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BSE Ltd
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Ladies and gentlemen, good day, and welcome to the BSE Limited Q1 FY '23 Earnings Conference Call.
I now hand the conference over to Mr. Anand Sethuraman, Head, Investor Relations, BSE. Thank you and over to you, sir.
Thank you. Good evening, everyone. This is Anand from BSE Investor Relations. Welcome to our earnings call to discuss Q1 FY 2023 results. Joining us today on this earnings call is BSE's leadership team consisting of Mr. Nayan Mehta, the Chief Financial Officer; Mr. Neeraj Kulshrestha, Chief Regulatory Officer; Mr. Sameer Patil, Chief Business Officer; Mr. Girish Joshi, Chief Trading Operations and of Listing Sales; and Mr. Kersi Tavadia, Chief Information Officer. Do note that this conference is being recorded and a transcript of this call will be made available on the BSE website.
Before we get started I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Any forward-looking statements that we make today on this call are based on assumptions as of today and BSE assumes no obligation to update these statements as a result of new information or future results.
I now request Mr. Nayan Mehta, the Chief Financial Officer of BSE to give a brief overview of the company's financial and business performance. Do note that this session will conclude with our Q&A session. Thank you.
Thank you, Anand. Good evening, everyone, and thanks for joining the call today. I hope all of you and your loved ones are safe and keeping well. Before I start with the update I'm glad to say that BSE continues to function normally without any interruption or glitches and has been able to improve its financial performance. I'm happy to inform you that despite the downwind in market BSE Group delivered a stable financial performance with total revenues of INR 198 crores for Q1 FY '23, a growth of 6.4% as compared to corresponding quarter last year.
I will start with the broad financial results for the quarter ended 30th June 2022. BSE's operational revenues have grown by 19% to INR 187 crores from INR 157 crores in the corresponding quarter previous year. BSE’s net profit attributable to shareholders of the company stands at INR 44 crores as compared to INR 53.4 crores in the corresponding quarter previous year. The decline is as a result of falling investment income and slowdown in transaction-based income.
I will now share some of the key financial numbers on the consolidated basis for the quarter ended June 30, 2022, as compared to corresponding quarter previous year. The clearing and settlement operations revenues increased by 98% to INR 17.1 crores from INR 8.63 crores. The treasury income from the clearing and settlement funds have increased by 85% to INR 18.7 crores from INR 10.2 crores. A listing-related income increased by 15% to INR 57.7 crores from INR 50.1 crores.
Book building fees increased by 62% to INR 13.7 crores from INR 8.5 crores. The operating EBITDA has increased to INR 49.8 crores from INR 41.3 crores with operating EBITDA margin increasing to 27% of 26%. The net profit margin stands at 20%. On the [indiscernible] side let me start by covering our primary market segment. Funds raised by India Inc. continues to be buoyant and BSE platforms continue to remain the preferred choice by Indian companies to raise capital. The BSE1 platform has enabled issuers to risk INR 3.1 lakh crores through issue of bonds, commercial paper, municipal bonds, investment IT, [indiscernible] et cetera.
You may note that BSE had raised its listing fees with effect from 1st April 2022 which has resulted in slight uptick in the listing-related income for the quarter. The total number of investors registered with BSE now stands at over 11 crores. Let me now update you on BSE SME segment. I'm happy to inform you that BSE has completed 10 years of operationalizing India's first SME exchange. BSE endeavors to support the SMEs and the startups in India and has seen its listing end companies on its SME platform during the quarter ending 30th June 2022. Taking the total number of companies on SME platform to 377 and 14-odd startups platform. These 377 SMEs have reached INR 4,011 crores and 14 startups raised INR 67 crores via BSE platform with a market value of INR 47,929 crores and INR 588 crores respectively, as on June 30th, 2020. BSE's market share in SME segment stands at 60%. FY 2022 was the year in which capital markets performed better than most other industries.
