BSE @ Dalal Street,

After 142 years its finally woken up.

India's oldest exchange, "Bombay Stock Exchange" got listed in 2017. Fortunately everyone seems to focus their attention on the much awaited launch of its younger brother "NSE". Its a known fact that NSE commands deeper market penetration and a modernised trading system, but let's not forget that BSE is the 11th largest exchange in the world, just a step behind NSE. When listed at ₹1200/ share in Feb 2017 it trades today (Jul 2018) at ₹850 and decided to do a buyback within 18 months of its listing.

Is ₹850 a good price when

1. it trades @ 1.3 times book?

2. their market-cap is ₹4,500 Cr and cash on book in excess of ₹2,200 Cr. Are you virtually buying India's premier exchange at a significant discount vs its future earnings?

3. they keep buying their stock from open market, pushing their EPS and book value higher

4. it seems they understand, they once enjoyed a monopoly but were pushed by NSE to second place, hence need catching up with their offerings and systems.

Investment Rationale

• It enjoys a virtual monopoly with NSE and since the economy is on a sweet, their new planned initiatives can make it reasonably priced as of today.

• BSE’s has a transaction based model with a a long term durable advantage to expands in Commodities, Debt, Mutual Funds, Currency etc. This year they start their trading exchange on commodities (Oil, Gold, Gas etc) and an International clearing house in Gujarat.

• Currently less than 1.5% of India's population trades on the stock exchange. Growing economy & demand for financial assets could lead to a doubling of this % in 7 years. The United States is at 18% and China at 10%.

• India has seen a surge of Mutual fund, Asset & portfolio management companies in recent years, as people are realizing the importance of professionally managed money.

• BSE has a guaranteed client base, High positive Cash flow, require marginal working capital to operate, stable dividend payouts, Debt free and high EPS forecasts.

• When it got listed in 2017 the stock was available at 2.5 times book value and as of date its available at 1.3 times book. Call me naive but the 11th largest exchange in the world with more than nearly $2 trillion in market-cap could be virtually available at a steal.

• BSE has a market-cap of ₹4,500cr, with no debt, close to 2400cr in cash and can operate with extremely low working capital.

Cause and effect principals

BSE is tied to India's economy.

• Being on transaction based business model, there are two major factors that affect its revenues; Trade volumes and Value of deliverables. In FY 2002-03 their quantity traded was 2,164.41cr and delivery value was ₹52,802.85cr. As of FY 2016-17 their share quantity was 7,657.03 cr (254% increase) and delivery value ₹5,06,402.61 cr (860% increase). Now that might not look too impressive over a 14 years period but I would argue its a 17+% compounded gain. I am now assuming BSE being a virtual monopoly should be able to maintain this momentum in the coming decade.

• Adding to this, BSE's New International clearing house at Gift city Gujarat, now intends to address derivatives, currencies and commodities in foreign currency.

• Inflation in India is there stay. As financial products, services, mutual funds and financial assets gain demand, BSE and NSE are on a sweet spot to take advantage of this rise.

BIGUL

Long term Investors seeking value shouldn't miss this opportunity! I recently downloaded a 2017 research report (via moneycontrol) by KR Choksey written by one of their analyst, Dinesh Gupta. Its a good read since the guy seem to hit the nail on its head.