BSE rides global rally, strong revenue streams; attracts analyst scrutiny

Its remarkable ascent positions it as world's priciest exchange, inviting valuation scrutiny from analysts

BSE Ltd, India and Asia’s oldest stock exchange, is setting the trading floor on fire. The exchange closed with a share price of ₹2,820.10 on July 3, up from ₹860.84 at the end of June last year. Its market cap climbed to ₹1.15 trillion on July 3, up from ₹34,961 crore at the end of June 2024. BSE’s market cap first entered the ₹1 trillion club in May this year and it continues to make fresh highs every week.

 

BSE’s market cap is up nearly 20 times since its initial listing on the National Stock Exchange (NSE) in February 2017. In the same period, its share price rose by 23 times. On its listing day on February 3, 2017, BSE had closed at ₹118.8 to a share and a market cap of ₹5,739.3 crore.

 

That makes BSE Ltd one of the top performing stocks on the Indian bourses in recent years. For comparison, the benchmark Nifty 50 is up 6 per cent since the end of June last year while BSE Sensex is up 5.5 per cent in the period.

 

F&O boost

 

However, most gains in its share price and market cap have occurred in the last two years after it made inroads in India’s booming trade in stocks, futures and options (F&O). Prior to this, derivative trade largely happened on the NSE, leading to a stagnation in BSE revenues and profits.

 

The sharp rise in BSE’s stock price in the last one year is part of the global rally in securities and commodity exchanges as investors all over the world bet on growing financialisation of the global economy. The combined market cap of the world's top 30 securities and commodity exchanges was up 44.5 per cent in the last one year to around $685 billion on June 1 from around $474 billion a year ago, according to data from Bloomberg, Thanks to strong investor interest in the segment, 27 out of 30 listed exchanges in the sample have delivered positive returns to their shareholders in the last 12-months and most of the them have seen high double-digit rally in their share price. Only three listed exchanges — Saudi Tadawul Group Holdings, Brasil Bolsa Balcao and Japan Exchange Group — have delivered negative returns to equity investors in the last 12 months.

 

BSE has however been a global outperformer by a wide margin. Its market capitalisation is up 225 per cent to $13.5 billion now from $4.14 billion a year ago. Overall, BSE is the third-best-performing listed exchange after Pakistan Stock Exchange whose stock price is up 280 per cent from last year and Tel Aviv Stock Exchange (up 270 per cent). However, the other two rallied from a small base and are smaller than BSE in revenues, profits and market cap.

 

Thanks to a sharp rise in its share price and market capitalisation, BSE is the priciest bourse in the world. It was last week trading at a trailing price to earnings (P/E) of almost 86 times (X), more than twice the world’s top 30 listed securities exchanges average earnings multiple of 36.4X. Similarly, BSE is trading at a price to book value of 252, nearly six times the global average valuation ratio of 4.4. 

 

BSE’s valuation ratio is especially high compared to world’s major securities exchanges such as Intercontinental Exchange Inc, CME Group, London Stock Exchange Group and Hong Kong Exchange. Intercontinental Exchange, the world's biggest stock exchange by revenues, was last week trading at trailing P/E multiple of 37.6X and price to book value ratio of 3.7X, while CME Group was trading at trailing P/E of 27.4X and P/B ratio of 3.7 currently. 

 

Market cap strength

 

After the recent rise in its market cap, BSE is the second most valuable stock exchange in Asia behind Hong Kong Exchange and Clearing Ltd (HKEC) and ahead of Singapore Exchange and Japan Exchanges Group. At its current stock price, BSE has a market cap of $13.5 billion, compared to Hong Kong Exchange’s $67.64 billion. Singapore Exchange is currently valued at $12.7 billion, while Japan Exchange Group is valued at $11.2 billion.

 

BSE is the 11th biggest stock exchange globally in terms of market cap, behind Brasil Bolsa Balcao group and ahead of Singapore Exchange.

 

BSE’s revenues and profits are relatively modest compared to global peers. It had revenues of $350 million and net profit of $157 million respectively in FY25, which is around a 10th of the current annual revenues and profits of Hong Kong Exchange and Clearing. HKEC reported revenues of $3.08 billion and net profit of $1.87 billion during the latest trailing 12-months basis.

 

However, BSE revenues in FY25 were 16th biggest among securities exchanges: behind Saudi Arabia's Tadawul Group Holdings and ahead of Mexico's Bolsa Mexicana de Valores S.A. BSE’s annual net profit of $157 million in FY25 made it the 15th most profitable exchange globally: behind Australian Securities Exchange (reported annual net profit of $321 million) but ahead of Saudi Arabia's Saudi Tadawul Group Holding Co (reported annual net profit of $144 million), according to rankings based on Bloomberg data.

 

London Stock Exchange Group tops the league table with annual revenues $11.32 billion and annual net profit of $875 million. Chicago-based CME Group is the most profitable securities exchange, reporting a net profit of $3.63 billion on revenues of $6.28 billion during trailing 12-months ending March this year.

 

According to analysts, BSE’s high valuation is partly due to a sharp rise in its revenues and profits in recent quarters. Revenues and net profits in US dollar terms were up 108.3 per cent and 67 per cent, respectively, during the trailing 12-months ending March this year. The numbers make it the fastest-growing exchange globally. For comparison, the combined revenues and profits of the world's top 30 listed securities exchanges were up 10.6 per cent and 9.8 per cent, respectively, during the latest trailing 12-months.

 

BSE's current return on equity at around 29 per cent is also among the best globally and it compares favourably with global peers.

 

 

Valuation question

 

Some analysts feel that BSE’s rich valuation is likely to weigh on future returns in the stock. “With the recent rally, the stock trades at FY27 forward price to earnings multiple of 53x, significantly higher than its historic average as well as that of its global peers. We downgrade our rating on BSE to Neutral with a revised target price of ₹2,300 (45x FY27E P/E),” write Prayesh Jain and Kartikeya Mohata of Motilal Oswal Securities in their latest report on BSE.

 

According to analysts at Motilal Oswal Securities, BSE deserves a valuation premium given the high-growth potential of Indian markets due to under penetration but they expect a slowdown in earnings due to regulatory changes in F&O trading and shift in the expiry of weekly contracts of Sensex.

 

Others however see further upside in BSE stock price given its diverse revenue streams and duopolistic nature of the securities exchange industry in India. “We are initiating coverage on BSE with a ‘buy’ and target price of ₹6,730 based on PE of 50x FY27E EPS plus value of its stake in CDSL,” write analysts at Nuvama Research, in their report.

 

According to analysts, BSE has a diversified revenue stream comprising transaction charges, listing services, treasury income, index services, data feed and others.

 

BSE owns a 15 per cent stake in CDSL and analysts at Nuvama value the stake at ₹5,450 crore and contributing 5.9 per cent to their target price. They also estimate a higher revenue contribution from other subsidiaries such as Asia Index Private Limited (AIPL), Indian Clearing Corporation, BSE’s colocation facility and mutual fund trading platform BSE StAR MF. BSE owns 100 per cent stakes in Indian Clearing Corporation and Asia Index Private Ltd.

 

For comparison, subsidiaries, associates and joint ventures accounted for nearly 11 per cent of BSE consolidated profits (adjusted for exceptional gains & losses) in FY25. They added ₹140 crore to its consolidated net profit in FY25 up from their contribution of ₹120.5 crore a year ago, according to data from BSE.