It is in this context of such adjusted expectations that BSE's first quarter may seem unspectacular and yet deployed its business growth well above the long-term mean. Facing the challenges of the volatile market environment, BSE's performance in trading segment was muted but mutual fund and issuance segment demonstrated strong growth. For the quarter ending June 30th, 2022, BSE’s average daily turnover in equity segment stands at INR 4,057 crores. In the Equity Derivatives segment the average daily turnover stands at INR 1.2 lakh crores. In the Currency Derivatives segment the average daily turnover increased by 4% to INR 2,557 crores as compared to corresponding quarter last year. For Electronic Gold Receipts, BSE continues to engage with its regulator SEBI for the final regulatory approval as a new segment which will enable the trading of spot gold in India.
We are confident that we'll be able to launch it in this financial year subject to requisite approvals. Our business teams are reaching out to market participants including banks [indiscernible] wholesalers, retailers, importers, exporters, etc. who would participate in this ecosystem. I shall now discuss our mutual fund distribution platform. BSE StAR MF the India's largest mutual fund distribution platform continues to grow at a remarkable pace with the total number of transactions growing by 68% to reach INR 5.9 crore transactions during the quarter from INR 3.5 crore transactions in the same period last year. BSE StAR MF continues to scale new peaks in terms of single-day transactions with the platform processing a high of 30.450 lakh transactions on 11th July 2022, outdoing its previous best single day record of 30.11 lakh transactions. I shall cover developments that our subsidiary companies now.
BSE-promoted international exchange at GIFT City, Gandhinagar. India INX has been growing exponentially ever since its commenced trading activities on 16th January 2017 with an average daily turnover of USD 9.9 billion and a market share of 92.2% for the quarter ended June 30, 2022. India INX has about USD 70 billion medium-term notes established and about 50 billion of bond listing till date. Owing to investment where certain strategic and financial investors BSE's stake in India INX stands at 61.93% and 59.92% in India's International Clearing Corporation as on 30th June 2022. As mentioned in our previous earnings update India INX and India IICC hold 10 % each in India International Bullion Holding IFSC Limited holding company for setting us and operationalizing the International Bullion Exchange.
As you may be aware, the India International Bullion Exchange was launched by Honorable Prime Minister, Shri Narendra Modi on July 29th, 2022. BSE's wholly owned subsidiary, BSE Technologies is the technology solutions provider for the International Bullion Exchange at GIFT City. The same technology shall be used for BSE's Electronic Gold Receipt trading segment. On the insurance distribution front, BSE indexation is looking where BSE holds a 40% stake through its subsidiary, BSE Investments Limited and has now integrated with 23 insurance companies. The total premium collected is INR 8.1 crore for the quarter ended June ‘22, a growth of 188% from the same period last year. BSE E- Agricultural Markets Limited, a transparent commodity spot trading platform to certainly gauge spot commodities trading across value chain has enrolled 926 members and executed trades worth INR 17 crores in Agri and Steel segment on the platform during the quarter ended 30th June 2022.
The company is working closely with government and government enterprises to enhance the efficiency of procurement and sale of commodities. I am also happy to inform you that Hindustan Power Exchange where BSE has a stake of 22.61% through its wholly owned subsidiary BSE Investments has commenced operations with contingency market segments, intraday and [ day high ] contingency on July 6, 2022.
Subsequently, 3 new segments Day Ahead Market, Real-Time Market and Green Day Ahead Market have been launched. As of August 1, the cumulative trading volume at the exchange stands at about 225 million units since commencement achieving an average market share of over 20% in the contingency market. As updated in our earlier calls, SEBI has accorded its in-principle approval to BSE Technologies, a wholly owned subsidiary of BSE for setting up Know Your client registration agency, KYC TRA and a trade receivable discounting system TReDS platform. The final approval is awaited. There is no additional capital infusion required from BSE for these businesses.
With these updates, I now hand over the call to Anand.
Thank you so much, sir, for these updates. With this overview let me now once again welcome you all and invite you all to participate in the Q&A session. Thank you so much.
Ladies and gentlemen, we will now begin the question-and-answer session. We have the first question from the line of [ Santosh Kumar Keshari from Keshari Wealth ].
