to price
hike, fixed and variable cost would be mildly affected. This profit of Rs.150 mn on FY16
PAT of Rs.1590 mn would mean significant contribution of currency derivatives
segment of approximate 9.5% from meagre 0.1% currently.
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Investment
NSE’s market leading streak continues from start and it is a dominator in currency
derivatives segment. NSE has around 59% market share in this segment and this is
followed by BSE with 36.7%. MSEI is lagging behind with market share of approximate
4% which has reduced considerably from its 37% market share in FY12. However, in the
options segment, BSE has overtaken NSE by a long shot. This could be attributed to
the pricing structure where BSE charges transaction fees of Rs.12 per crore, NSE
charges hefty transaction fees of Rs.110 per crore on both legs.
In the below chart it is seen, initially, in the year FY13 the loss of BSE’s market share
was captured by NSE and MSEI’s market share remaining relatively unchanged. BSE
then started with journey of poaching NSE's and MSEI's market share and in the year
FY15 the tables turned when BSE managed to capture the market from both NSE as
well as MSEI, where MSEI lost 23.4% of market share and NSE lost 4.2% of market share
while BSE pulled off a winner by gaining 27.6% market share.
Source – PMS Research
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Investment
Financial Review
BSE’s revenue from operations (comprising of securities services, services to

corporate and data dissemination fees), income from investments and deposits and
other income comprised of 63.2%, 29% & 7.9% of its total revenue, respectively in
1HFY17.
For FY16, total revenue of BSE was Rs.6583 mn, up 5.4% YoY compared with
Rs.6248mn in FY15 led by increase in certain charges and listing fees. From FY12-16,
BSE clocked revenue growth at 3.3% CAGR from FY12-16 while PAT was at Rs.1592 mn
in FY16. BSE has clocked revenue growth (excluding other income) at 3.5% CAGR in
FY12-16 to Rs.6160 mn.
EBITDA for FY16 was Rs.3005mn with 46% margin. Depreciation, finance cost, and tax
expenses for the period were Rs.617 mn, 7 mn, and 324 mn respectively.
Net profit, after share of minority and share of loss of associate, was at Rs.1225 mn as
on FY16, comparatively lower from FY15 net profit of Rs.1297mn with 21% margin.
Profit was low due to contribution of 25% of annual profits of BSE to the Core
Settlement Guarantee fund maintained by the ICCL, which is a SEBI requirement. This
contribution was required until Aug 29, 2016. For H1FY17, total revenue was Rs.3835
mn with EBITDA of Rs.1931 mn (50% margin). Net profit was Rs.1049 mn with 27%
margins.
Thus revenue growth is flat while profits have fallen, with NSE fast gaining market
share in various segments. But we can see there is a recovery in earnings in H1 FY17.
RoE and RoCE as on FY16 were in single digit at 5% and 8.2%, respectively.
The current dividend yield is 1.89% in 2016 which is moderate. BSE distributes 80% of
its adj. profits as dividend and plans to continue with the high dividend in the future.
BSE has a bank balance of Rs. 1,692 cr. which translates into Rs 310 as cash/share.
Total Income (Rs in Mn)

7000 6583
6248
5787
6000 5529 5298
5000
4000
3000
2000
1000
0
FY12 FY13 FY14 FY15 FY16
15
Investment
70% 62%
56% 54%
60%
49%
50%
46%
40%
30%
20% 30%
22% 25% 19%
10% 21%
0%
2012 2013 2014 2015 2016
EBITDA Margin PAT margin
10.0% 7.8%
9.3%
8.0%
8.3% 7.0%
7.8% 6.9%
6.0%
5.8% 5.4% 5.0%
5.3%
4.0%
2.0%
0.0%
2012 2013 2014 2015 2016
Adjusted ROE ROCE
18
16 15
14 12
12 10
10 8 8
8
6
4
2
-
2012 2013 2014 2015 2016
Dividend Per Share (Rs)
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Investment
Consolidated Financial Results – 9 Month Period ended December 31, 2016 (9MFY17)
Total Revenue increased by 19% from Rs.4797.8 mn in 9MFY16 to Rs.5696.2 mn in

