BSE Ltd

NSE:BSE

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the BSE Limited Q2 FY '23 Investor Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and [ involve ] uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Sethuraman, Head Investor Relations, BSE Limited. Thank you, and over to you, sir.

[Anand Sethuraman, executive]

Thank you so much. Good evening, everyone. This is Anand from BSE Investor Relations, and welcome to BSE's earnings call to discuss Q2 FY 2023 results. Joining us today on this earnings call is BSE's leadership team consisting of Mr. Nayan Mehta, Chief Financial Officer; Mr. Neeraj Kulshrestha, Chief Regulatory Officer; Mr. Sameer Patil, Chief Business Officer; Mr. Girish Joshi, Chief of Trading Operations and Listing Sales; Mr. Kersi Tavadia, Chief Information Officer. Do note that the conference is being recorded and a transcript of this call will be made available on the BSE website.

Before we get started, I will have to take this opportunity to once again 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 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 events. I will now request Mr. Nayan Mehta, the Chief Financial Officer of BSE to give a brief overview of the company's financials and business performance. To note, the discussion will conclude with the Q&A session. Over to you, sir.

[Nayan Mehta, executive]

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 am glad to say that BSE has continued to function normally without any interruptions and glitches and has been able to improve its revenues. We are also pleased to inform you that BSE Group continues to expand its activities to service its clients and the economy on the back of the strength of its integrated and diversified model. In Q2 FY '23, BSE has expanded its platform offerings to launched electronic gold receipts and KYC KRA to service the new capital markets and the economy.

Let me now start with the financial update. I'm happy to inform that despite the worldwide market conditions, the BSE Group delivered a stable financial performance with total revenues of INR 250 crores for Q2 FY '23, a growth of 6% as compared to corresponding quarter last year. BSE's operational revenues have grown by 5% to INR 198 crores, up from INR 189 crores in the corresponding quarter of the previous year. BSE net profit attributable to shareholders of the company stands at INR 34 crores as compared to INR 65 crores in the corresponding quarter of previous year. The decline is because of the added contribution to the post-settlement guarantee fund to the tune of INR 36 crores at a consolidated level, which is an increase of 485% as compared to corresponding quarter last year. I will now share some of the key financial numbers on a consolidated basis for the quarter ended September 30th, 2022, as compared to corresponding quarter of the previous year.

The clearing and settlement operational revenues increased by 57% to INR 15.9 crores from INR 10.2 crores. Treasury income from clearing and settlement funds has increased by 71% to INR 22.9 crores from INR 13.4 crores. [ Investment-related ] income increased by 3% to INR 58.8 crores from INR 56.9 crores. Other operating revenue, that is [ data-resubmission ] fees, trading income, software income increased by 13% to INR 18.3 crores from INR 14 crores. Investment income increased by 20% to INR 26.6 crores from INR 20.1 crores. The operating EBITDA has reduced to INR 13.4 crores from INR 53.2 crores with operating EBITDA margin reducing to 7% from 28% earlier. The net profit margin stands at 12% as against 28% earlier.

On the business side, let me start by covering our primary market segment. [indiscernible] As well as last year's sales, as geopolitical uncertainty along with other macro factors affecting sentiments. This BSE has revised its listing fees with effect of 1st April 2022. Slight uptick in the annual listing fee is seen. Overall, BSE continues to be the market leader when it comes to raising funds in India by Indian Inc. [indiscernible] as INR 3.7 lakh crores through issue of equity, bonds, commercial papers, municipal bonds, investment IPs, et cetera. The IPO in term of 2021 has not carried over to 2022 so far, it has resulted in lower book building and listing processing income for the quarter. We expect IP activity to pick up in the second half of FY 2023.

The total number of investors registered with BSE now stands at INR 11.7 crores. BSE Trading segment, after record breaking-turnover in FY '22, volatile market conditions have resulted in slowdown during the first half of FY '23. However, BSE has been able to improve its market share for the quarter under review. Fitting the challenges of quarantine market environment, BSE's performance in trading segment was muted, but currently mutual funds and insurance segment demonstrated strong growth. For the quarter ended September 30th, 2022, BSE's average daily turnover in equity segment stands at INR 4,730 crores, growth of 17% as compared to the previous quarter.

