The global brokerage firm expects a 150% earnings surge for the stock in FY24 and double it over FY26.
“Indian exchanges benefit from healthy GDP growth, rising market cap/GDP (India at 100% vs 130-200% for peers) along with financialization of savings and rising equity market participation. Moreover, exchanges are insulated from risks of compression in fees, unlike the debate between active & passive AMCs as well as discount & full-service brokers,” Jefferies said in a note.
Jefferies also stated an exponential growth in derivatives trading, which has become the primary revenue stream for the exchanges.
“The BSE derivatives market share jumped to 14% from less than 1% in the last six month, led by these product launches. Continued growth and improved monetisation will lift the share of derivatives income to 35% of revenues in FY25 as against 2% in 2Q FY24. Derivatives ramp-up is the key driver for recent earnings upgrades and stock performance,” Jefferies said.
The broking firm also dismissed concerns about high derivatives turnover equating to elevated risks, citing a relatively lower underlying premium growth rate. It said the regulatory stance, which favours an incremental approach rather than imposing severe restrictions, contributing to a favourable trajectory for the market.
Mentioning diversified revenue streams as a significant advantage, Jefferies said BSE’s cash equities (20% of revenue mix) and mutual fund processing (10% of mix) are steady growth segments (FY20-23 CAGR 27%) riding on macro tailwinds of financialization of savings and growing investor base.Corporate services (35% of mix) are recurring fees and clearing and treasury (25% of mix) benefit from higher market activity.
“Led by strong growth and margins uptick, BSE should deliver a 150% earnings jump in FY24E and double it over FY24-26E. Stock trades at 31x 1-yr fwd P/E vs RTAs’ 38x, AMCs’ 28x, depositary’s 48x and distributors’ 30x,” Jefferies said while initiating a ‘Buy’ rating with a target price of Rs 2700.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)