9MFY17, mainly due to increase in Income from Securities Services which increased by
35% from Rs.1713.2 mn in 9MFY16 to Rs.2308.6 mn in 9MFY17. Net Profit increased by
32% from Rs.1216.1 mn in 9MFY16 to Rs.1604.6 mn in 9MFY17. EBITDA Margin
increased by 4% from 46% in 9MFY16 to 50% to 9MFY17.
Consolidated Financial Results – Quarter ended December31, 2016 (Q3FY17)
Total Revenue increased by 9% from Rs.1683.6 mn in Q3FY16 to Rs.1837.1 mn in

Q3FY17, mainly due to increase in Income from Securities Services which increased by
33% from Rs.616.9 mn in Q3FY16 to Rs.818.1 mn in Q3FY17. Net Profit decreased by 5%
from Rs.553.6 mn in Q3FY16 to Rs.527.7 mn in Q3FY17. EBITDA Margin decreased by
4% from 50% in Q3FY16 to 46% to Q3FY17. Net Profit Margin decreased by 4% from 33%
in Q3FY16 to 29% in Q3FY17. Decrease in profit mainly due to one-time reversal of
regulatory costs of CDSL of Rs.331.0 mn Q3FY16.
View & Valuation
BSE operates a diversified and integrated business model including trading, clearing
and settlement of products listed and traded on the BSE, as well as the provision of
data products, IT services and solutions, index products and training. Such an
integrated approach benefits and keeps costs low for its participants and members
by providing efficiencies that are associated with having a wide range of services
integrated under one entity.
India’s exchange sector is still at nascent stage as compared to developed and

developing economies. We believe that there is significant growth potential for BSE
due to steady growth of the Indian economy, growing awareness regarding the stock
market, increased participation by foreign institutional players as well as domestic
retail investors and increased penetration of share market trading services across
India are some of the key factors which contributed to this growth. At cmp Rs.1004 is
trading at 2.2x TTM P/BV, as compare to other player its valuations are moderate in
terms of P/B. Hence we recommend ‘Buy’ based on 2.5x P/BV FY18E for investors
looking for stable companies with growth prospectus.
Peer Comparison
Price /
Market Cap EV/EBITDA PE Ratio ROIC
Name Book ROE (%)
(USD mn) (x) (x) (%)
Value (x)
SINGAPORE EXCHANGE
5,738 15.6 8.9 24.2 37.5 33.3
LTD
DUBAI FINANCIAL
3,224 32.3 1.5 49.6 3.2 -
MARKET PJSC
DEUTSCHE BOERSE AG 17,039 12.4 3.5 23.0 31.2 11.4
ASX LTD 7,616 13.7 2.6 23.2 11.2 4.2

MULTI COMMODITY
877 18.0 4.2 137.9 3.1 5.1
EXCH INDIA
BSE LTD 802 9.5 2.2 33.3 6.6 5.6
Source – Bloomberg, PMS Research
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Investment
Profit & Loss Statement
Particulars ( Rs in Mn) FY13 FY14 FY15 FY16 H1FY17
Income
Total income 5,529 5,298 6,248 6,583 3,835
Expenses
Employee benefits expense 772 854 999 1,116 640
Administration and Other Expenses 1,648 1,570 2,196 2,462 1,264
Total expenses 2,421 2,424 3,194 3,578 1,904
EBITDA 3,109 2,875 3,053 3,005 1,931
Depreciation and amortisation

283 324 588 617 246
expense
Finance Costs 25 4 7 7 6
Profit before exceptional Items 2,801 2,547 2,459 2,382 1,679
Exceptional Items :
Total Exceptional Items 979 613 508 466 208
Extraordinary Items 5 6 - - -
Profit before exceptional item and

1,817 1,929 1,951 1,916 1,471
tax
Tax expense 377 340 438 324 224
Profit after Tax 1,440 1,589 1,514 1,592 1,248
Share of Minority 249 244 213 364 198
Share of Loss of Associate 4 3 4 3 3
Consolidated Profit after Tax 1,196 1,348 1,304 1,231 1,047
Equity share capital 104 104 107 107 107
Face Value 2.0 2.0 2.0 2.0 2.0
EPS 23.1 26.0 24.3 22.9 19.5
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Investment
Balance Sheet Statement