In the Equity Derivatives segment, the average daily turnover stands at INR 226 lakh crores, a growth of 88% as compared to the previous quarter. In the Currency Derivative segment, the average daily turnover increased to be INR 32,161 crores as compared to INR 24,537 crores in the previous quarter, a growth of 21% as compared to the previous quarter. I'm also happy to inform you that BSE has become India's first exchange to successfully launch electronic gold receipts after receiving final approval from SEBI. A total of 4 new products based on electronic gold receipts, consisting of delivery units of 10 grams and 100 grams of 995 grade and 999 grade were made available to trade on 24th October, 2022. This reflects our commitment to continuously facilitate access to high-quality investment-based products and services to investors.

Our business team, [ additional auto market ] participants including banks, [indiscernible], wholesalers, retailers, importers, exporters, et cetera, who will participate in this ecosystem. BSE's previous sale and liquidity in the days ahead as it continues to educate the market and onboard. I shall now discuss our mutual fund distribution platform. BSE StAR MF, India's largest mutual fund distribution platform, continues to grow at a remarkable pace with the total number of transactions growing by 39% to reach INR 5.91 crores transaction during the quarter from INR 4.3 crores in the same period last year.

BSE's StAR MF platform continues to scale new heights in terms of transaction with the platform possessing a high of INR 2.08 crore transactions for September 2022. I shall cover development at our subsidiary companies now. BSE International Exchange, India INX, that is India International Exchange, IFSC, has been growing exponentially ever since it commenced activities on 15th January 2017, with average daily trading turnover of USD 14.7 billion and a market share of 92.1% for the quarter ended September 30th, 2022. India has about USD 70 million medium-term note established and about $50 million of [ litigate ]. There has been no change to BSE's stake in India International Exchange IFSC, but it stands at 61.93% and 59.92% in India International Trading Corporation as on 30th September 2022.

On the insurance distribution front, BSE EBIX Insurance Broking, [indiscernible]. The total premium collected is INR 13.2 crores for the half year ended September 30th, 2022, a growth of 78% from the same period last year. BSE E-Agricultural Markets Limited, also known as BEAM, our transparent commodity spot trading platform to facilitate spot commodity transactions across the value chain has now enabled 1,121 members, and executed trades worth [ INR 11.7 ] crores in agri and steel segments on the platform during the quarter ended 30th September 2022. The company is working closely with several state governments and their agencies for direct procurement and disposal of commodities.

As updated in the earnings call last quarter, understand our exchange, where BSE has a stake of [ 22.1% ] through its wholly owned subsidiary, BSE Investments Limited has commenced operations with continues to market segments, [indiscernible]. The [ market, real-time market and green dairy market segment] . The volume traded at HPX that is interested or exchange relatively modern. And the exchange is continuously onboarding new members is exploring new products to be launched, which can result in higher volumes going forward. I was so pleased to inform that BSE Technologies Limited, a private-owned subsidiary of BSE, launched KYC Registration Agency, KRA, on 27th October 2022.

The KYC Registration Agency is SEBI-regulated intermediary that grants the market participants, authorization for investors' KYC, which is mandatory for investment in the securities market. As updated in our earlier call, SEBI has recorded its in-principle approval to BSE Technologies for setting up Trade Receivables Discounting System also known asTReDS. The final approval is awaited. With this update, I now hand over the call to Anand.

[Anand Sethuraman, executive]

Thank you so much for the update. With this overview, let me now welcome you once again and invite you all for the question-and-answer session. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Just 2 questions from my side. Firstly, could you give some clarity on the SGF why we had to pay such a large amount in this quarter? Any guidance for the full year?

[Nayan Mehta, executive]

Prayesh, the Settlement Guarantee Fund is basically determined by various factors, which is stipulated by the SEBI guidelines. And it is basically derived out of the volumes in any segment, the concentration of positions in any segment, the volatility in that segment. So during the last quarter, our currency derivatives volumes decreased significantly as compared to [ LAP ]. Because of that it necessitated that the core SGF as determined and completed according to the guidance of SEBI has to be increased. And that is why ICCL, our clearing cooperation, had to make a contribution of INR 36 crores to core SGF.

[Prayesh Jain, analyst]

Okay. So that's primarily built on the volatility that we've seen Okay. Second question is on the StAR MF thing. If I back calculate the per transaction revenue, it ends up sequentially. Why would that happen? And what should be the purposes going ahead?

[Nayan Mehta, executive]

Prayesh, as far as the mutual fund revenue are concerned, in July 2022, SEBI implemented a rule, which we usually call it as non-pooling, whereby earlier the intermediaries would collect the money from the investors. And at the end of the day, they will spend one particular amount to, the amount to the clearing corporation. So what is to happen is that the money which is collected by us we have to take [ penalty-free ] charges to our vendors. At the same time, this money that we recovered from our asset management company. So while the top line has increased to some extent that it has been offset by the increase in our expenses.

