Dividend Candidate(#2): BSE Ltd 🤑

At CMP Rs. 298.35/-, the dividend yield of BSE Ltd is at 10.06% which is very attractive.

India has a duopoly in the stock exchange business, the two being – NSE and BSE. While NSE is the market leader in equity cash trading and derivative trading, it is not yet listed. The listed exchange BSE Ltd. severely lags NSE in the trading volumes.

The story so far…

[1] The BSE Ltd’s IPO took place in Jan 2017 and got listed at Rs. 806/- per share, with a face value of Rs.2/- per share.

[2] BSE Ltd’s share price was at Rs. 527.65/- on Oct 18, 2019, when I wrote about BSE’s Blue Ocean Strategies in this post 👉BSE Ltd: The exchange’s blue ocean strategy is yielding results

To boost revenues, BSE had previously kick started a host of new services they clubbed as blue ocean business; among them the only one yielding results and clocking revenue is the BSE StAR MF platform.

[3] BSE Ltd’s CMP is Rs. 298.35/- on NSE, Apr 3, 2020, it is down almost 63% from its listing price.

BSE Ltd Share Price, Source: Google
BSE Ltd Share Price, Source: Google

[4] Pabrai Investment Funds (of marquee investor Mohnish Pabrai) held 2.43% in BSE Ltd as on 30 Jun 19 and they increased the stake to 2.60% as on 30 Sep 19; only to subsequently disappear from the top 10 shareholders as on 31 Dec 19.

[5] Since the three years of listing, the company has wowed investors with it’s dividend payouts. The company has maintained a payout ratio of above 90% on it’s standalone net profits. Last year, in FY 18-19, the dividend per share was Rs. 30/- and a payout ratio of 97%.

Dividend per share and payout ratio of BSE Ltd, Source: Company website
Dividend per share and payout ratio of BSE Ltd, Source: Company website

[6] At CMP Rs. 298.35/-, the dividend yield of BSE Its is at 10.06% which is very attractive. But is this high payout ratio sustainable for the company going forward? Can we expect a similar amount in dividend this year too? That’s the difficult question.

The numbers in Q3 FY 19-20…

Consolidated P&L of BSE Ltd, Source: Company website
Consolidated P&L of BSE Ltd, Source: Company website

[7] The revenue from operations remained in line with the previous quarters, it is the investment income that took a hit.

The consolidated revenues declined 16% to Rs. 148.7 cr from Rs. 177.1 cr, the major drop of 50% seen in the Income from Investments and Deposits to Rs 34 cr from Rs. 68.5 cr.

Consolidated P&L of BSE Ltd, Source: Company website
Consolidated P&L of BSE Ltd, Source: Company website

[8] Consequently, in Q3 FY 19-20 the EBITDA margin dropped to 22% from 38% in Q3 FY 18-19.

[9] The consolidated net profit for Q3 FY 19-20 increased sequentially by 24% to Rs 45.6 cr from Rs 36.7 cr in Q2 FY 19-20; but decreased by 9% from Rs. 50.1 cr in Q3 FY 18-19, even after adding the non-recurring revenue from 4% stake sale in CDSL of Rs. 32 cr. BSE now holds 20% stake in CDSL

Consolidated P&L of BSE Ltd, Source: Company website
Consolidated P&L of BSE Ltd, Source: Company website

[10] The profit of Rs. 32 cr from 4% stake sale in CDSL was the life line for BSE’s results this quarter. Without the profit from the same, the net profit was at Rs. 8.64 cr down 80% from Rs. 44.94 cr in Q3 FY 18-19 and EPS was at 2.81 down 70% from 9.52 in Q3 FY 18-19.

[11] The profit from stake sale and the share buy back exercise helped keep the EPS for Q3 FY 19-20 at 9.81. And now there is another 20% stake in CDSL they can sell in the future😀 !!

The dividend payout ratio…

[12] The company prides itself in maintaining a dividend payout ratio above 90% of its standalone net profit. And the standalone net profit for 9M for FY 19-120 is Rs. 172.08 cr up 10% from Rs.157.20 cr for 9M in FY 18-19. That’s good news.

Standalone P&L for BSE Ltd, Source: Company website
Standalone P&L for BSE Ltd, Source: Company website

[13] The bad news is thinking about the results for Q4 FY 19-20. We will have to wait and watch. The company will want to maintain its dividend record through they are sure to reduce the amount. 

[14] Many people are skeptical about BSE Ltd remaining cash flow positive to keep giving out the rich dividends. But BSE Ltd remains optimistic on the revenue from the BSE StAR MF Platform.

Net Income from BSE StAR MF Platform, Source: Company website
Net Income from BSE StAR MF Platform, Source: Company website

[15] The net income earned by the BSE StAR MF platform increased by 58% to Rs 32.8crore for 9M FY 19-20 from Rs 20.7 crore for 9M FY 18-19. (above graph)

[16] This income from the BSE StAR MF platform has contributed to 12% (Rs. 32.8 cr of the Rs. 279.10 cr) of the standalone revenue from operations for 9M FY 19-20 as compared to 7% of the revenue from operations for 9M FY 18-19

[17] As per the company’s media release “Seeing it differently, the income earned in StAR MF segment now is equivalent to 64% of the income earned by BSE in its equity segment during this period.  BSE continues to remain positive on growth of this segment.”

[18] Another development of interest is the energy exchange that BSE is planning to set up. There is already one energy exchange currently in operation in India (IEX) and BSE is planning to set up a second one.

Let’s wait and see the Q4  results, last year it was out in May, this year could be delayed because of the lockdown. The company will definitely declare a dividend, the question is how much? I would take a guess at somewhere between Rs. 15 – 20 per share🤞.

Till next post, take care !!

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