BSE's Diverse Growth Potential and MCX's Options Volume Strategy: Unveiling Q4 FY23 Earnings
In the fourth quarter of FY23, the two prominent exchanges in India, BSE (Bombay Stock Exchange) and MCX (Multi Commodity Exchange of India), unveiled their earnings reports. BSE showcased several growth levers that can drive revenue and earnings over the medium term. On the other hand, MCX demonstrated a strategic focus on leveraging the growth of options volumes to propel future revenue growth. Let's delve deeper into their financial performance, market strategies, and expert analyses provided by renowned brokerage firms.
BSE's Robust Performance and Growth Levers:
BSE reported a noteworthy 24% year-on-year increase in net profit, amounting to ₹88.61 crore for Q4 FY23. The exchange's revenue from operations also showcased a commendable growth of 11%, reaching ₹227.01 crore compared to ₹204.59 crore in the corresponding period last year. This surge in profit was primarily driven by higher-than-estimated revenue in non-transaction securities services, along with the strength in income from its tech subsidiary and clearing corporation.
Analysts at Motilal Oswal Financial Services highlighted that BSE's operating revenue witnessed a remarkable 14% year-on-year growth, surpassing analysts' estimates. While transaction charges declined by 13% due to cash volumes, this decline was offset by the currency
segment, book building fees, and increased contributions from mutual funds. The domestic brokerage firm emphasized that BSE possesses multiple growth levers for the medium term. These include continued momentum in the Star MF business, potential charges on equity derivatives, levies on the INX platform, fees for listing debt securities, the launch of its Power Exchange operations, and revenue generation from its Gold Spot exchange.
Motilal Oswal revised their revenue estimates for BSE in FY24 and FY25, projecting a growth of 14% and 12% respectively, primarily driven by the securities services segment (excluding transaction charges). They maintained a Neutral rating and set a one-year target price of ₹550 per share for BSE.
Additionally, BSE made a strategic move to relaunch Sensex and Bankex derivative contracts, aiming to boost derivative trading. This relaunch included a reduction in the lot size of futures and options, along with a shift in the expiry cycle from Thursday to Friday.
MCX's Performance and Options Volume Strategy:
MCX, as the largest commodity trading exchange in India, recorded a substantial 25.63% year-on-year increase in consolidated revenue from operations, reaching ₹133.75 crore in Q4 FY23. The company's consolidated net income also witnessed
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significant growth, standing at ₹153.83 crore compared to ₹121.04 crore in the corresponding period last year. However, MCX faced operating profit challenges, with a reported profit after tax (PAT) of ₹5 crore and operating profit of ₹2 crore, primarily due to higher software expenses amounting to ₹87 crore.
Analysts noted that MCX experienced a dip of approximately 15% quarter-on-quarter in futures Average Daily Trading Volume (ADTV). However, this decline was offset by a robust growth of 16% in options ADTV, resulting in an overall turnover growth of 4%. ICICI Securities highlighted that the increasing options volumes have been a significant investment focus for the company. Notably, in March 2023, options ADTV (notional) achieved an all-time high of ₹55,000 crore.
ICICI Securities believes that the continued traction in options volumes, combined with the introduction of lower-sized contracts, can facilitate revenue growth for MCX. They also anticipate a potential uplift in EBITDA due to reduced software costs, although increased amortization expenses might partially offset this gain.
The Way Forward and Key Considerations:
Looking ahead, BSE faces uncertainties in the final transition to a new software platform and the potential impact of blocked funds regulation on
other operating income in the secondary markets. These factors could potentially pose challenges for the stock's performance.
On the other hand, MCX's future success relies on its ability to capitalize on options volumes and effectively manage software expenses. The outcome of the existing agreement with their former software vendor may influence their financials in Q1 FY24.
BSE and MCX, India's leading listed exchanges, revealed their Q4 FY23 earnings, highlighting their respective growth trajectories. BSE showcased multiple levers for revenue and earnings growth, such as its Star MF business, equity derivatives charges, and new revenue streams from various ventures. MCX, on the other hand, focused on harnessing the potential of options volumes to drive future revenue growth. While BSE's financials demonstrated robust performance, MCX faced challenges related to software expenses. Analysts and brokerage firms provided valuable insights and recommendations based on their analyses of the exchanges' earnings. Investors are advised to seek guidance from certified experts before making investment decisions.
Disclaimer: The views and recommendations mentioned in this content are those of individual analysts or broking companies and not of WSN TIMES. Investors are advised to consult certified experts before making any investment decisions.