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BSE IPO opens for subscription on 23 January in what will be the first mainboard IPO this year in India. The IPO, priced in the band of INR805-806 per share, will mobilize INR1,243.4 crore (INR12.4 billion). As expected, analysts have taken a positive view of the public offer which is India’s first stock exchange IPO. Here is what analysts at leading brokerage houses are saying in BSE IPO recommendations.
In its research note, India Infoline (IIFL) noted that BSE IPO is made available at a discount to its competitors. “BSE Ltd has an integrated business model and has presence across segments from trading and listing of securities to clearing and settlement. Its BSE StAR MF and BSE SME products are market leaders. The upcoming innovative products like BSE Hi-Tech, index based products, an exchange in precious metals, gems, a consumer sentiment index and a high-frequency data on unemployment will incrementally improve its market share. Improving market share in certain products and improving market activities improved its annualised FY17 revenues (based on H1FY17) by ~16.5% yoy. At the upper end of the issue price band, i.e. Rs.806, the stock is available at a P/E multiple of 20.6x on FY17E annualized earnings as compared to MCX, which is trading at P/E of ~40x. We believe the valuation demanded by the company is justified and hence recommend a ‘SUBSCRIBE’ to the issue,” said IIFL in its report on BSE IPO recommendations.
Read Also: BSE Limited IPO Discussion
SPA Research is also positive in BSE IPO recommendation and has offered a Subscribe rating on the stock. “India’s exchange sector is still at nascent stage as compared to developed and developing economies. Equity as % of financial savings in India is mere 5% compared to 14% in China, 15% in Brazil, 20% in Indonesia and 42% USA. This participation is only going to increase going ahead and that will boost the exchange business. We believe that there is significant growth potential for BSE given – a) Government’s efforts on increasing retail and EPFO participation in capital markets, b) New products and innovations such as REITs, commodity trading and infrastructure investment trusts and c) Information services segment which currently contributes ~4% of revenue vis-à-vis global revenue contribution of ~10-25%. At the upper end of the price band, the stock is available at P/E of 28x based on annualized FY17E earnings. It’s nearest comparable MCX is trading at P/E of 39x based on FY17E earnings. We recommend SUBSCRIBE to the issue with long term perspective,” said the brokerage house’s research note on BSE IPO.
“While equity savings in India remains low, with other asset classes becoming less attractive, investor’s acceptance of equity as an investment is gaining the momentum. With India remaining an attractive investment destination, BSE is likely to see decent growth in business. BSE has sustained the high competition in last many years which is a positive argument in our opinion. Its holding in CDSL and Clearing Corporation will continue to be value accretive in the long run. At the issue price, the stock is offered at 20.6x its FY2017E annualized EPS, which we believe as reasonably priced and hence, recommend SUBSRIBE to the issue,’ said Angel Broking’s research note.
ICICIDirect.com has also recommended investors to Subscribe to BSE IPO for long term. “Priced at ~35x FY16 PE; SUBSCRIBE from long term investment horizon At the IPO price band of | 805-806, the stock is available at a multiple of 35.2x FY16 P/E at the upper end of the price band. Post issue market capitalisation is at ~| 4312 crore.”
BSE IPO recommendation is also positive at Geojit BNP Paribas which finds comfort in valuations. “At upper price band of Rs806, it is available at 25.6x FY16 PE, which we believe is reasonably priced when compared to globally listed exchanges like Singapore Exchange, Japan Exchange Group, Deutsche Boerse, which are trading in the range of 20-25x FY16 PE. We recommend “Subscribe” to the issue, with a medium-to-long term perspective.”
Analysts at GEPL Capital assigned a subscribe rating on BSE IPO. “BSE Ltd.(BSE) stands to gain from operating leverage. At a P/E of 35.8 xs of FY16 EPS and 21xs of trailing earnings. We believe that BSE Ltd. demand a discount to its domestic peers. We assign a Subscribe rating to the IPO.”
Noting that BSE is one of the most recognizable brand names in India, analysts at NVS Wealth Managers have also put a Subscribe recommendation on the IPO. “BSE IPO is being launched at a price band of Rs.805-806 per share. In H1FY17, BSE has already posted PAT of Rs.129 Crs ( full year FY17 estimate being Rs.260 Crs on a tiny equity capital of Rs.10.74 Crs, generating a robust EPS of Rs.48.5). At the higher price band of Rs.806 per share, it works out to a modest PE of 16.6x its FY17E EPS, making it a very attractive IPO for investors. We recommend all investors to SUBSCRIBE to the issue,” said NVS Wealth Managers’ research report.
While noting that after CDSL IPO, BSE’s revenues will take a hit, Choice Broking said the exchange has other products like mutual fund platform to offset this weakness. “As of H1 FY17 end, the company has liquid investments and cash balance of Rs. 24,921mn. Additionally, assuming Rs. 10,000mn valuation for the CDSL, the core operations of BSE is valued at around 8,300mn, which is very reasonable and attractive. Considering the business outlook and attractive valuation demanded by the company, we recommend a SUBSCRIBE rating for the public issue,” said analysts in their research report.
As seen above, brokerage houses are mostly positive in their opinions about the historic BSE IPO. This is in line with our analysis of the IPO in which we outlined that the pricing of the offer has been kept attractive. Latest reports suggest that grey market premium (GMP) for BSE IPO has increased in recent days after the exchange roped in several big domestic and international financial institutions as anchor investors. In the last couple of years, strong GMP and kostak rates have been followed by positive listings.