Particulars FY13 FY14 FY15 FY16
EQUITY AND LIABILITIES
Shareholders' Funds 22,889 23,708 24,609 24,493
Core Settlement Guarantee Fund paid 8 56 1,113 1,761
Minority Interest 1,733 1,875 1,986 2,223
Non-current liabilities
Deferred tax liabilities (net) 55 96 27 2
Long-term Borrowings - 13 36 19
Other Long-term Liabilities 317 286 450 521
Long-term Provisions 4 4 8 8
Deposits from Trading Members 2,435 310 190 190
Total non-current liabilities 2,811 710 710 739
Current liabilities
Short-Term Borrowings 9 - - -
Trade payables 371 470 581 697
Other Current Liabilities 11,026 13,309 12,144 11,391
Short-term Provisions 601 582 831 767
Total current liabilities 12,007 14,360 13,556 12,854
TOTAL EQUITY AND LIABILITIES 39,448 40,709 41,974 42,070
Non-current assets
Tangible assets 880 851 1,363 1,435
Intangible assets 207 202 292 185
Capital Work-in- progress 201 324 31 6
Intangible Assets Under Development 4 15 6 20
Goodwill on Consolidation 850 850 850 850
Non-current Investments 5,273 11,252 14,102 15,251
Deferred Tax Assets (net) 54 47 63 108
Long term Loans and Advances 564 791 856 1,204
Other Non-current Assets 19 29 21 15
Total non-current assets 8,052 14,362 17,585 19,074
Current assets
Current Investments 8,263 10,611 8,660 5,373
Trade receivables 344 344 360 480
Cash and cash equivalents 20,484 14,695 14,525 16,101
Short term Loans and Advances 149 169 247 197
Other Current Assets 2,156 529 597 846
Total current assets 31,397 26,347 24,389 22,996
Total Assets 39,448 40,709 41,974 42,070
19
Investment
Cash Flow Statement
Particulars FY12 FY13 FY14 FY15 FY16

Profit before Extraordinary Items and Tax (as
2,639 1,822 ,934 ,951 1,916
restated)
Adjustments for
Depreciation and Amortisation Expenses 341 283 324 588 617
Finance Cost 14 25 4 7 7
Interest Income -1,853 -2,042 -1,809 -1,966 -1,746
Others -353 -250 -279 129 274
Operating profit before working capital

788 -162 174 708 1,067
changes (as restated)
Change in Working Capital -1,068 2,549 2,103 -1,756 -825
Cash Generated from / (used in) Operations -281 2,387 2,276 -1,048 242
Direct taxes paid (net of refunds) -689 -649 -548 -480 -733
Net Cash from / (used in) Operating Activities -969 1,738 1,728 -1,528 -491
Purchase of fixed assets, including intangible

assets, capital work in progress and capital -343 -311 -428 -722 -621
advances
Others 3,042 1,311 -319 4,409 2,268
Net Cash generated from / (used in) Investing

2,699 1,000 -748 3,687 1,646
Activities
Proceeds from sale of equity share 103 15 10 10 -

(Repayment of) / Proceeds from Long term
- - 13 23 -17
borrowing
Proceeds of Short term borrowings from banks 3,060 - - - -
Repayment of Short term borrowings from
- -3,052 -9 - -
banks
Dividend and taxes paid thereon -492 -737 -495 -495 -1,117
Others -74 -220 -2,231 8 -83
Net Cash from / (used in) Financing Activities 2,596 -3,995 -2,711 -455 -1,217
Net Increase / (Decrease) in Cash and Cash
4,326 -1,256 -1,730 1,704 -62
Equivalents
20
Investment
Key Ratios
FY12 FY13 FY14 FY15 FY16