I have 2 questions. One is about the increase in other expenses that we have seen from INR 40 crore of Quarter 1 2021, 2022 to INR 50 crores now. And it's a decrease from Quarter 4 of 2022 but year-on-year it's an increase of almost 25%. So that's my first question. What could be the reason behind it? Are we investing in technology and that has been [indiscernible] or there is something more here?
So the increase which you see in our other expenses increased from INR 40 crores to INR 50 crores from June 21 quarter to June 22 quarter. One of the main reasons for the increase is the various expenses which BSE has to pay to NSE clearing. After interoperability this clearinghouse expenses have been applicable to both the exchanges depending on the transactions which are settled under other clearing corporation. So BSE's clearinghouse expenses [indiscernible] I just missed it out here. And basically, the excess is in contribution to Core SGF.
Last quarter in June '21, the contribution to Core SGF was nil and we have got INR 2.6 crores contribution in the current quarter. Last year because of Covid we had provided a lot of receivables and based on the recovery we had to reverse those receivables. So in June '21 quarter there was a reversal of the provisions made to the extent of INR 4.5 crores. And that has got significantly offset in the current quarter. And the current quarter our provision is just negative INR 1.38 crores because of the reversal of the excess provisions within earlier quarter.
So what happens is that that our [ soldiers ] are required to be made on expected credit loss basis which is a standard process based on the number of days delay in receiving our dues. And because of Covid in the last 2 years there were occasions when there was some delay in receiving our deals. But we got back the deals and [indiscernible] the provisions which we had made earlier had to be reversed. These are the main 2 reasons due to which increase has been noticed.
So the reversal of expense in quarter 1 of 2022 should be leading to reduction of the extent rather than increase there, right? Because as you were saying there was a provision made earlier. Now that provision is getting reversed. Should not that be reason for decrease in expense rather than an increase?
No, it's like this that last time our reversal was much higher. It was INR 4.6 crores, right? So that's why our total expenses were lower to that extent. And this time the reversal is lower by INR 3 crores. So that's the reason the INR 3 crore increase is coming on account of the provisions [indiscernible] sector.
But the reversal was in the last year FY '21-'22 June 20. And second question it's regarding the investment income which now its INR 6 crores compared to INR 22 crores of June 2022 quarter. So does it mean that there is an MTM? If that is so, what is the amount of MTM that is recorded in this quarter?
So there is obviously M2M. And what had happened in the earlier years when the yields were actually stagnant and going down, at that time obviously, because of that we had got the M2M benefit in our favor. And in this current quarter there was sudden 2 policy announcement followed by another monetary policy because of which the entire market was taken by surprise. And you would notice that most of the companies who have got big treasury have got hurt in this process. So that's why our overall market-to-market difference was INR 17 crores on a quarter-on-quarter basis and also on a year-on-year basis. And further actual M2M for the quarter was about INR 8.8 crores.
We have the next question from the line of [ Pranav Thakar ] as an individual Investor.
My question is related to StAR MF. The presentation which we have seen in previous financial results. So I request that you try to make it a little bit more explanatory in terms of where exactly its growing? And with reference to the previous discussions that management is actively looking for divestment or some of the stake in StAR MF and also the divestment with reference to the recent news where LIC has shown interest to buy some stake in IICC and also IGX. So if you can share views and what are updates there?
As far as your mutual fund thing goes our presentation as whole is the same which we have been giving all throughout. So we'll have to just set up to what is your expectation which is different from what we have been providing till date. As far as the LIC investment in India ICC and IGX goes, so obviously that is subject to approval from regulatory authorities. And so once that approval comes through, obviously appropriate action will be taken [indiscernible] The other question is regarding [indiscernible] investors, regarding strategic investors for StAR MF. Obviously, if there is any strategic interest which is conveyed to us, obviously, we are open to examining various options and possibilities. But then obviously that would depend on the various factors, right? So let's see credit comes we will see.
