NSE IPO creates buzz in unlisted market, shows the investor interest in issue
- The demand for NSE shares in the unlisted market has shot up since March 2023 after the company announced a dividend of ₹80 and reported better-than-expected results.
The primary market is already abuzz with many initial public offering (IPO) candidates including the country's largest equity market exchange - the National Stock Exchange (NSE). While the Dalal Street's wait is getting extended for one or the other reason, the NSE shares are witnessing significant activity in the unlisted market.
As per market observers, NSE shares have remained in the top five shares in terms of monthly turnover in the last few months.
Moreover, NSE stock is among the most prominent unlisted stocks in India, alongside Reliance Retail, the country’s largest retailer, and Tata Technologies, a subsidiary of auto major Tata Motors.
The unlisted shares of NSE are currently being quoted in markets anywhere in the range of ₹3,175 to ₹3,300 apiece, according to a report by brokerage firm Prabhudas Lilladher. The face value of NSE shares is Re 1.
The current share price in the unlisted market values the bourse at around ₹1,65,825 crore.
“At this price, the PE Ratio of the bourse stands at roughly 22 times on historical basis versus BSE Ltd at 37 times and MCX at 50 times and international exchanges trading between 30x to 40x,” the brokerage report said.
The brokerage believes that NSE shares demonstrate all the characteristics of a multibagger with its near monopoly status, strong earnings growth, clean promoters, attractive valuation and with multiple revenue levers in place for revenue accretion.
The demand for NSE shares in the unlisted market has shot up since March 2023 after the company announced a dividend of ₹80 and reported better-than-expected results.
“While prices have remained rangebound between ₹3,000-3,400 for large quantities of more than 10,000 shares, the enquiries have increased as the exchange also takes one more initiative – clearing KYC papers within a week of submission versus the earlier 2-3 months,” the report said.
This alone, the brokerage house believes, can trigger an upside even as the IPO launch date remains elusive for now but likely any time over the next 1 year.
Financials
NSE’s revenue growth of FY19 to FY23 is 3.5 times of global average, whereas the profit growth is 10.6 times.
During the quarter ended March 2023, NSE performed better than its big global and domestic peers and ended the financial year 2023 on a strong note. NSE’s revenue in FY23 jumped to ₹12,765 crore from ₹8,873 crore in FY22, primarily driven by a substantial increase in Futures and Options volumes.
The net profit rose to ₹7,356 crore in FY23 from ₹5,198 crore in FY22. The Earnings Per Share (EPS) too has increased to 148 in FY23 from 102 in FY22, indicating better profitability per share.
NSE has also announced a dividend of 80 per share for FY23, almost double the 42 per share announced in FY22, reflecting its strong financial health and commitment to rewarding its shareholders, the brokerage report noted.
Shareholders
Among shareholders of NSE, the state-run insurance giant Life Insurance Corporation of India owns over 10% in the bourse. NSE counts investment giants such as Tiger Global Management and Singapore's Temasek Holdings as its backers.
According to the report, the number of wealthy investors owning NSE shares has risen exponentially over the last five years, from 650 individual shareholders at the end of FY21 to over 4,300 shareholders at present, including DMart founder Radhakishan Damani, industry captains, and many reputed stock market investors.
Key triggers
NSE is the market leader in all the major segments and also ranks among the top 10 global exchanges in various asset classes.
Analysts believe the view remains positive owing to multiple factors including growth in new demat accounts opening in the country and record participation from domestic and foreign market participants as well as new market listings, among others.
Moreover, India’s market cap/GDP is 83% relative to 104% globally, similarly stock & debenture contribution is at 5% versus 30-40% globally, the gap between these indicators indicates a strong structural story to play out in near future, the brokerage said..
Additionally, NSE trying to diversify its revenue by foraying into GIFT City-related derivative trading (NSE IFSC – SGX Connect), depository receipts of foreign stocks in GIFT City, strong growth in Data-Related Income, higher share of indices income with an increase in ETF-linked investments, higher contribution from currency derivative and other such products, would be other key triggers.
Risks
The brokerage also highlighted certain risks faced by NSE. Among these are the regulatory actions like stricter norms for options trading, curbs on algo trading or restricting retail clients into such segments.
Delay in the IPO remains a risk though recent news items suggest that NSE has been cleaning up its act rapidly from its legacy issues and may be cleared, while the legal proceedings in the colocation case would also remain headwinds.
While there remains some uncertainty around regulatory and judicial actions, the fact that the exchange has multiple things going for it, Prabhudas Lilladher said. It recommends investors with a long term view exceeding three years to accumulate NSE shares without worrying about near term price movements.
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