After a long wait and a series of steps taken by the company, the BSE Ltd. has finally received SEBI’s clearance for its IPO (OFS). The focus will now shift to bse valuation of the Continent’s oldest bourse and the price band of the IPO.
Before we try to arrive at an expected price band, let’s see what is working for BSE and what is not.
Clearly the market share of BSE in the equity cash segment has been falling steadily and its rival NSE has surged miles ahead. In the equity derivatives market, BSE has negligible presence with NSE enjoying almost a monopoly.
However, there are a lot of fronts where the BSE scores pretty well.
For starters, the 140 years’ legacy and brand of BSE (erstwhile Bombay Stock Exchange) is almost impossible to replicate.
BSE is steadily gaining market share in the currency derivatives segment at the cost of NSE. The Wholesale debt market is also doing pretty well.
BSE also has a head start in the approval for setting up an international stock exchange at the GIFT city. This stock exchange is expected to be functional almost round the clock.
The NSE will surely be hurt by corporate governance charges of preferred access to select brokers for algorithmic trading and the sudden exit their MD, Ms. Chitra Ramkrishna. We don’t yet know whether both these events are connected. The rumored tussle between the investors and the management over the IPO hasn’t helped much either.
Now even those who were quick to write off BSE; are waiting and watching as things unfold as BSE seems to be rising against the turn of the tide.
BSE Ltd. expected valuation:
If reports of the targeted listing price of NSE’s shares is to be believed, it means that the NSE IPO will be a 10,000 crore blockbuster. As per the DRHP NSE will offer upto 11.14 crore equity shares in the OFS (IPO). This translates to roughly around Rs. 900 per share of Face value Re. 1/- and values the exchange around 43000 crores!
Similarly, as per the DRHP of BSE, it will offer upto 1.5 crore shares (adjusted for Face value consolidation). The issue size is expected to be between 1300-1400 crores. This will value the exchange between 4,600 – 5000 crores and each share of Face Value 2 being valued between Rs. 870 -930/-.
Valuation by comparables:
The closest comparable listed exchange in India is the Multi Commodity Exchange (MCX).
Currently, MCX is trading around Rs. 1275 per share. Its HY17 annualized* EPS is 27.63 and its book value per share is 257.75. Thus MCX is currently trading at:
P/E multiple – 46.14
P/BV multiple – 4.95
Although, I believe that the BSE & NSE both will command better multiples than those enjoyed by MCX; if we still go ahead and assign the same multiples to NSE & BSE we get the following results.
The HY17 annualized* EPS for NSE and BSE are Rs. 24.99 and 19.72 respectively. The book value per share of NSE & BSE are Rs. 132.04 and 479.94 respectively.
Applying the P/E multiple of MCX (46.14) the comparable prices of NSE and BSE come to Rs. 1153 & 910 respectively.
Applying the P/BV multiple of MCX (4.95) the comparable prices of NSE and BSE come to Rs. 653 & 2374 respectively. The aberration BSE’s value based on P/BV is due to the huge amount of reserves on books.
BSE Ltd. IPO price band
Based on the above data it is safe to assume that the lower end of the BSE price band should not be below Rs. 900 per share. On listing, there is likely to be a premium for the BSE shares due to several of the above mentioned factors, so we can expect the listing to be between 920-950.
* Although annualising the half yearly numbers is not the best way of projecting annual numbers but in this case I am using it since the trailing FY16 PE multiples are giving distorted multiples due to the huge jump in the profitability in HY17