Macquarie has initiated coverage of BSE Ltd. with a bullish 'outperform' rating ahead of its rival National Stock Exchange Ltd.'s (NSE) listing.
The initiation with such conviction comes at a crucial time as NSE's market debut is expected to level the playing field for two of India's major stock exchanges.
The brokerage has set a target price of Rs 4,000 for the exchange, implying an over 22% upside to its current market price.
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BSE is a "challenger" and credible competitor to NSE, according to Macquarie, which pointed to its pivot to index options.
"BSE's platform expansion and share gains create revenue and margin optionality, supporting strong cash generation," the brokerage stated in its note.
Further, it said that the bourse's earnings growth, margin expansion and platform optionality underpin the positive outlook.
BSE is riding India's financialisation wave, with Macquarie expecting structural tailwinds for margins and platform expansion to drive revenue.
Despite potential near-term strain from the Closing Auction Session (CAS), the brokerage's long-term forecast for the industry remains constructive. Notably, Macquarie sees room for further re-rating of the NSE challenger.
"We believe the market is yet to fully reflect BSE's potential for share gains in cash equities and F&O, growth in non-transaction businesses, and significant cash generation," the brokerage underlined.
Bulls Lock Horns: Valuation Battle Of The Bourses
NSE's revenue grew at a 24.3% compound annual growth rate (CAGR) between fiscal 2021 and 2026, while EBITDA and net profit grew at CAGRs of 24.7% and 23.4%, respectively.
In comparison, BSE recorded significantly higher growth, with revenue, EBITDA and PAT rising at CAGRs of 52.1%, 68% and 77.3%, respectively.
Despite the lower growth rates, NSE maintained a higher average EBITDA margin of 77.89% during FY21-FY26, compared with 46.5% for BSE. On valuations, BSE's FY26 price-to-earnings (PE) multiple stood at 54.3x, compared with 42.9x for NSE.
NSE Listing To Spell Gains For BSE?
SEBI regulations prevent NSE from trading on NSE itself. Therefore, NSE will list & trade on BSE, its direct rival exchange.
Jefferies estimates this adds 1-2% to BSE's FY27E earnings, while assuming NSE's own daily turnover trades at levels similar to HDFC Bank, the brokerage estimates Rs 70 crore in combined cash & stock-option revenue for BSE.
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