But the follow-up on this INX piece that recently there was some announcement or news that could be one exchange at IFSC and there cannot be 2 exchange so that it helps India to compete with foreign exchanges in a better way. So in that case, also the LIC process will go on or it will be put on hold or how exactly it works? Because I think both of the things might be on the table right now.
See as of now, we are also aware of that news item. But as far as we are concerned it is a speculative as on date and we are not aware of any formal proposal or any proposal anywhere.
Because in that case if that happens, there could be an altogether a different holding. So I was just wondering how it works in favor of BSE?
It’s anybody’s guess. We cannot comment on that.
We have the next question from the line of Prayesh Jain from Motilal Oswal.
Sorry I joined a bit late but if you can comment on you have launched the power exchange. So how do you see the things ramping up there? That would be my first question. And secondly, on the gold EGRs which you shared the status, when do you see the launch of that happening?
In my speech I had already informed that the power exchange has been launched on 6th of July 2022. And we have started with the contingency market segments Intra-day, Day-ahead contingency [indiscernible] and obviously we have been very happy with how we have been able to get the market share. We have got about 20% market share in that contingency market with a total trading of about 235 million units in the last 1 month. So now as in the last week of July, we also launched Day-ahead market segment, Real-time market segment and Green-Day-ahead market. So that also means launch. So now we are in good [indiscernible] and maybe wait and see how this business unfolds for us. And I'll request Mr. Sameer Patil to comment on the EGR point when they will be launched and about it.
We have applied to SEBI. We've got the in-principle approval. We have already got a technology up and running for it. We await final approval from SEBI to launch EGR as a segment.
Just on the electricity futures question again. So when [indiscernible] 400 million plus units last month, what is the revenue [indiscernible] upon?
So it's too early. Obviously, it's too early. Right now whatever is being charged has been given as discount currently as a promotional discount. So we will see what business we can start and when they can start charging.
Possibly I think this might [indiscernible] what is the time line for the new CEO?
We can't comment on that. [indiscernible] and the regulatory office. So we cannot really comment on that. Essentially these decisions are, there's a process which goes on as far as all this is concerned. So as and when the announcement is there I'm sure it will be very widely reported.
Next question is from the line of Devesh Agarwal from IIFL Securities.
So continuing with what Prayesh was asking where exactly are we in the process of appointing the new CEO and MD?
As our CRO just informed it is in the process. And obviously, we wouldn't be aware as to when things [indiscernible].
And in this process as you must be already aware, there is detailed media announcements, etc., which are done. So everything as per requirements of SEBI will take place. And as and when it is announced it will be very widely reported. You must also understand that as an exchange we function very stably. And which is what will be reflected in general. So these things will happen. And let's not be worried about this kind of [indiscernible].
Sir, talking about the realizations, I see that in the nonexclusive equity segment there has been some decline in the realization. Why is that so?
You are talking about equity segment, Devesh?
Equity nonexclusive, sir.
So there is one more thing. So you are calculating the direct charges based on the nonexclusive segment. But in the last quarter there was some money which had come to us under the trading income were offered to buy and that was more than INR 1 crore which has not recurred in the current quarter.
Sorry, what was this INR 1 crore?
There is an offer to buy segment which we had and in this offer to buy segment what happens is that we do get transactions charges for the amount of transactions which has happening in that transaction. So that has not repeated in the current quarter. And it is pretty erratic, it is not regular.
So this INR 1 crore we had received in 4Q FY '22?
Yes.
And sir, even on the mutual fund side if you see, despite having higher volumes our revenues are flat on a QoQ basis, again implying that there is a decline in realization. Is there any change in the agreements with AMCs?
No, there is no change in agreement with AMCs. There has been a decline in realization because and as we had been speaking in earlier calls also that as our volumes increase, the realization would marginally go down. And that is what has happened in the current quarter also. So that is a part of the process. So that is something which has happened in this part also.
So realization are expected to further decline with the increase in volumes?
They'll tend to go to a particular level when we achieve a baseline type of final effect. But then okay let’s say we probably would tend towards 3. Right now we are at 3.05% for this quarter.
Any numbers that you can share what would be the floor?
