BSE Hike In Derivative Trade Price To Lower Impact Of SEBI's Higher Fees; Shares Gain
Jefferies and Investec raised the target price of BSE after the exchange hiked the trading charges of Sensex and Bankex future options contracts to counter the impact of SEBI's higher fees.
BSE Ltd.'s recent hike in trading charges of Sensex and Bankex future options contract may reduce the impact of the Securities Exchange Board of India's higher fees on the exchange's earnings, according to analysts. Following the price hike, Jefferies and Investec raised their target price on BSE.
The exchange based on monthly turnover from May 13 has raised prices on its equity derivatives transaction charges in the range of Rs 500–2,950.
After BSE announced a blended 20% price hike for its derivative products, it is now on par with NSE, Jefferies said. This hike will reduce the impact of SEBI's fee to just 2-4% on EPS.
Jefferies thinks the margin expansion will be gradual, as with similar pricing, BSE's gross margin on derivatives will be lower than NSE due to its lower market share and SEBI's fees.
SEBI has directed BSE to pay higher fees based on notional turnover, as opposed to the present practice of basing the fee on premium turnover.
Investec has upgraded the stock to 'buy' as it also sees a lower impact of SEBI's fees because of BSE's price hike. Additionally, the exchange has introduced the same charges on Bankex coupled with a higher market share of 8.4% as of April 2024, which will translate to a 13% and minus 2% EPS estimate change for FY25 and FY26, respectively.
Jefferies cautioned about regulatory risks staying in focus going forward as a regulatory panel has been set up to review the derivative markets.
Brokerages' Take
Jefferies Raises Target Price
Jefferies maintained 'hold' on BSE and raised the target price to Rs 3,000 apiece from Rs 2,900 apiece, implying an upside of 8% from Tuesday's closing price.
The recent price hike in the derivatives segment will reduce the impact of SEBI's fee on EPS by 2–4%, Jefferies said in a note on Wednesday.
However, Jefferies expects the margin expansion to be gradual. It has factored in 400 basis point margin gains over FY25-FY27.
Derivatives are the fastest-growing segment for BSE, and Jefferies expects it to contribute 48% of revenue by FY27.
Regulatory risks are to be kept in mind as a joint regulatory panel has been set up to review derivative markets.
Investec Raises Target Price
Upgraded BSE from 'underweight' to 'buy' and raised the target price to Rs 3,200 apiece from Rs 2,800 apiece, implying an upside of 14.69% from Tuesday's closing price.
The 27% increase in transaction prices will protect profitability on both absolute and unit economic levels.
The move showed how the company had an advantage in the capital markets, as the price hike would not impact volumes. This convinced the brokerage to upgrade the rating and raise the target price.
After hiking Bankex options' prices, it's on par with Sensex options.
Changing the single stock derivatives expiry to a second Thursday complements the market's offerings.
Shares of BSE rose as much as 3.94% to Rs 2,900, the highest level since April 26. It was trading 2.78% higher at Rs 2,867.85 as of 12:51 p.m., compared to a 0.30% advance in the NSE Nifty 50 index.
The stock has gained 414.02% in the last 12 months and 29.02% so far this year. Total traded volume so far in the day stood at 0.82 times its 30-day average. The relative strength index was at 54.04.
Out of eight analysts tracking the company, five maintain a 'buy' rating and three recommend a 'hold', according to Bloomberg data. The average 12-month consensus price target implies an upside of 9.0%.
