BSE IPO launch today, analysts say valuation reasonable
2 min read . Updated: 23 Jan 2017, 04:37 AM IST
PremiumAsia's oldest stock exchange, BSE Ltd, aims to raise up to Rs1,243 crore from the IPO, which is priced at Rs805-806 per share
Mumbai: BSE Ltd, Asia’s oldest stock exchange, has analysts on its side ahead of an initial public offering (IPO) seeking to raise as much as Rs1,243.4 crore.
Stock market analysts say the valuation at which BSE is seeking to raise the money is reasonable compared to that of its only listed rival—the Multi Commodity Exchange of India (MCX).
BSE will sell shares in a price band of Rs805-806 in the three-day IPO that opens on Monday.
In a note to clients on Thursday, securities house IIFL Ltd said that at the upper end of the price band, BSE is selling stock at a price to earnings (P/E) multiple of 20.6 times fiscal year 2016-17 earnings. That compares with a P/E of around 40 times at which MCX is trading.
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“We believe the valuation demanded by the company is justified and hence recommend a subscribe to the issue," IIFL analyst Saurabh Rathi wrote in the note.
Meanwhile, in the grey market, the stock was quoting at a premium of Rs110-115 per share.
“I think valuations are decent, and they (BSE) will be able to maintain it," said Siddharth Purohit, senior research analyst at Angel Broking Pvt. Ltd. The brokerage has a “subscribe" rating on the IPO.
BSE’s IPO comes ahead of a share issue by larger rival NSE, which has also filed its sale prospectus with the regulator.
Existing investors of NSE are looking to dilute a 22.5% stake through the IPO, which could be as large as Rs10,000 crore.
“We know it (BSE) is not a very large player. While they do not have a big share in derivatives segment, they have a steady share in cash market, and that may continue," said Purohit.
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“Apart from transaction fees, there are other fees that constitute their income such as listing fees etc. They have been faring very well on that," added Purohit.
BSE’s IPO will see existing shareholders selling 15.42 million shares through the offer for sale route, according to information in the IPO prospectus filed by the exchange. The issue represents 28.26% of BSE’s pre-share sale capital.
Anand Rathi Financial Services Ltd said it strongly recommended subscribing to the BSE IPO.
“We see significant growth potential for BSE given the government efforts to increase retail and EPFO (Employees’ Provident Fund Organisation) participation in the capital market; bring in new products and innovations," Anand Rathi analyst Ridhi Mehta wrote in a note on Thursday.
There are some who are not completely convinced.
Ravi Sundar Muthukrishnan, co-head of research at ICICI Securities Ltd, said that in terms of valuation, while BSE at around 21 times trades at a lower multiple than MCX, it still trades at a premium over global exchanges, which trade at between 15 and 22 times.
Muthukrishnan said he would rate the IPO a “neutral." While the valuation looks reasonable compared to that of MCX, the company has not delivered well in the equity cash and derivatives segment.
“If looked in isolation, in light of past performance, then the multiples look slightly stretched," said Muthukrishnan.
“It could , however, turn into a good bet, if the prospective positives such as Gift City play out or if the BSE is allowed to start a commodity bourse," added Muthukrishnan.