I told you that our revenue derivation is INR 3.5 for this quarter.
And sir on the cost again, we see there is a sharp increase on the computer technology cost. So is there any one-off or this would be the new run rate that we should assume?
In technology cost, what you have seen has increase would more or less be the same. Anyway, so the cost [indiscernible] is expected to be same because the AMC cost we have set up some new lease lines for the members. And obviously, some capital expenditure is also happening which is resulting in sort of funding operational expenses.
And sir, if you see the minority shareholders' interest we see that the losses have been kind of continuously increasing from INR 1.5 crores to INR 4 crores. So are these pertaining to GIFT City operations or these are something else?
This has to do with our other E Agricultural Market then BSE administration. Then we have got BSE Ebix. In all these places we are actually now increasing our operations across board in all these companies. So we have recruited a CEO in BSE Ebix also. And BSE E Agricultural Market also the operations are being totally now moving at a fast pace. So that's the reason why you are seeing this type of incremental minority in expenses increase.
In Security Services we see these other securities revenues have increased by almost 60% to INR 25 crores. Again, it's a very strong growth that we are seeing. So what has been driving this? And is it sustainable?
Just come again, Devesh.
Security services, you have a breakup where you give revenues for other securities revenue. That has gone up by 60% to INR 25 crores.
Here, what happens that a part of our technology cost is towards the infrastructure which we provide to our trading members, leased lines and all those things as well as certain equipment sometimes. And these costs are recovered as there are operation recovery and they are accounted in the other securities services because they are a part of our core business income. So that is one of the main reasons why our income has actually increased. So there will be a corresponding increase in our technology cost also.
And is that a onetime or this will be?
So those will continue parallelly. The technology cost also we will see at a little elevated level. And the security services income will also remain at elevated level.
The next question is from the line of Amit Chandra from HDFC Securities.
So my simple question is that we have a lot of initiatives which are at an initial phase. And in terms of the expenses that we incur at the consol level which is around INR 137 crores. If you can provide some sense out of that how much would be pertaining to the newer initiatives versus the old traditional business? That is one. And also in terms of our new initiatives which one Anand you see to generate like revenue in the next one year?
As far our -- the way we work is mostly that unless we have got some new companies which are separately setting up their balance sheet and P&L. All of the initiatives which BSE works on that gets absorbed in the normal cost. So means generally what happens is that whenever we are doing newer initiatives means our existing teams only is generally working on those new projects. As such we don't have any breakup of those type of cost. So they generally get absorbed in our total costing. The major thing and otherwise the rest all is reflected in the minority interest. So that gives a pretty good idea on the position of other losses which we are incurring.
So I was referring to more core initiatives which are now like 2 or 3 years over especially on the commodity side. So we have started but we are not able to gain any significant share. Actually, the share has declined to a very small number. And also in terms of the market share in like derivatives, initially we gained some traction there. But again despite spending on [ LES ] and other initiatives the market share has again come down. So in terms of the accountability of those spends whether they are generating revenue? How you are like judging it internally to initiate spends on these newer areas? So what is the internal mechanism so just wanted to understand that?
So as far as the spend is concerned, they are not significant spend. And looking at 2 segments, the equity delivered in the commodities. Commodities just launched 3 years back. And see the idea is to keep on launching new products as you never know what would be successful and what would be the flagship contract for the exchange. But newer initiatives and newer contract and the idea is to get the right kind of market participants and stakeholders to come on the exchange platform and to create some serious amount of liquidity.
Eventually, revenues will be charged as and when there is a serious amount of liquidity. But just to remind you we started 3 years back but 2.5 years due to the Covid there was restricted movement of not only retail but also the participants across the nation. So that also has to be counted. Second, as far as derivatives are concerned yes, we had some market share. But as you know this is also that we are in the catch-up game and the market also has to support a bit. You've seen the last quarter how the markets have performed. So yes but nevertheless, this quarter onward, we see some growth there as well.
