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Assignment 2
Bottom up approach
I have picked Bse ltd and NSE ltd- (unlisted financial data used)
IPO of NSE is coming soon Bse is on a hype of valuation gap and growth between two recently NSE
announced dividend BSE is trading at 23.74 times the book value
BSE
Reasoning is as follows:
--------BSE Ltd. has demonstrated steady financial growth, supported by strong revenue streams from core
equity trading, new product innovations, and increasing retail participation. Over the past 5 years, the
company has maintained a healthy CAGR in earnings, driven by operational efficiency and high-margin
businesses such as StAR MF, India INX, and the rapidly growing commodity segment. BSE’s tech-driven
transformation has enabled it to scale its clearing and mutual fund platforms significantly, with BSE StAR
MF processing record transaction volumes.
The company has strategically positioned itself as a leading player in India’s capital market infrastructure by
focusing on digital innovation and regulatory alignment. With BSE SME platform and India INX gaining
traction, the company is expanding into niche and high-growth areas. BSE’s debt-free balance sheet, strong
cash reserves, and consistent dividend payouts reflect robust financial discipline and shareholder value
creation.
Backed by increasing demat penetration, “FNO revenues”- index, expanding retail investor base, and
diversified product offerings, BSE Ltd. offers attractive long-term potential in India’s growing financial
ecosystem.
BSE Ltd.: Management Analysis
--BSE Ltd.’s leadership, under MD & CEO Sundararaman Ramamurthy, brings extensive experience in capital
markets and regulatory frameworks
--The management has effectively steered BSE’s transformation from a traditional exchange to a diversified
financial market infrastructure player, with focused growth in segments such as mutual fund distribution
(BSE StAR MF), SME listings, commodities, and international markets through India INX.
--Operational execution has been strong, with BSE StAR MF emerging as one of the largest mutual fund
distribution platforms in India, and the SME segment gaining robust traction, indicating management’s
strategic foresight in tapping underserved yet high-growth areas.
--Management has prioritized financial discipline, maintaining a debt-free balance sheet, healthy reserves,
and strong cash flows, while also ensuring consistent returns to shareholders through regular dividends and
buybacks.
--The leadership has embraced a technology-first mindset, investing in platform modernization, surveillance
systems, and seamless user experience across products. These efforts help maintain BSE’s relevance in a
rapidly evolving financial ecosystem.
--BSE’s proactive regulatory compliance, transparent disclosures, and engagement with market participants
reflect strong governance practices and a long-term focus on credibility and trust-building.
--Overall, BSE Ltd.’s management demonstrates a clear strategic direction, combining legacy strength with
future-forward thinking to enhance market competitiveness and stakeholder value.
Financial analysis
•Revenue Growth: BSE’s revenue increased from ₹743.15 Cr in FY2018 to ₹1,592.00 Cr in FY2024,
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reflecting a CAGR of approximately 13.5%.
•EBITDA Expansion: EBITDA grew significantly, especially in FY2024, reaching ₹5,250.00 Cr, indicating
improved operational efficiency.
•Net Profit Surge: Net profit saw substantial growth, particularly in FY2024, where it reached ₹1,112.00 Cr,
a 47.7% YoY increase.
•Cash Flow Stability: CFO remained positive throughout, supporting dividend payouts and strategic
investments.
•Debt Management: BSE maintained a debt-free status until FY2024, when it reported a modest long-term
debt of ₹23.00 Cr.
•Valuation Metrics: The EV/EBITDA ratio peaked at 47.70 in FY2024, suggesting a higher valuation relative
to EBITDA.
•Operational Efficiency: The consistent increase in EBITDA indicates enhanced operational performance
and cost management.
•Profitability: The surge in net profit, especially in the latest fiscal year, underscores BSE’s strong
profitability trajectory.
•Financial Health: Maintaining low to zero debt levels over the years reflects BSE’s prudent financial
management.
•Market Valuation: The rising EV/EBITDA ratio suggests that the market is valuing BSE higher relative to its
earnings before interest, taxes, depreciation, and amortization.
Major Players
•NSE (National Stock Exchange) – Dominant in equity and derivatives trading (~90%+ market share).
•BSE (Bombay Stock Exchange) – Strong in SME listings, mutual fund distribution, and bond platforms.
•Others: MCX (commodities), NCDEX, MSEI (lesser market share).
Strengths:
•Oldest stock exchange in Asia (est. 1875) – strong brand recognition.
•Diversified offerings – SME platform, mutual fund distribution (BSE StAR MF), India INX (international
exchange in GIFT City), and insurance broking.
•Monopoly in some niche areas – BSE StAR MF has become a leading platform for mutual fund transactions.
•Innovation and digitization – Investments in tech platforms and algorithmic trading infrastructure.
Weaknesses:
•Low market share in equity and derivatives trading – NSE dominates this space.
•Revenue dependence on transaction volume, which is cyclical and sentiment-driven.
•Lower liquidity on BSE compared to NSE, impacting trading volumes and investor interest.
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Industry Trends and Opportunities
1.Increased Retail Participation: Rising demat account growth (driven by young investors, UPI, mobile apps).
2.Financialization of Savings: Movement from physical assets (real estate, gold) to equities and mutual
funds.
3.Regulatory Push: SEBI reforms are improving market transparency and investor protection.
4.SME Listings: Government and regulatory push for SMEs to access capital markets; BSE has a strong lead
in this space.
