My notes based on BSE Q4 FY24 Concall:
- BSE is gaining market share in derivatives segment, however, profitibility is miniscule in this segment because
a) They are charging less compared to NSE to lure customers. However, recently they have inicreased charges significantly comparabe to NSE.
b) NSE Clearing Corporation is charging BSE heavily on derivative trades.
c) Recent SEBI order on calculating regulatory fees based on notional turnover, will eat away lot of profitibility.
Derivatives turnaround has raised investors expecations multifold from BSE, and that’s visible in BSE price performance during last one year. I think BSE will have to live upto investor’s expectations to justify current price.
Yes, there is a possibility that BSE may compete with NSE in derivatives in future, but that’s a big question mark.
- Overall BSE profitibility is running all time high, due to huge capital market tailwind. Transaction revenues have increased a lot due to on going bull run.
Again, BSE has rewarded shareholders with rise in profits, but I think, the increase in profitibility is not structural, due to cyclical nature of the capital markets business.
- STAR MF also has done pretty well in terms of number of transactions and revenues, but to ME, it is not a product that commands pricing power. Pricing power rests in the hands of mutual funds, who continue to reduce the transaction charges as volume at SATR MF grow.
While AUM of Mutual Funds collectively have grown many times in last few years, BSE STAR MF is far behind in revenue growth, when compared to AUM rise of Mutual Funds.
- BSE has not increased dividend for FY24, despite
a) Increase in profits
b) Sale of CDSL Stake
c) No need of growth capital and
d) Sitting on tons of cash
I failed to understand management rational behind the same during the concall. However, for most of the investors it’s a irrelvant topic as share price is running all time high.
Summarizing, Capital market tailwinds has increased profitibility and share price performance of BSE. To ME, Underlying business is good, but share price performance is running ahead of fundamentals. Other investors may have opposite views and no body needs to agree with me. Take your own judgement.
Disclosure - Invested. Amature investor , not a SEBI registered analyst
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