BSE stock hits new record high, up 471% from March low; is it still a ‘buy’?

Shares of BSE, one of Asia's oldest stock exchanges, continued their winning streak for the third consecutive session on Monday, surging by 9.21% to ₹2,321 apiece. During the session, the stock reached a new peak of 2,350. Over the last three trading sessions, the shares have gained 18.23%.

Closing the last six months in positive territory, the shares recorded a substantial gain of 333%, rising from ₹430.95 apiece to ₹1,863, driven by market share gains. In the current month, the shares have already rallied by 24.63%. Taking the March 2023 low of ₹406.20 apiece into account, the stock has skyrocketed 471.39% to date.

Also Read: BSE soars over 13% to hit new high on raising transaction charges for equity derivatives

For the September quarter (Q2FY24), the company demonstrated robust performance, with its net profit growing by 307% to ₹118.4 crore. In the same period last year, the company posted a net profit of ₹29 crore.

It reported its highest quarterly revenue of ₹367 crore in Q2FY24, compared to ₹239.8 crore in Q2FY23, reflecting a growth of 53%. Operational revenues also saw a significant increase, rising by 59% to ₹314.5 crore from ₹197.7 crore in the corresponding quarter of the previous year.

The average daily turnover in the equity cash segment reached ₹5,922 crore in Q2FY24, compared to ₹4,740 crore in the corresponding quarter last year.

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In its equity derivatives segment, BSE achieved a milestone by trading more than 27 crore contracts, representing a notional turnover of ₹177 lakh crores on November 10, 2023, as per the company's earnings report.

“BSE’s market share gain in the derivatives segment is quite impressive, and the recent pricing reset improves revenue visibility with better profitability. The new BSE is well-placed to get a share of the large options market in India, powered by the new generation of option traders,” said domestic brokerage firm HDFC Securities.

Also Read: Retail investors should avoid trading in derivatives, says NSE chief Ashish Chauhan

The brokerage pointed out that the SENSEX contract has been successful and has reached a market share of 25%, while the overall notional market share is 12%. The launch of the weekly BANKEX contract with a Monday expiry will trigger the next phase of market share gain for BSE, it stated.

"We highlighted the need for an option price hike in our October 2023 note and assumed a 3x price hike, but the pricing was hiked by 5.2x. The current pricing is at a 26% discount to NSE, which leaves scope for further hikes when the contracts mature."

Also Read: Excitement and worry as stock options trading booms in India

“The price hike is effective November 23, and there has been no impact on volumes. The go-live of large discount brokers and the increase in active UCCs (1 million vs. 10 million for NSE) are driving volume for BSE. Assuming a premium market share of 10% in FY26E and current pricing, derivatives will contribute 40% of BSE’s total revenue, 53% of EBITDA, and 70% of incremental growth,” HDFC Securities highlighted. 

The brokerage expects revenue and an EPS CAGR of 35% and 42% over FY23–26E, led by a revival in transaction revenue. It lifted its EPS estimates by 21% and 28% for FY25 and 26E and increased the core multiple to 40x (vs. 33x). Therefore, it maintained its 'buy' rating on the stock and assigned a SoTP-based target price of ₹2,400 apiece. 

Also Read: Retail derivatives inflows in NSE at 100x that of cash

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.