[Prayesh Jain, analyst]

Okay. Okay. So this is 1 quarter or 2? Or will be now recurring and this will be gross run rate would be similar in this range?

[Nayan Mehta, executive]

[indiscernible], but likely that they will be slightly less than what we are recurring.

[Prayesh Jain, analyst]

Okay. Okay. Interesting. Interesting. And with regards to equity derivatives, any changes in the thought process on charging the segment? Transactions?

[Nayan Mehta, executive]

Yes. So we have already started, but that is very municipal on the options. But we look forward as you understand, we are still giving incentives for the order flow. So we continue to do that. And eventually, when we see sizable amount and then we can think about charging them.

[Prayesh Jain, analyst]

And then lastly, anything on the CEO appointment?

[Nayan Mehta, executive]

No, there is no information as of now.

[Prayesh Jain, analyst]

There is no further update?

[Nayan Mehta, executive]

Yes, no, no.

[Operator]

[Operator Instructions] The next question is from the line of [indiscernible], individual investor.

[Unknown Attendee]

First, I would like to thank all the respected members of BSE for making it over India's best exchange. I have a very small question. Is there any plans of listing of any of the subsidiaries of BSE in near future?

[Nayan Mehta, executive]

No, there are no such plans.

[Operator]

[Operator Instructions] The next question is from the line of Devesh Agarwal from IIFL Securities.

[Devesh Agarwal, analyst]

My first question is you did mention that other expenses are up on account of SGF contribution, but the increase that we see on a sequential basis is almost INR 45 crores, while the SGF contribution is INR 36 crores. So is there any other one-off as well in this number?

[Nayan Mehta, executive]

So Devesh, other than the... Yes, the increase is also on account of increase in clearing house target, so since the number of transactions which happen on BSE to the extent they get cleared, they get cleared by NCL or by ICCL. So obviously, BSE [indiscernible]. So those are the ones which we have increased by about INR 4.5 crores. Also, there was an increase in profit, which I just mentioned earlier, to offset the income which we are reserving from the mutual fund segment. So these are the 2 main reasons why our expenses have increased, other than SGF.

[Devesh Agarwal, analyst]

Understood, sir. And would you be able to quantify, sir, how much is the increase in the mature fund expense?

[Nayan Mehta, executive]

It's basically provisional right now. But the total amount depending based on the number of transactions, which have come to us directly instead of getting pooled and [ disseminated is ] a total amount of about INR 7 crores.

[Devesh Agarwal, analyst]

Okay. And sir, in other income, also, is it all M2M gains or there is some one-off income that has been booked?

[Nayan Mehta, executive]

Which amount are you referring to here?

[Devesh Agarwal, analyst]

The INR 36.6 crores number that you have for the quarter?

[Nayan Mehta, executive]

So the M2M component obviously has been totally controlled now. I mean the total import as on it is about INR 4 crores at the most, and that is positive for us in this. What we have done, Devesh, is that partially after the 2 hikes, which happened in the first quarter, we have moved away from instruments, which are mark-to-market. And again, there was always a risk of further depreciation considering the hikes we are getting with respect to the happenings in the U.S. and globally as well as in India. So, in the last year 1 or 2 quarters, we have really got some significant good deals in particularly in [ government loans ] and also in deposits. So we have actually moved a lot of money from [indiscernible].

[Devesh Agarwal, analyst]

So overall volatility will now come down in the other...

[Nayan Mehta, executive]

Yes, yes.

[Devesh Agarwal, analyst]

Is the around INR [ 30-odd ] crores is what we can build in for our estimates, quarterly rounded?

[Nayan Mehta, executive]

In the best case scenario, we can expect a return of around 6.5%.

[Devesh Agarwal, analyst]

Understood, sir. And sir, on your new spot gold exchange, the EGR that you have launched, what we understand from the other exchange that there are certain GST issues, which can restrict the overall volume growth on that platform. Your views on the same? And secondly, are there any plans to start charging for this platform? Or we have a certain time limit before we start charging for this?

[Nayan Mehta, executive]

So Devesh, just to answer this. We launched it only last week at the [ moment during vale, ] and we got a very good response for this, and we have started charging for it right from day 1, yes. And second, as far as the clarity, we still await clarification on the GST and it might come soon. So then this product can really take off then.

[Devesh Agarwal, analyst]

Okay. What are the changes, sir, for this?

[Nayan Mehta, executive]

It is INR 345 per crore. Same as equity because it's part of the equity segment.

[Operator]

[Operator Instructions] You have a question from the line of Amit Chandra from HDFC Securities.

