I’ve been holding BSE shares for over 4 years now and it has been a rollercoaster ride. I first began to buy it at around 730( bonus not adjusted) for the healthy 5% yield it provided. Over the next one and a half years, it fell, and fell a bit more. For the first three years of my holding, it never crossed my first purchase price even once. Time changed, it went up over 12x from its Covid lows of 275 to around 3100 levels and then fell 50%. Currently, it is at a pre bonus price of around 1800. What do I think it is doing and what is my current opinion, let’s find out.
Let’s do the step wise analysis of BSE as I always do to find out if the stock is worth a look, investigate, invest and hold. So firstly, the company. It’s the oldest stock exchange in India, in an extremely regulated environment which has resulted in it being one of the two duopolistic players with no reasonable chance of any new player coming in any time soon. Secondly, the company has survived for over 140 years so it is reasonable that it is likely to hold a fort for the next decade at least. Also, the brand recall is possibly the best in the Financial Industry in India. So the first box is ticked.
Secondly, is it on the right side of the India story? An emphatic yes. It is catering to the growing masses flocking to the securities markets by being the first gatekeeper, charging a small premium for its services. Technology wise, it is the better of the two players. Its business requires an extremely limited amount of fresh capital to scale and the expansion is funded through P&L and not through asset heavy Balance sheet. So anything left after its expenses is returned through a dividend with extremely high dividend rates. The company is cash rich with close to 3000 crores of cash sitting on a zero debt balance sheet. The fact that it generates regular profits and is available on just a Billion dollar market cap makes it a fantastic buy.
Now we do appreciate it is not going anywhere in the traditional businesses – equity, derivatives and commodities. Here is the thing. It’s a runaway success in most newer businesses it has lauched- International exchange, StarMF platform and now Electronic gold receipt and insurance broking. Some of them are beginning to show good revenue runrates while the other will soon turn to mint cash.
The thesis is extremely simple. More and more Indians are likely to turn their savings into financial instruments and it doesn’t matter who buys what, the house is likely to win over the long term. It currently does close to $100M in revenue and $25M in profit and this number is likely to grow ten twenty fold over the next 10-15 years without much fuss. This in itself will throw out so much cash that the dividend will be higher than today’s share price. No exchange in the world is worth less than $20B with the largest ones- NYSE, LSE etc are valued over $60-80B. The second largest exchange of the world’s currently fifth and most likely third largest economy in the next five years can’t trade at $1B. So my opinion is a strong hold and don’t even look at the price!
Isec is a similar play with even better financial numbers. It is already churning over 300 crores a quarter. It was going down because once the Q2 2022 numbers were out and markets began to go down, people believed that the best was behind and stock fell from 900 odd to just over 400. Now the worst quarter in the near term was most likely the Q1 of 2023 which generated 275 crores of PAT. And that was the first quarter when it didn’t fall post results. It is trading at levels in my opinion it is unlikely to ever see in its three five year cycles. You just don’t get a business with 65% ROE with revenue growing at 30% trading at 10 times trailing earnings. That stupid NYKA is trading at over 1000 times earnings.
Just imagine this. Nyka did a PAT of paltry 5 crores and even at this price gets valued at 50000 crores. ISEC makes 300 crore PAT and is trading at 16000 crores market cap.
As we have seen with ITC going up 75% in a year when Nasdaq has fallen 35%, paypal and mera are down over 80%, the market does wake up to valuations. My opinions have only grown stronger for what I own and in my limited understanding of the markets, as long as the business is doing fine, share price does catch up. Funnily, most of this catching up takes place in an extremely short period of time, especially when no one takes notice.
PS- My strong sense is that Hero is on the verge of a catch up play very soon. Just like ITC, it has done it’s eight year of penance when it has all been written off. In reality, it is one of the best poised players in the electric play with tie ups/collaboration/investments in three fantastic EV players, which in that order are Gogoro/Zero/Ather. And a company which sells 5l vehicles in a month and gets trolled, just imagine what it will do when it’s ready!
Life is all about Compounding! 