 "I-bankers, brokers divided over BSE IPO valuation")
Investment bankers and brokers are a divided lot when it comes to valuation of BSE shares. While the latter expect the shares to be priced between Rs 500 and Rs 650 apiece, bankers are pegging a price close to Rs 450.
“Bankers have not committed to any price as yet but a price close to Rs 450 seems likely,” said a banker. The person believes that while the exchange could get a growth premium over other global exchanges, a price over Rs 500 looks highly unlikely.
Brokers, on the other hand, are hopeful that the exchange will fetch a price closer to Rs 600. “The exchange deserves rich valuation, as it is present across segments. Besides, one can’t overlook intangible attributes such as brand Sensex and the exchange’s 140-year pedigree,” said one.
A price of Rs 450 would value the exchange at Rs 4,900 crore. A price of Rs 600 would imply a valuation of Rs 6,500 crore.
“It has established itself in the currency market, got a head start in insurance and mutual funds, and is slated to start a new international exchange. All these are factors that will drive up valuations,” said Deven Choksey, managing director at KR Choksey Shares & Securities, without specifically commenting on the pricing of shares.
The bourse, which already has a presence in the mutual funds business with BSE Star MF, recently applied to the Securities and Exchange Board of India (Sebi) to float two insurance-related arms under its fully-owned subsidiary, BSE Investments.
According to Choksey, BSE has already leveraged its tie-up with Deutsche Boerse to emerge as the fastest exchange in the world and needs to do the same with S&P, which has a strong sense of building new products. BSE had announced a joint venture with S&P Dow Jones Indices in 2013.
“Whatever the price, my sense is that the stock may get listed at a valuation that is ‘bottom of the pyramid’, but the potential is huge,” Choksey said.
About 29.95 million shares, or 27.43 per cent stake in the exchange will be sold in the initial public offering (IPO), tendered during the offer for sale (OFS) process that ended in August. Based on the percentage of shares tendered during the OFS and how the shares are priced, the issue size is expected to anywhere between Rs 1,200 crore and Rs 2,000 crore.
To be sure, investment bankers appointed by BSE are yet to meet investors and the price remains in the realm of speculation. Bankers will zero on a price band after they embark on roadshows once the draft prospectus is approved by Sebi.
BSE shares are currently quoting at Rs 380-385 in the grey market — slightly over the price of Rs 375-380 that billionaire investor George Soros had paid in August 2011 for a four per cent stake in through his Quantum hedge fund. The shares have gained about 35 per cent after the exchange told Sebi in a letter dated January 22 that it was fully compliant with regulations and ready to list for an IPO.
Brokers, however, believe the grey market might not be the right gauge to value the shares, as it is an illiquid market with hardly any participants.
The consolidated net profit for 2015-16 declined 38 per cent to Rs 96.7 crore, from Rs 155.5 crore the previous year. The exchange has seen a dip in cash market volumes, its mainstay, and has a market share of less than 20 per cent of that of rival, National Stock Exchange of India. Volumes in the derivatives segment have dived to almost nil, after the exchange trimmed its incentive structure for market makers last year.
