Shares of the National Stock Exchange (NSE) gained over 1% in early trade on Thursday after global brokerage firm Jefferies initiated coverage on the stock with a bullish view, citing strong market leadership, improving revenue growth and emerging business opportunities. NSE shares rose as much as 1.1% to Rs 1,795 apiece on the BSE.
Jefferies assigned ‘Buy' rating to the recently-listed NSE shares and set a price target of Rs 2,085, implying an upside potential of more than 17% from Wednesday's closing price.
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The brokerage expects NSE to deliver a revenue compound annual growth rate (CAGR) of 15% over FY27-FY29, supported by stabilisation in its equity derivatives business, rising cash market turnover and growth in technology infrastructure revenues.
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NSE's operating revenue CAGR stood at 6% between FY24 and FY26, as regulatory changes and higher taxes weighed on its equity futures and options business. However, Jefferies believes these challenges are largely reflected in the base, paving the way for an improvement in growth over the next three years.
The brokerage expects NSE's market share in equity options to stabilise at 65%, while cash equity turnover is projected to grow at 16%, supported by initial public offerings (IPOs) and stake sales by promoters and private equity investors. Technology infrastructure revenues are expected to grow at a CAGR of 23%.
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Jefferies also expects EBITDA margins to expand by 200 basis points to 78% by FY29, driven by operating leverage, investments in technology and employees, and the scaling up of newer businesses. This could support earnings per share growth of 16% through FY29.
New Businesses Offer Additional Upside
While equity options account for around 60% of NSE's operating revenue, Jefferies believes concerns over regulatory risks are overstated. Weekly index options contribute approximately 40% of operating revenue, compared with around 65% for BSE.
The brokerage expects the contribution of equity options to transaction revenue to decline to 50% over the next five years as NSE diversifies its revenue streams.
New opportunities in commodity derivatives, mutual fund distribution infrastructure and Electronic Gold Receipts could collectively add around 15% to revenue and profit after tax by FY30, although these opportunities are excluded from Jefferies' base-case estimates.
Jefferies values NSE at 35 times its estimated December 2028 earnings, assigning it a premium over BSE due to its greater diversification, higher growth potential, stronger margins and dividend yield.
At 9:50 AM, NSE share price was trading 0.72% higher at Rs 1,789.80 apiece on the BSE.
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