IPO Update

IPO UPDATE

Reasonably Priced

Salient features of the IPO:

• BSE Ltd. (BSE) own and operate the BSE exchange, the first stock exchange in Asia. At the end of Oct. 2016, the BSE was the world's largest exchange by number of listed companies, and India's largest and the world's 10th largest exchange by market capitalization (MCAP of companies listed on it).

• The issue is an offer for sale (Rs. 12,418.9 – 12,434.3mn). The company will not receive any proceeds from the IPO.

Key competitive strengths:

• Strong brand recognition with a track record of innovation

• Diversified and integrated business model

• State-of-the-art infrastructure and technology

• Financial strength and diversified sources of revenue

Risk and concerns:

• Uncertain market activities

• Unfavorable transaction charges

• Lower interest rate to limit growth in the treasury income

Valuation & recommendation:

At the higher price band of Rs. 806 per share, BSE’s share is valued at a P/E multiple of 25.6x (to its restated FY16 EPS of Rs. 31.5), which is in line with the global listed peer average of 25.1x.

Below are few key observations of the issue:

• The equity market is expected to benefit from the recent demonetization exercise, which led to a fall in the interest rate and lower demand for other asset class like gold. As equity investment has outperformed in terms of return over the period of time over other asset classes, we feel that most of the investment will come to equity market, which will be positive for BSE.

• Post the IPO of CDSL, BSE stake will reduce to around 24% and CDSL will cease to be the subsidiary of BSE. Without CSDL consolidation, BSE’s top-line and bottom-line are likely to get reduced. However, we are of the opinion, that growth across the existing business and additional revenue source coming in for BSE, are expected to partially offset the impact from the disinvestment of CDSL.

• BSE has a mutual fund investment platform (BSE StAR), with a market share of 70-75%. Till recent times, its mutual fund investment platform was free for the user and has around 6 lakhs transactions per month. From Dec. 2016, the company has started charging for these transactions.

• The company is in the process of launching innovative products like, listing of startups (BSE Hi-Tech), market for sovereign gold bonds, index based products for national & international investors etc.

• Over FY12-16, the company has maintained a dividend payout ratio of around 35% and has guided to maintain the same in future. This might be one of the investment rationales for the investors.

• At higher price band, BSE is demanding a MCAP of Rs. 43,265mn. As of H1 FY17 end, the company has a liquid investments and cash balance of Rs. 24,921mn. Additionally, assuming Rs. 10,000mn valuation for the CDSL, the core operations of BSE is valued at around 8,300mn, which is very reasonable and attractive.

Thus, considering the business outlook and attractive valuation demanded by the company, we recommend a “SUBSCRIBE” rating for the public issue.

1

Recommendation SUBSCRIBE

Price Band (Rs.) Rs. 805 – 806

Face Value (Rs.) Rs. 2

Shares for Fresh Issue (mn)

Shares for OFS (mn) 15.4mn

Fresh Issue Size (Rs. mn)

OFS Issue Size (Rs. mn) Rs. 12,418.9 – 12,434.3mn

Total Issue Size (Rs. mn) Rs. 12,418.9 – 12,434.3mn

Bidding Date 23rd Jan. – 25th Jan. 2017

MCAP on Higher Price Band Rs. 43,265mn

Book Running Lead Manager

Edelweiss Financial Services Ltd., Axis Capital Ltd., Jefferies India Pvt. Ltd., Nomura Financial Advisory and Securities (India) Pvt. Ltd., Motilal Oswal Investment Advisors Pvt. Ltd., SBI Capital Markets Ltd., SMC Capitals Ltd and Spark Capital Advisors (India) Pvt. Ltd.

Registrar Karvy Computershare Pvt. Ltd.

Sector/Industry BFSI

Promoters BSE is professionally managed and does not have an identifiable promoter

Pre - Issue Shareholding Pattern

Public 56.4%

Trading Members and Associates of Trading Members

43.6%

Total 100%

Retail Application Money at Higher Cut-Off Price per Lot

Number of Shares per Lot 18

Application Money Rs. 14,508

Analyst

Rajnath Yadav

Research Analyst (022 - 6707 9999; Ext: 912)

Email: rajnath.yadav@choiceindia.com

21th Jan. 2016

BSE Ltd.

