BSE shares rise over 4% after Motilal Oswal upgrades stock to 'Buy' rating

BSE's share price surged 4.3 per cent to an intra-day high of Rs 3,369 on the NSE today (October 26). The surge in the stock price came after the domestic brokerage house, Motilal Oswal, upgraded the exchange stock to a 'Buy' rating, while retaining its price target of Rs 4,000. The price target sees an upside of over 23 per cent from its current market price. The upgrade came on the back of several factors. Read to know more.

The brokerage raised its revenue and net profit estimates by 8 per cent and 10 per cent for FY27. Also, it raised the revenue and net profit estimates for FY28 by 10 per cent and 12 per cent, respectively.

The change in estimates is supported by the strong volume run-rate, the likely benefit of the CAS reversal, and the benefit of NSE listing on cash volumes.

A sustained volume recovery combined with an improving premium-to-notional (P/N) ratio could drive a further 20 per cent increase in FY28 net profit, said Motilal Oswal.

The order rates that BSE charges for co-location servers are lower than those charged by NSE, providing scope for BSE to scale up this revenue stream. Similarly, transaction charges in BSE’s derivatives segment are lower than those charged by NSE. Closing this pricing gap could increase derivatives revenue by 8–10%. Both pricing levers, when implemented, would directly improve profitability.

Moving forward, BSE reported an EBITDA margin expansion from 9 per cent in FY21 to more than 65 per cent in FY26, driven by 57 per cent revenue CAGR over FY21-26. About 45 per cent of expenses are fixed in nature, while 55 per cent are activity-dependent, including clearing house expenses, which vary with the number of derivative contracts, and regulatory costs, which are linked to derivatives' notional turnover.

The share price of BSE has risen 4.5 per cent in the past five trading sessions. The stock has surged 3.5 per cent over the previous one month. BSE's share price has raised investors' wealth by more than 35 per cent over the last 12 months.

The exchange’s revenue from operations advanced 63 per cent to Rs 1,566 crore from Rs 958 crore a year back. Investment income also rose sharply to Rs 135 crore from Rs 79 crore, while other income stood at Rs 5 crore against Rs 7 crore in the year-ago period.

The firm’s total expenses increased 49 per cent to Rs 537 crore from Rs 359 crore in the same period a year ago. Employee benefit expenses increased to Rs 87 crore from Rs 70 crore. Technology expense rose to Rs 61 crore from Rs 50 crore.

Clearing and settlement expenses increased to Rs 90 crore from Rs 55 crore. Regulatory contribution rose to Rs 193 crore from Rs 116 crore. Other expenses stood at Rs 63 crore, compared with Rs 41 crore a year earlier. Depreciation expense increased to Rs 43 crore from Rs 27 crore.