[Amit Chandra, analyst]

Sir, you mentioned about the high existing fees, applicable from 1st of April. So the fees were hiked up for all companies or only for exclusive companies? And what's the rationale behind it because we already have increased it in the past in impact part of it NSE. So are you planning to increase it higher from here?

[Nayan Mehta, executive]

Fees will increase marginally for all companies and some coming where the market cap is higher. So that market, we have linked fees to the market cap. For a highly capitalized company.

[Unknown Executive]

[indiscernible]

[Nayan Mehta, executive]

Amit, [indiscernible] the industry practice now. The competing exchange also elevates listing fees based on market cap. Earlier, we were charging it on the basis of capitalization... Sorry, the equity capital. And so this is one improvement which we have made in the revenue profile.

[Unknown Executive]

And every few years, what happened because of the increase in regulatory activities that are expected on all these companies. So this is like something like that. So it's not that this is out of the blue. It still happens, continues happening 3 years.

[Amit Chandra, analyst]

Okay, sir. And with StAR MF, obviously, there is increase in the realization, but excluding the pass-through, are we seeing additional pricing pressure from mutual funds or [indiscernible] from just one side?

[Nayan Mehta, executive]

There is no pressure on the mutual fund side because our prices are very, very low. Correct.

[Unknown Executive]

And like this was a new change, which has come about. And as we have already said, at this is... Currently are providing and also separately discussions are also on. Let's see where we go...

[Amit Chandra, analyst]

Okay. And sir, any update on the monetization of the StAR MF platform because it has been there for the last 1.5 years, but we have not received any update to what exactly is going on? Is it still into consideration or we have not received any interest from any investors in that?

[Nayan Mehta, executive]

Basically, we have not solicited any interest from anyone actually. The last 3 months, obviously, because of the much higher number of transactions which have come to us directly, we are basically ensuring the reverses of our systems and end-of-business. So probably... But as I told earlier, as we have proved earlier, in case there is there is strategic interest or financial interest by the serious investors, obviously, we will not stop that potential coming to approaching us.

[Amit Chandra, analyst]

So anyone has not approached or there has been the disconnect in terms of valuations being asked? Or any update on that would be helpful, sir.

[Nayan Mehta, executive]

No, we have not pursued much on that. Then we [indiscernible] in between, but obviously, we felt it was not expedient, so we left it.

[Amit Chandra, analyst]

Okay. And lastly, sir, on charging. Because INX volume has been increasing and any plans on charging on INX in the near term? Or any threshold in mind wherein that if you meet that, then you start charging? Or is it going to be free for the next few years?

[Nayan Mehta, executive]

So everybody was in fact, waiting for this connect to happen. It has also happened now. But still, just to be in the competition, at least for the time being, we think we won't be changing. We continue not to change.

[Unknown Executive]

As done by competition.

[Nayan Mehta, executive]

As done by competition.

[Operator]

[Operator Instructions] Next question is from the line of Devesh Agarwal from IIFL Securities.

[Devesh Agarwal, analyst]

Just 2 questions from my side. I missed your comments on the KRA business. So what is the update here, sir?

[Unknown Executive]

So KRA business, we have already... We have gone live with the business. And so we are live. We are one of the KYC KRA participants now in the industry and we are offering our services. And now this business, we will take this forward.

[Devesh Agarwal, analyst]

Okay. 2, sir, CDSL is one of the leading KRA where we own 20% stake. So why have we thought to go through separately in this business? Any thoughts around that?

[Nayan Mehta, executive]

So in this particular thing, see, what happened is there was this whole background where SEBI itself wanted exchanges to also consider this activity. So therefore, all exchanges. Now what we realized is that as an exchange, there were synergies because all investors, whichever segment they come to essentially from a member perspective, there is a lot of synergy in that. So therefore, it was felt and that is the whole reason. This question is, in a sense, late because we have already announced much earlier that we are already going to pursue this business. So that is with you.

[Devesh Agarwal, analyst]

Understood, sir. And sir, finally, on the HPX. I think all the products were now being launched somewhere in July, August, but still, I think the market share has been subdued. So any plans out there? What are your thoughts in terms of improving the volumes and market share on that platform?

[Nayan Mehta, executive]

So see, those are actively under consideration by the Board in respective out because see what happened is the most important thing for us was first to get the license and then get started. And then it takes what happens in this industry, it's a very limited industry. There are new participants, there are members who need to be onboarded it, et cetera. There is all this process, which is on this participant. And there is opportunity also there. But it will take some time, but hopefully, since I understand that there is an incumbent there. So there will be competition. It will take some time, but it will happen. And it's early days, but we are now ready, and we are one of the best platforms, by the way, in the power sector, power, which is well acknowledged by the market participants also. Now the point is to get liquidity there.