Consolidated Financial Snapshot (Rs. mn) FY12 FY13 FY14 FY15 FY16 H1 FY17 Total Operating Income 5,377.0 5,095.5 4,850.6 5,837.1 6,161.9 3,533.6 EBITDA 3,188.8 2,674.8 2,426.9 2,642.7 2,584.3 1,630.0 Adjusted PAT 2,329.3 2,172.4 1,959.1 1,804.9 1,691.3 1,257.2

EBIDTA Margin (%) 59.3% 52.5% 50.0% 45.3% 41.9% 46.1% Restated Adjusted PAT Margin (%) 43.3% 42.6% 40.4% 30.9% 27.4% 35.6%

RoE (%) 9.8% 8.8% 7.6% 6.5% 5.9% 4.2%

RoCE (%) 10.7% 8.7% 8.0% 7.2% 6.7% 4.5%

IPO Update

IPO UPDATE 2

About the issue: • BSE is coming up with an initial public offering (IPO) with 15.4mn shares (fresh issue: Nil; OFS shares: 15.4mn) in offering.

Total IPO size is estimated at around Rs. 12,418.9 – 12,434.3mn.

• The issue will open on 23rd Jan. 2017 and close on 25th Jan. 2017.

• Not more than 50% of the issue will be allocated to qualified institutional buyers. Further, at most 15% of the issue will be

available for non-institutional bidders and the remaining 35% for retail investors.

• The issue is a offer for sale and thus the company will not receive any net proceeds from the issue.

• BSE is professionally managed and does not have an identifiable promoter. Around 300 investors including Singapore Exchange Ltd. are part selling their holdings through the OFS route that would constitute 28.7% of the fully diluted equity capital.

Tentative IPO Process Time Line

Date

Anchor Investor 20-Jan-17

Offer Opens on 23-Jan-17

Offer Closes on 25-Jan-17

Finalization of Basis of Allotment 31-Jan-17

Unblocking of ASBA Account 1-Feb-17

Credit to Demat Accounts 2-Feb-17

Listing on NSE 3-Feb-17

IPO Update

IPO UPDATE 3

General Overview of the Exchange Sector: Globally, there are over 70 major stock exchanges with a market capitalization (MCAP) of more than USD 5bn. The total global MCAP of World Federation of Exchanges (WFE) member aggregated to USD 68tn at the end of Oct. 2016. Sixteen of these stock exchanges had a MCAP of above USD 1tn each. MCAP of these stock exchanges taken together accounted for 86% of the total global MCAP. (Source: Company RHP). The following chart shows the MCAP of WFE Exchanges in different regions at the end of Oct. 2016:

Source: Company RHP

The Intercontinental Exchange (ICE: NYSE) dominates with a MCAP (MCAP of the companies listed on it) of about USD 18.2tn at the end of Oct. 2016. In terms of turnover (defined as the value of shares traded), the Shanghai Stock Exchange topped the list with a turnover of about USD 21.3tn in 2015. The BSE Ltd. (BSE) was the largest exchange in the world in terms of number of listed companies at the end of Oct. 2016, with 5,868 companies. The chart below shows the number of trades on the top 15 WFE Exchanges in the world by MCAP for the time periods indicated:

28.0

22.1

13.1

1.3 1.3 1.3 1.1

0

5

10

15

20

25

30

USD

Source: Company RHP

IPO Update

IPO UPDATE 4

General Overview of the Exchange Sector (Contd…): The following chart shows the top five WFE Exchanges in the world in terms of number of listed companies in 2015:

Source: Company RHP

The Exchange Sector in India: India has a history of stock trading dating back to around 200 years ago. Initially, the East India Company was the dominant institution and business in its loan securities used to be transacted. Gradually, the trading list broadened as the number of participating brokers increased with time. Subsequently, a formal stock exchange was established in 1875 as "The Native Share & Stock Brokers Association" (which later became BSE). It is the first stock exchange in India to obtain permanent recognition in 1957 from the Government of India under the Securities Contracts (Regulation) Act, 1956. Over time, BSE has built up a strong reputation and brand name as one of the most recognizable stock exchanges in India. National Stock Exchange (NSE) was founded in 1992 and started trading in 1994. BSE and NSE are the two dominant stock exchanges in India. The following chart shows the MCAP for the BSE and the NSE for the time periods indicated:

Source: Company RHP

62.1 63.9

74.2

101.5 94.8

110.7

61.0 62.4

72.8

99.3 93.1

108.7

50

60

70

80

90

100

110

120

FY12 FY13 FY14 FY15 FY16 H1 FY17

BSE NSE

Rs.

tn

The MCAP of both stock exchanges has gradually increased in line with a rise in trading activities and increasing share prices for listed companies. As at the end of Sept. 2016, the MCAP of BSE increased by 17% Y-o-Y, while the MCAP of NSE increased by 14% Y-o-Y.