Valuation
Calculated EPS (Rs.) 33.4 23.1 26.0 24.3 22.9
Calculated BV (Rs.) 428.9 441.5 456.8 458.7 456.1
P/E 19.1 21.2 22.6 25.5 26.8
P/BV 1.9 1.8 1.8 1.8 1.8
Calculated margins (%)
EBITDA margin 62.2% 56.2% 54.3% 48.9% 45.7%
PAT margin 34.5% 26.0% 30.0% 24.2% 24.2%
Adj PAT margin 29.9% 21.6% 25.4% 20.9% 18.7%
Return Ratios (%)
ROE 7.8% 5.3% 5.8% 5.4% 5.0%
RoCE 9.3% 8.3% 7.8% 7.0% 6.9%
21
Investment
Key Management team
Name Qualifications and experience
Master's degree in Arts (Economics) from University of Delhi

and a master's degree in Public Administration from Kennedy
School of Government, Harvard University
Sudhakar Rao
retired Indian Administrative Service (IAS) Officer and retired as
(Chairman and public
the chief secretary of the State Government of Karnataka.
interest director)
He was awarded the Kannada Rajyotsava Award, under the
public service category by the Government of Karnataka on
November 1, 2010.
He has been part of our Board since 2012

He has completed his bachelors in technology in mechanical
engineering from Indian Institute of Technology, Bombay and
post graduate diploma in management from the Indian Institute
Ashishkumar Manilal of Management, Calcutta.
Chauhan He is the chairperson of the board of governors of National
(Managing Director Institute of Technology, Manipur.
and Chief Executive Prior to joining the Exchange, he has served on several
Officer) committees constituted by Department of Posts, Direct Taxes,
SEBI, Forward Market Commission and he was the group chief
information officer of the Reliance Industries Limited.
He was awarded the 'Indian Business Leader of the Year' award
in 2015 by PricewaterhouseCoopers and Horasis.
He has been part of our Board since 2014.

He has a master's degree in Arts (History) from University of
Delhi Prior to joining the Exchange, he was a chairman of
Dhirendra Swarup Pension Funds Regulatory and Development Authority.
(Public Interest He was also the chairman of task force created for supporting
Director) by the Financial Sector Legislative Reforms Commission,
Ministry of Finance, Department of Economic Affairs in the
preparatory work for creation of the Public Debt Management
Agency Committee.

Kasturirangan
He holds a bachelor's degree in Science with Honours and a
Krishnaswamy
master's degree of Science in Physics from Bombay University.
( Public Interest
He was also the chairman at Indian Space Research
Director)
Organization.

Sethurathnam Ravi He holds a bachelor's degree in science from Government
( Public Interest Science College, Jabalpur and holds a masters degree in
Director) commerce from Rani Durgavatri Vishwavidyalaya, Jabalpur.
Prior to joining the Exchange he was a director of UCO Bank.
22
Investment
Key Management team
Name Qualifications and experience
He holds a degree of master of science in Social Policy and

Planning in developing countries from the London School of
Economics and Political Science, University of London.
Sumit Bose Prior to joining the Exchange, he was a member of the
(Public Interest Expenditure Management Commission set up to review the
Director) allocative and operational efficiencies of Government
expenditure to achieve maximum output.
He was also the Union Finance Secretary and Revenue
Secretary in the Ministry of Finance, Government of India.
He holds a bachelor's degree in Arts (History) from University

Vikramajit Sen of Delhi and a bachelor in law from University of Delhi.
(Public Interest Prior to joining the Exchange, he practiced in all the courts in
Director) Delhi, although primarily in the High Court of Delhi.
She holds a bachelor's degree in commerce from University of

Bombay.
Rajeshree Rajnikant
She is also a qualified chartered accountant from ICAI and a
Sabnavis
company secretary.
( Shareholder
She is part of the Direct Taxation Committee with the Bombay
Director)
Chamber of Commerce where she is a co Chairperson.
He holds a bachelor's degree in engineering (chemical

engineering) from the Birla Institute of Technology & Science,
Pilani and has completed a post graduate programme in
Management from the Indian Institute of Management,
Sriprakash Kothari Ahmedabad.
(Shareholder He is currently the Deputy Dean and Gordon Y Billard
Director) Professor of Accounting and Finance at Massachusetts
Institute of Technology.
He was a recipient of the American Institute of Certified Public
Accounts and the Accounting Association's Notable
Contributions to the Accounting Literature award

He holds a masters’ degree in Law and Economics from the
Thomas Lars University of Stockholm and completed the Insead
Bendixen International Executive Programme in January 2000.
(Shareholder Prior to joining the Exchange, he was the corporate initiatives
Director) officer at ISE Inc. in New York, chief executive officer of OMX
Transaction NA, and chief executive officer of Swedgiro AB.
and a corporate legal counsel of OMX AB in Stockholm.
She has been part of our Board since 2015.

