Fundamental Analysis of BSE – The last two years proved to be a boon for India’s stock market as companies generated great returns for their shareholders. As a result, the stocks that run India’s Dalal Street rose sharply in value. Shares of BSE Ltd. returned more than 260% in only two years. As a stock exchange business, BSE is a stable company with consistent earnings from listing fees and transaction charges.
In this article, we’ll conduct a Fundamental Analysis of BSE. We start with getting to understand the industry landscape in India. Later we move ahead to know BSE’s history, its growth and other fundamentals. A summary concludes the article in the end.
Table of Contents
Industry Overview
The Bombay Stock Exchange (BSE) and the National Stock Exchange handle most of the trading in the Indian stock market. Though BSE is older than NSE, NSE is a larger stock exchange in terms of volume. Apart from these two, there were various regional stock exchanges in India as well but they have been shut down.
Thus we can conclude that stock exchanges enjoy a duopoly in India similar to the two depositories: CDSL and NSDL. Both exchanges have the same trading mechanism, settlement process, and marketing timings. They both compete aggressively for the order flow resulting in market efficiency, low costs and sustained innovation.
Talking about the growth of the stock exchange business, it is directly dependent on growth in capital markets. As the activity in the market grows, so do the transactions resulting in growth for the industry as a whole.
The BSE Sensex increased from 22,386 in FY 2013-14 to 58,568 in FY 2021-22 making India’s stock market the 8th largest in the world. An increase in trading volumes, a record number of IPOs, improving retail participation, growing FPIs presence, and ease of account opening & online initiatives brought about this expansion. Therefore, income for stock exchanges grew in the same proportion.
In particular, the rise in retail participation demands a separate space for explanation. After the Coronavirus-induced lockdown, many people started exploring the stock market. As a result, FY21 and FY22 saw record new retail participation as more and more people opened their accounts.
Consequently, increased retail participation brought liquidity, attracting companies looking to raise funds. More than sufficient liquidity generated heavy returns in general and on listings which further invited investors. Thus, the previous two years proved to be a boon for the stock exchanges and depository companies.
Going forward, the outlook for the Indian economy stays strong translating into better earnings and good performance in the stock market. All this optimism bodes well for the stock exchanges.
Fundamental Analysis of BSE – Company Overview
Established in 1875, BSE (formerly known as Bombay Stock Exchange) is the fastest stock exchange in the world with a speed of only 6 microseconds. It is Asia’s first stock exchange and was initially named ‘The Native Share & Stock Brokers’ Association’. It became the first recognized Indian stock exchange in August 1957. Later, BSE got listed in February 2017 and became the first listed stock exchange in India.
According to the World Federation of Exchanges, BSE was the 8th largest stock exchange globally in March of 2022. At the time of writing of this article, the market capitalization of all BSE listed companies stood at Rs. 2,75,81,225 Crores. It has a total of 5,350 listed companies.
As a stock exchange BSE facilitates efficient and transparent trading in equity, currencies, debt instruments, derivatives, and mutual funds. In addition to the primary exchange for stocks, BSE also provides various other platforms for the trading of other securities:
- BSE SME – India’s largest SME platform with more than 250 companies.
- BSE StAR MF – India’s largest online mutual fund platform processing over 27 lakh transactions every month.
- BSE Bond – It is an electronic book mechanism for the private placement of debt securities.
- India INX – Located at GIFT CITY Ahmedabad, India International Exchange is 22 hours exchange offering trading, clearing and settlement across all major asset classes, including securities, equity derivatives, precious metals, base metals, energy and bonds.
- BSE Sammaan – It is a CSR exchange that helps corporates to connect with verified NGOs.
We pretty much understand in depth what all BSE does. Let us now move ahead to conduct BSE’s fundamental analysis.
Fundamental Analysis of BSE – Financials
Revenue and Net Profit Growth
Barring FY20, the revenues and net profits of BSE Ltd. have grown at a steady pace. It must be noted that profits were unusually high in FY18 because of the gain on the sale of a subsidiary.