IPO Update

IPO UPDATE 5

The Exchange Sector in India (Contd…): The chart below shows the volume of shares traded on the BSE and the NSE for the time periods indicated:

Source: Company RHP

From FY12-16, the number of shares traded on both exchanges combined grew by 30%. The steady growth of the Indian economy, growing awareness regarding the stock market, increased participation by foreign institutional players as well as domestic retail investors and increased penetration of share market trading services across India are some of the key factors which contributed to this growth. During the H1 FY17, the number of shares traded on BSE declined by 9% on Y-o-Y basis, while the number of shares traded on NSE increased by 22% Y-o-Y. For BSE and NSE, revenue is primarily derived from securities services and services to corporates, which primarily consists of listing income. Information services contribute little to the revenue of Indian exchanges, contributing to approximately 4-5%. On the other hand, information services generally account for 10-25% of the total revenue for exchanges in developed economies. The BSE and NSE offer trading primarily in equity, debt instruments, exchange traded funds and derivative products of equities, interest rate and currencies. Commodity trading activity in India is dominated by Multi Commodity Exchange and National Commodity Exchange.

65.4 56.7 48.0

82.8 75.1

32.0

161.7 165.9 153.4

236.2 220.2

130.0

0

50

100

150

200

250

FY12 FY13 FY14 FY15 FY16 H1 FY17

BSE NSE

bn

tra

des

BSE Ltd.

Equity Cash

Equity Derivative

Equity Indices / Global Indices

Debt Instruments

Mutual Fund / ETFs

Currency Derivative

Interest Rate Derivative

SME Platform

NSE Ltd.

Equity Cash

Equity Derivative

Equity Indices / Global Indices

Debt Instruments

Mutual Fund / ETFs

Currency Derivative

Interest Rate Derivative

SME Platform

MCX Ltd.

Commodity Futures

Commodity Options *

NCDEX Ltd.

Commodity Futures

Commodity Options *

Metropolitan Stock Exchange

of India Ltd.

Equity Cash

Equity Derivatives

Debt Instruments

Currency Derivatives

Source: Company RHP

IPO Update

IPO UPDATE 6

The Exchange Sector in India (Contd…): Clearing Corporations: A clearing corporation carries out the clearing, settlement, collateral management and risk management functions for various segments of an exchange. A clearing corporation will act as the central counterparty to all the trades it provides clearing and settlement services for. Clearing corporations settle trades executed on a variety of segments, including the equity cash, equity derivatives, SMEs, Offer for Sale, securities lending and borrowing, debt, interest rate futures, currency derivatives segments and trades reported on the Indian corporate debt segment and the mutual funds segment. The growth of clearing corporations is linked to the growth of the capital markets, as clearing services are dependent on the number of trades executed on the exchanges. Regulatory change allowing interoperability between different clearing corporations would aid the growth of Indian exchanges. There is currently no interoperability between the different clearing corporations in India. Interoperability would allow trading participants to clear trades through a clearing house convenient to them as against the current system, which requires investors to use the clearing house owned by the exchange on which they trade. This would result in efficient use of capital for trading members who take positions on multiple stock exchanges. Depositories: A depository facilitates the holding of securities in electronic form and enables securities transactions to be processed by book entry. The depository system reduces the need for paper-based certificates, which are prone to forgery and result in bad deliveries. A depository participant (DP), as an agent of the depository, offers depository services to investors. Financial institutions, banks, custodians and stockbrokers are eligible under SEBI's guidelines to act as DPs. The investor, who is known as a beneficial owner, must open a demat account through any DP for dematerialization of his holdings and transferring securities. The balances in the investors' account that are recorded and maintained with the depository can be obtained through the DP. It is required to provide the investor, at regular intervals, a statement of account which gives the details of the securities holdings and transactions. The depository system has effectively eliminated paper-based certificates, which were more prone to loss, forgery, damage and other problems, resulting in bad deliveries. The growth of depositories is dependent on the growth of the capital markets. There are two depositories in India, Central Depository Services (India) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL). As on 30th Sept. 2016, CDSL and NSDL had 11.5mn and 15mn active accounts, respectively and held Rs. 15.4tn and Rs. 133.1tn in total value of dematerialized securities, respectively.