And also the transaction charges last year it was mostly supported by the special rate there was huge growth in that which is now like coming off. So how do we see that? And I know that is not in your control but that is a significant risk to the commission charges. In a market which is not doing well there is a risk of this coming off. So how do you account for that? And also in terms of the BSE StAR MF as you said that the realizations will actually fall off the increase in volumes. So what kind of arrangement we have with mutual funds? And in terms of the slabs [indiscernible] some more color on how the slabs function there?
So your first question on the revenue getting affected by decrease in turnover in the exclusive segment. Yes, it is a fact. This is our business. So in this business the characteristic of this business is that because we have charge significantly higher transaction charges in the exclusive segment. So if there is a decrease in turnover in that segment and which has decreased because when the markets are doing good the volume increases in this segment more than proportionately. And when the markets are not doing so good they also tend to decrease. This is a volatile segment for us. And to that extent we are susceptible to volatility in our transaction charges income.
The second point which you are saying that is about mutual fund transaction charges. As we increase our total transaction charges what happens is that, that the total amount which we recovered from the AMCs they are subject to reduction on a graded basis. So that's why as our transaction [indiscernible] the average realization tends to fall. So last quarter, it was 3.17% and this time it is 3.05%. I think that it cannot go on forever. At some point of time it will tend to plateau down and that would probably be somewhere less than 3 definitely. But it does not go on like this forever. The way we see it is like this that we have to continue to grow the transaction in Mutual Fund segment and that is what is going to deliver the expectations of our stakeholders.
So what I was referring to is that in StAR MF we started with INR 7 realization and it went down to INR 3. And every time there is an increase in volume we see proper realization. So what I mean is that whether the contract with the mutual fund is on a yearly basis or every quarter? If it and that negotiate on the rates?
No, there is no negotiation on rates. The rates have not changed after negotiation with them. And comparing the current rates with INR 7 is not actually correct because the rates which I said earlier were prior to negotiation and those were the basis for which the negotiations started. So when we sit on negotiating table we cannot start with a low figure. So we have to start charging them something which is beyond what they're willing to pay. And then only we arrive at something, then only we can arrive at a figure which the other party is willing to pay and which we are willing to accept. So I think it's [indiscernible] compare INR 7. What is a better basis around INR 3- INR 3.25 and which has been world is consistent since the negotiation ended. And since last 2 years we have been having the same world as the same rate.
Our next question is from the line of [ Soham Zaveri ] as an individual investor.
I had a couple of questions. The first one is that over the past couple of years we've noticed a decline in the market share and the currency derivatives segment. And before inter opportunity got implemented BSE had a significant market share of almost 40% to 50%. So we ideally thought that the market share would have actually gone up post the implementation but we've actually seen a decline ever since it has been implemented. So what could be the reason for this?
Whenever there's a new addition or deletion in the system you see the impact on the system. But if you look at the actual numbers, though our number or on the growth, our average daily turnover has increased on the currency derivatives. And we have seen as far as interoperability is concerned you are right. It should have helped. But nevertheless, all the systems, the third-party vendors take some time to get their systems live and go live on the system. So there were initially these issues and over a period of time it has been resolved. And now I hope for the best.
And my second question this is actually regarding the CEO and MD. Is there some sort of a noncompete or a cool-off period in the employment agreement between the exchange and the new CEO? There's no such thing in the agreement?
Your question is not relevant now.
I mean we follow security listing clearance operations regulations [indiscernible]. And everything that has happened is in accordance with those regulations.
We just have one question that has come up. It's from the line of [ Pankaj Rawal from Ace Lansdowne Investment ].
So my question is what would be a EBITDA of that margin you will be making on the StAR MF ideally?
StAR MF we have told in earlier occasions also that in the StAR MF means about 1/3ed of the total revenue is the net profit at our end. And that is only an estimate because the operations are very intermittent and we don't have separate balance sheet for this thing.
Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Anand Sethuraman for closing comments. Thank you, and over to you.
Thank you so much everyone for joining us. If you have any questions, you can please email us and then we will be happy to also engage with you on this. Thank you so much.
Ladies and gentlemen, on behalf of BSE Limited that concludes this conference. Thank you.