[Devesh Agarwal, analyst]

Understood. And any plans to add in to power derivatives?

[Nayan Mehta, executive]

So that is a... Again, this is a product which SEBI has to approve. So there is no immediate... There is no such proposal from SEBI. So you understand, right? We can only look at products when SEBI approves products like in EGR. Once we approve it, then only we can launch.

[Operator]

The next question is the last question from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

What would be your free cash on the balance sheet as of date?

[Nayan Mehta, executive]

Prayesh, on a stand-alone basis, it was about INR [ 17 ] crores.

[Prayesh Jain, analyst]

Okay. This is available to investors, right?

[Nayan Mehta, executive]

Yes.

[Prayesh Jain, analyst]

Okay. Great. And secondly, more longer term as from a 3- to 5-year perspective, do you see any of these new products that we've spoken so much about, your IMX, your gold receipts, power exchange, derivatives, any of these contributing or together contributing to, say, 15%, 20% of the revenues? How should we think about it somewhat say, a 3- to 5-year perspective from these products, particularly?

[Nayan Mehta, executive]

Prayesh, each of the segments is a gold mine. The thing is that it's to come. Each of these, we are in a very unique business where they were type of [ geopolitical poly ]. And sometimes what happens that the product comes first in the market, then the others. So we have set up the products. We have set up the infrastructure. We are now marketing our products, but if something can happen earlier, something happening in 2 years, something happen in 3 years. So the factors that each of them is not a product where you can lose or you can say this will not work.

[Prayesh Jain, analyst]

Actually, from a point of view that like our events have been kind of in that the trajectory, not seen very strong growth in spite of the fact that the markets are being very buoyant. So that's where I was coming from, as to how do we see BSE's revenues growing in the next 3 to 5 years and possibly while the core business of cash volumes might not grow at an alarming pace, but the other segment can really drive up the revenues and possibly we can look at something like 18% to 20% kind of revenue guide. Is that a possibility?

[Nayan Mehta, executive]

Prayesh, we are in a financial market where when things happen, they happen in a very nonlinear fashion. If you have been tracking us since 30 years now. And we have seen how our revenues change with recent economic and macro conditions. And the thing is that, that is some products start working. It can start generating a stream of revenues, which we would have not put up on here. So let me retread I'm in the same that as you are. We are working towards delivering the best results out of our efforts. But we have to wait and see how it happens.

[Anand Sethuraman, executive]

Also, Prayesh, if you look at the mutual fund contribution, we started mutual funds way back in 2009, and we started pricing it only recently, until back a couple of years, okay? But now if you see the contribution towards the... It's huge. So like that, but on the positive note, the [ ADRs ] when we have launched right from day 1, we have started applying transaction charges on the trade. So that is also positive.

[Prayesh Jain, analyst]

And last question, SGF, is there any discussion with the regulator to allow flexibility to withdraw from it?

[Nayan Mehta, executive]

So those discussions are ongoing. So they keep happening and regulator has agreed sometimes, does not agree and then we have to work around some of the regulations. You see what further can be done. Okay. So the limited point, okay, so I'll just twist the whole thing into just one specific point that whenever we have an amount to be set aside for SGF, please understand that it's a good problem to have. Because what it means is, there are volumes, there is a lot more clearing taking place in that particular clearing corporation. And that is the reason which necessitates the increase in allocation towards this SGF. So all I am trying to tell you is that the good problems come this way. There will be -- and what it feels is the volumes on stay calm. Along with that, we have further abilities in terms of how to get monetized them further, et cetera, so look at the positive side of these things. While it's an allocation, no doubt, but what it means is that there are volumes which are coming.

[Prayesh Jain, analyst]

Okay. Sorry, just last one, more CDSL stake sale, 20% to 50%. Any thoughts there now?

[Nayan Mehta, executive]

Prayesh, we'll have to reduce 5% by 1st October, by 2nd October 2023. That's the mandate that we have for the regulation. And the approximate point of time, we would be taking appropriate decision on that matter.

[Operator]

Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Anand Sethuraman for closing comments.

[Anand Sethuraman, executive]

Thank you so much, and thank you all for being here today. Do know that should you have any further questions or you need any particular information or data. Please reach out to us or write to us at [e-mail]. Thank you so much.

[Operator]

Thank you. On behalf of BSE Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.