She holds a master's degree in economics from Panjab
Usha Sangwan
University and a post graduate diploma in human resource
(Shareholder
management from Indira Gandhi National Open University.
Director)
She is the first woman managing director of Life Insurance
Corporation of India.
23
Investment
Subsidiary
Paid-up Share
Sr Holding
Name of Subsidiary Holder Capital (Rs in
No. (%)
mn)
Central Depository Services Limited

1 BSE 54.2% 1045
(CDSL)
Indian Clearing Corporation Limited

2 BSE 100.0% 3540
(ICCL)
Marketplace Technologies Private

3 BSE 100.0% 20
Limited (Marketplace Technologies)
CDSL Ventures Limited (CDSL

4 CDSL 100.0% 45
Ventures)
CDSL Insurance Repository Limited

5 CDSL 51.0% 300
(CDSL Insurance)
24
Disclaimer
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related to the specific recommendation(s) or view(s) in this report.
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Kisan Ratilal Choksey Shares and Securities Pvt. Ltd

Registered Office:
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BSE Ltd (BSE)

Endow in Pioneering Exchange

15th February, 2017

CMP : Target Price : Potential Upside Market Cap (INR Mn)

MARKET DATA Investment Rationale

Shares outs (Mn) 107.36  Strong brand recognition

 Indian market in Sweet Spot

100  Scope to grow in currency market

View & Valuation

90 BSE operates a diversified and integrated business model including trading,

Overview – Indian Stock Exchange Sector

Products Traded on Major Indian Exchanges

Equity Equity Commodity Commodity Equity

Mutual Fund / Mutual Fund /

Interest Rate Interest Rate

SME Platform SME Platform

Source – BSE RHP, KRChoskey PMS research

Stock exchange turnover is dominated by Equity & Equity derivative segment

Indian Stock Exchange turnover

Source – BSE RHP, KRChoskey PMS research

Market Capitalisation (Rs in bn)

Source – BSE RHP, KRChoskey PMS research

Turnover in Equity Cash Segment (Rs in bn)

Huge scope for BSE

Details of funds raised in the primary market in India

FY2012 55 4,60,930 16 23,750 71 4,84,680

FY2013 53 2,35,100 16 89,450 69 3,24,550

FY2014 75 5,10,750 15 45,760 90 5,56,520

FY2015 70 1,24,520 18 67,500 88 1,92,020

FY2016 95 4,89,280 13 92,390 108 5,81,670

1HFY2017 67 4,12,100 3 6,180 70 4,18,280

Indian Exchanges comparable with global players

General Overview of the Exchange Sector

Analysis with major macroeconomic variables

Global comparable peers

Market capitalization of listed companies (USD Bn)

Source – RHP, PMS Research

BSE operate in three primary lines of business

• Listing business, which consists of the primary market

Source – RHP, PMS Research

Strong brand recognition

Rank Currency options and futures contracts

TMX Group 3559 3 3 BSE 430

Japan Exchange 4 CME Group 220

NASDAQ 2859 5 Total 2533

Domestic Market Capitalisation

Government allowed EPFO to invest in equity market

Government of India allowed the Employee Provident Fund Organisation (EPFO) to

Trend of Market Capitalisation to GDP

Market Cap to GDP ratio of major world economies in 2015

Introduction of new products and Strategic tie-up with international exchange

Growing demand for financial assets

Trend in Financial Assets (in Rs bn)

Shares & debentures

Source – RBI, PMS Research

Average Mutual Fund Aum (Rs in trillion)

Source –AMFI, PMS Research

Potential Disinvestment in Central Depository Services Limited (CDSL)

Establish an international exchange and an international clearing corporation at

Indian market in Sweet Spot

Scope to grow in currency market

Turnove (Rs. in billion) Forecasted turnover (Rs. in billion)