IPO Update

IPO UPDATE 7

Company Introduction: BSE Ltd. (BSE) own and operate the BSE exchange platform (formerly, the Bombay Stock Exchange), the first stock exchange in Asia, which was formed on July 9, 1875. At the end of Oct. 2016, the BSE was the world's largest exchange by number of listed companies, and India's largest and the world's 10th largest exchange by MCAP, with USD 1.7tn in total MCAP of listed companies. As the operator of the BSE, it regulates listed issuers and provides a market for listing and trading in various types of securities as may be allowed by SEBI from time to time. The company operates in three primary lines of business, namely:

• The listing business, which consists of the primary market, which relates to the issuance of new securities;

• The market business, which consists of (i) the secondary market, which relates to the purchase and sales of previously-

issued securities, (ii) BSE StAR MF (BSE StAR), an online platform for the placement of orders and redemptions of units in mutual funds, (iii) NDS-RST, a platform for reporting of over-the-counter corporate bond trading, (iv) membership, which includes membership in the exchange, membership in its clearing corporation ICCL, and membership of depository participants in CDSL, and (v) post-trade services, namely the clearing corporation and depository; and

• The data business, which consists of the sale and licensing of information products. In addition to the existing primary lines of business, BSE also has supporting businesses, which includes (i) providing IT services and solutions, (ii) licensing index products such as the S&P BSE SENSEX, (iii) providing financial and capital markets training and (iv) operating its corporate and social responsibility portal. Moreover, the company has an active treasury function focused on managing its cash, including both its own funds as well as funds that it holds on behalf of third parties (such as margins placed by clearing members). The following chart illustrates BSE’s primary lines of business and its supporting businesses:

Source: Company RHP

IPO Update

IPO UPDATE 8

Company Introduction (Contd…): As at 30th Sept. 2016, the BSE had 1,446 unique members across all segments, and in FY16 the BSE accepted an average of 284.9mn orders and 1.5mn trades in equity shares per trading day, placing itself as the 12th most active exchange in the world in terms of electronic book trades in equity shares.

Total Operating Revenue Breakup in FY16 Core Operating Revenue Breakup in FY16

Source: Company RHP Source: Company RHP

69.2%

30.8%

Revenue from Core Operating Activities

Reveneus from Treasury Operations

57.0%

37.8%

5.3%

Securities Services Services to Corporates

Data Dissemination Fees

Customers: BSE’s customers vary based on its line of business. For its markets business, its customers are primarily the members of the various segments of its exchange, as well as market participants who buy and sell securities and derivative products. For the listing business, the customers are primarily issuers of securities. For the data business, customers are primarily information aggregators and suppliers, who charge their end users subscription fees for data, as well as trading participants, funds, ETF providers and analysts. Competition: There are two primary securities exchange in India, namely BSE itself and NSE. Aside from the NSE, the company also faces competition from MCX. Primary sources of competition are as follows: • BSE’s securities market division competes primarily with stock exchanges in Asia who seek to attract Indian issuers;

• The derivatives market competes primarily with the NSE market, which is significantly larger than it in terms of

derivatives trading; and

• The international exchange that the company is developing at GIFT City will compete directly with foreign exchanges for the listing of securities issued by foreign companies.

IPO Update

IPO UPDATE 9

Competitive Strengths: • Strong brand recognition with a track record of innovation: Established in 1875, BSE is Asia's first stock exchange, and is

one of the most recognizable brand names in India. The company feels that, its global brand helps it in attracting companies to its listing platforms and attracting retail investors and wholesale participants to its various market and data offerings.

BSE has built its brand by historically anticipating and responding to investor's needs through the introduction of new products and services. Examples of its past product innovations include BSE StAR (online platform for the placement of orders and redemptions of units in mutual funds) and BSE SME. Further, the company is also developing BSE Hi-Tech, a platform for the listing and trading in shares of young, fast-growing companies, in order to provide them with equity capital to finance their growth.

Apart from these innovative offerings, it also provides a variety of hi-tech product and service offerings such as co-location services for algorithmic trading, intra asset management switches, direct pay-out to clients, multiple payment modes, overnight funds management for liquid mutual funds and XSIP etc.

• Diversified and integrated business model and active relationship with market participants: BSE operates a diversified

and integrated business model including trading, clearing and settlement of products listed and traded on the BSE, as well as the provision of data products, IT services and solutions, the setting up of indices and training. It offers listing and trading of a wide variety of products including equity cash securities such as shares of companies and ETFs, units in closed-end mutual funds, corporate bonds and government securities, equity derivatives and currency derivatives, as well as services such as securities lending and borrowing, and platforms to facilitate offers to buy securities by listed companies and offers for sale of securities by substantial shareholders of listed companies. By providing such integrated services, it supports market participants and members throughout the entire life-cycle of a trade. With such an integrated operation, it is able to provide low cost services to its participants and members. Moreover, the diversified and integrated business model provides the company with an active relationship with market participants.