As for the FY22 gains, it is primarily because of a y-o-y increase of about 28.6% in average daily value of equity turnover on BSE from Rs. 4,197 Crore in FY 2020-21 to Rs. 5,396 crores in FY 2021-22. As discussed above increased retail participation and record issues among other reasons resulted in better earnings for the stock exchange company.
As for the revenue segments of BSE, it reports all its earnings under one segment viz stock exchange operations. Therefore, no data could be obtained for revenue composition.
The table below shows the revenue and net profit of BSE for the last five years.
| Year | Revenue (Rs. Cr.) | Net Profit (Rs. Cr.) |
| 2022 | 841 | 254 |
| 2021 | 630 | 145 |
| 2020 | 606 | 122 |
| 2019 | 652 | 199 |
| 2018 | 676 | 689 |
Profit Margins & ROCE
Net profit and gross profit margins are high for BSE as it is in the financial and technology services industry. Furthermore, the duopoly nature of the industry aids its margins too.
Return on capital employed by BSE has been low. Although it gained sharply to 15% in FY22, it will be better to wait and track the performance of the business and quarter results to make sure it can continue with its impressive returns.
| Year | NPM | OPM | ROCE |
| 2022 | 30% | 41% | 15% |
| 2021 | 23% | 32% | 9% |
| 2020 | 20% | 21% | 5% |
| 2019 | 31% | 34% | 8% |
| 2018 | 102% | 41% | 26% |
Zero Debt
BSE’s balance sheet boasts zero debt because of the nature of its business. As the company is in the services industry, it doesn’t have to keep any inventory, saving the business any short-term liabilities.
Additionally, most of the real estate it owns was acquired a long time back. Hence, it doesn’t have any debt obligations on it either.
Fundamental Analysis of BSE – Future Plans
In recent years Bombay Stock Exchange has launched various other platforms including the esteemed India International Exchange at Gift City, Gujarat. However, it may take some time for earnings from these newer sources to materialise.
The FY22 annual report of BSE highlighted that India INX’s market share at GIFT IFSC increased to 96.38%. However, it doesn’t give a true picture of the overall size of INX as it uses only a small market of GIFT IFSC to prove its point. Thus we shall have to wait for solid numbers to assess INX’s ability to emerge as a strong earnings generator for BSE.
Summing it up, we can conclude that though BSE has many projects in the pipeline, all are still in the incubation phase when compared to its main business.
Shareholding Pattern
We are almost at the end of our case study of BSE Ltd. It would be interesting to know who owns how much of BSE.
The table presents the shareholding pattern of BSE Ltd as on June 30, 2022.
| Largest Shareholders of BSE | |
| Other Public | 57.36% |
| Other Trading Members & Associates | 16.85% |
| FPIs | 11.02% |
| LIC of India | 5.59% |
| Zerodha Broking | 3.7% |
| Siddharth Balachandran (Dubai-based businessman) | 2.97% |
| MSPL Ltd. | 1.33% |
| S Gopalakrishnan (Co-founder of Infosys) | 1.18% |
| Promoter & Promoter Group | 0% |
Fundamental Analysis of BSE – Key Metrics
The table below presents various metrics for a quick evaluation of the company.
| CMP | Rs. 645 | Market Cap (Cr.) | Rs. 8700 |
| Stock P/E | 37.4 | Face Value | Rs. 2 |
| ROCE | 15.0% | Book Value | Rs. 196 |
| ROE | 10.6% | Price to Book Value | 3.3 |
| Debt to Equity | 0.0 | Promoter Holding | 0.0% |
| Net Profit Margin | 32.3% | Operating Profit Margin | 41.1% |
| Dividend Yield | 2.09% | Dividend Payout Ratio | 71.8% |
In Conclusion
BSE Ltd. as a stock exchange enjoys stable and consistent earnings from listing charges and various transaction charges and fees. For the foreseeable future, the industry has no new competitive threat.
As a consequence, it may not result in sharp gains for the shareholders of the company as this low risk gets priced in the stock price. Hence, the investors will have to wait for another boom to witness the gains as they did in the last two years.
Will BSE be able to give stellar numbers in the coming quarters or not? They say that time has all the answers in the markets. Till then, keep saving and keep investing.
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