5.Digital & Algo Trading: Advanced tech adoption provides room for scalability and cost optimization.
6.GIFT City Opportunities: India INX (BSE’s international arm) may benefit from international listing and
trading reforms.
Challenges and Risks
•Regulatory tightening (e.g., surveillance, transaction charges).
•Increased competition from fintech platforms offering direct investment access.
•Technology infrastructure risks – outages or cyber threats can damage reputation.
•Concentration risk – Over-dependence on a few revenue sources (e.g., BSE StAR MF).
NSE
Reasoning is as follows:
—-NSE Ltd. has delivered consistent financial performance over the years, underpinned by its dominant
position in the Indian capital markets and strong revenue growth across trading, clearing, and data services.
With a highly scalable technology platform and operational efficiency, NSE has maintained strong EBITDA
margins and robust cash flows. Its leadership in the equity derivatives segment, which accounts for a
significant share of global volumes, reinforces its competitive edge.
The company continues to deepen its market presence by driving retail investor participation, expanding
algorithmic trading, and enhancing infrastructure through continuous tech innovation. Strategic initiatives
such as expanding the SME platform, strengthening fixed-income products, and investments in AI-driven
analytics are further diversifying its revenue base.
NSE’s strong balance sheet, debt-free status, and high cash reserves position it well for future growth. With
India’s capital markets entering a new phase of digitization and financial inclusion, NSE is set to benefit from
rising investor penetration and increased financialization of savings, offering significant long-term upside
potential.
NSE Ltd.: Management Analysis
--NSE’s management team, led by MD & CEO Ashishkumar Chauhan (formerly of BSE), brings deep
experience in capital markets, exchange operations, and financial technology
--Under current leadership, NSE has maintained its dominant position in equity and derivatives trading,
while expanding its offerings into debt, commodity, and SME platforms
--Management has shown strong operational efficiency, reflected in high EBITDA margins and robust
technology upgrades, ensuring minimal downtime and superior transaction throughput, even during peak
volatility.
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--The team is actively investing in technology modernization, including AI-powered surveillance systems,
cyber resilience, and digital data monetization, indicating foresight and preparedness for evolving market
demands.
--NSE’s emphasis on Monopoly,transparency, regulatory cooperation, and system integrity has enhanced
investor and institutional trust
--From an investor standpoint, the company’s leadership has effectively balanced profitability with growth,
while maintaining a conservative financial structure and distributing steady returns.
--Overall, NSE’s management inspires confidence through a future-focused strategy, strong governance
practices, and a clear roadmap for expanding its role in India’s capital market infrastructure.
Key Financial Highlights
•Revenue Growth: NSE’s revenue increased from ₹2,609.14 Cr in FY2018 to ₹14,780.01 Cr in FY2024,
reflecting a CAGR of approximately 33.6%.
•EBITDA Expansion: EBITDA grew significantly, reaching ₹11,610.62 Cr in FY2024, indicating improved
operational efficiency.
•Net Profit Surge: Net profit saw substantial growth, particularly in FY2024, where it reached ₹8,305.74 Cr,
a 12.9% YoY increase.
•Debt Management: NSE maintained a debt-free status throughout the period, reflecting prudent financial
management.
•Operational Efficiency: The consistent increase in EBITDA indicates enhanced operational performance
and cost management.
•Profitability: The surge in net profit, especially in the latest fiscal year, underscores NSE’s strong
profitability trajectory.
•Financial Health: Maintaining zero debt levels over the years reflects NSE’s robust financial position.
NSE’s Role in the Industry
Market Leadership
•NSE is India’s largest stock exchange by trading volume and revenue.
•It holds a monopoly-like position in the equity derivatives segment (90%+ market share).
•Also dominates cash equity trading, leaving BSE with a minor share.
Key Platforms and Businesses
•NSE Emerge: SME platform for capital raising
•NSE IFSC: International exchange at GIFT City
•NSE Indices: Owns and operates NIFTY indices
•Co-location & Algo Trading: Offers low-latency infrastructure to institutional investors
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Subsidiaries & Ecosystem
•NSE Clearing Ltd: Handles settlement
•NSE Academy: Financial education
•NSEIT Ltd: IT services for capital markets
•NSE International Exchange: For global investors in GIFT City
Industry Trends and Opportunities
Trend Impact on NSE
Digital transformation---Favors NSE due to early tech adoption
Retail participation surge---NSE benefits from increased trading activity
Rise in passive investing---Boosts revenue via ETFs & index licensing
Financial inclusion push---Creates new investors and boosts volumes
GIFT City development---Opportunity via NSE IFSC for global trading
Algo and high-frequency trading---Strengthens NSE’s tech moat
Challenges and Risks
•Regulatory scrutiny: NSE has faced investigations (e.g., co-location case) which may impact governance
perception.
•Systemic dependence: NSE’s size makes it critical to financial stability; any failure has national implications.
•Cybersecurity threats: As a tech-driven exchange, NSE faces constant cyber risk.
•Market saturation: India has only two primary exchanges; limited scope for inorganic growth.
•NSE’s dominance in the derivatives market and tech infrastructure makes it a systemically important
financial market institution.
•Despite competition from BSE and international exchanges, NSE’s first-mover advantage, innovation, and
scale provide a strong moat.
•With India’s economy and capital markets expanding, NSE is well-positioned to grow via new listings,
investor inflows, and global integration (e.g., GIFT IFSC).
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