Bombay Stock Exchange’ initial public offer does not look attractive when compared to its past muted fundamentals (read financial performance) and achievements compared to its rival-National Stock Exchange.

But the company’s IPO at around 21 times FY17 earnings has been valued reasonably accordingly and is in line with valuation (20-24 times) of global peers like Deutsche Borse, SGX, ASX and London Stock Exchange.

The IPO may attract investors’ interest as this is the first such kind in India. Most analysts from brokerages like Angel, Ashika and Anand rathi recommend to subscribe to the issue.

Rival, NSE, is also coming out with an IPO soon and may take some sheen off the stock post listing. There are many long-term positive triggers in future though. Hence, the IPO is suitable for long-term and patient investors who are not looking for immediate gains.

Many positives, triggers

BSE is the world's largest exchange by number of listed companies and the world's 10th largest exchange by market capitalisation ($1.7 trillion) -- India's largest.

It has strong brand recognition, with common man associating ‘share bazaar’ or stock market with Sensex. BSE has diversified and integrated its business model.

The company said that its high operating margins of 50 per cent and dividend payout of (as high as 80 per cent in FY16) are sustainable.

There are many positive triggers. The company plans to strengthen position, increase market share, become exchange of choice in India, diversify product offerings and expand cross border reach by entering into strategic alliances.

Establishment of international exchange and international clearing corporation at GIFT city followed by the introduction of commodity trading will open newer avenues of growth.

Further listing of its subsidiaries (both direct and indirect) like CDSL, ICCL, BIL, MTPL etc., will result in value unlocking. High other income (including income from investment, deposits) formed 37 per cent of total revenues. Though some may may be wiped out due to decline in share post listing of subsidiaries, it will be still healthy due to low incremental capex.

Few negatives but serious

Negatives are few in number but serious in nature. BSE’s revenues grew at a compounded annual growth rate of 8 per cent between FY12-16.

Margins and return on equity have been under pressure. Though the company’s revenue mix is diversified, many are highly cyclical in nature. With competition rising and NSE’s better fundamentals, the stock would remain under pressure until financial performance shows sustainable improvement.

The company is far behind NSE in terms of volumes traded and hence the turnover in many areas like equity cash, equity derivatives, corporate debt, currency derivative. Though the company has plans to increase market share, it is not going to be easy to shake the well entrenched position of NSE.

The issue is an offer for sale by existing investors in the company many of whom are going to incur losses in dollar terms.

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