• State-of-the-art infrastructure and technology: BSE has an electronic systems for entry, trading, clearing and settlement and depository services and it continually seek to improve its core IT capabilities, the reliability and consistency of which helps it to maintain its competitive position. The company has an experienced team of internal IT professionals, supported by third party IT service providers, to operate and support its infrastructure and software as well as to create and implement new technologies.

• Financial strength and diversified sources of revenue: In order to provide a stable stream of revenue to support its fiscal

policy, BSE has sought to diversify its revenue streams. As an operator of a derivatives and securities exchange and clearing, settlement and depositary services, it has multiple contact points with its members and market participants, thereby assisting it to generate revenue at multiple levels of its business. The company derives revenue from a variety of sources including revenue from trading activities on the exchange, such as trading fees and trading tariffs, revenue from post-trade services, such as clearing, settlement, depository, custody and nominee service fees, and initial and recurring listing fees from equity, debt and derivative products, and subscription fees from data products.

In FY16, core operating revenue (comprising of revenue from securities services, services to corporate and data dissemination fees) was 69.2% of the total operating revenue, while the rest 30.8% was contributed by the treasury operations. Over FY12-16, the company reported 3.5% CAGR growth in the total consolidated operating revenue to Rs. 6,161.9mn. Over the same period, business from core operating activities increased by 7.8% CAGR, while income from the treasury operations declined by 3.9% CAGR. Total operating expenditure increased at a higher pace as compared to total operating revenue, thereby leading to a 5.1% decline in the consolidated EBITDA to Rs. 2,584.3mn in FY16. EBITDA margin contracted from 59.3% in FY12 to 41.9% in FY16. Depreciation charge increased by 16% CAGR, while finance charge declined by 16.2% CAGR. Consequently, adjusted PAT declined by 7.7% CAGR to Rs. 1,691.3mn in FY16, while PAT margin contracted from 43.3% in FY12 to 27.4% in FY16.

IPO Update

IPO UPDATE 10

Competitive Strengths (Cond…):

Financial Performance over FY12-16 Operating Performance over FY12-16

Source: Company RHP Source: Company RHP

25%

35%

45%

55%

65%

3

4

5

6

7

FY12 FY13 FY14 FY15 FY16 H1 FY17

Total Operating Revenue (Rs. bn)EBITDA Margin (%)Adjusted PAT Margin (%)

0%

2%

4%

6%

8%

10%

12%

1.0

1.5

2.0

2.5

3.0

FY12 FY13 FY14 FY15 FY16 H1 FY17

Fixed Asset Turnover Ratio (x)RoE (%)RoA (%)RoCE (%)

Business Strategy: • To become the exchange of choice in India and expand the cross-border reach: BSE intends to strengthen its position as

a preferred exchange in India and expand its cross-border reach by entering into strategic alliances. For example, to expand its position in India, the company has entered into a strategic partnership with S&P Dow Jones Indices LLC, USA to grow the index business. Internationally, it has signed an agreement with Deutsche Borse whereby they sell and market BSE market data and information to international clients. Deutsche Borse also collaborates with the company for product development and innovation, which includes extending its existing infrastructure and creating new market data solutions and infrastructure to support BSE’s product offerings. The company has taken and is currently implementing various initiatives that will expand the trading business not only from domestic investors but also from the overseas investors.

• Increase the variety and market share of derivative products: BSE actively evaluate products and asset classes outside its traditional focus areas in order to diversify its revenue sources. By doing so, it seeks to continue to attract market participants and issuers and to capture the significant revenue potential that comes with a broader product line, particularly derivative products. The company intends to continue to develop a full equity derivative product suite to meet derivative investors' needs through the introduction of new products, as well as through advancements in current products. In particular, it intends to focus on currency derivatives and to further increase its market share in this segment. The company is also targeting to add commodity derivatives to current portfolio of product offerings.

• Diversify the product and service offerings and maintain new product innovation and development: BSE continually strives to diversify its product and service offerings to serve investors' needs by developing new products and bringing new types of financial instruments. For example, it is looking to offer indices and index-based products for national and international investors as part of its product development. The recent and upcoming product innovations include BSE Hi-Tech, a platform for young, fast-growing companies to list and raise equity capital for their growth.

In terms of the service offerings, BSE was appointed as the receiving office for primary issuances of sovereign gold bonds in May 2016. Sovereign gold bonds are government bonds, denominated in grams of gold, issued by the Reserve Bank of India ("RBI") on behalf of the Government of India. Other examples of initiatives that

It has at various stages of development includes the international exchange and international clearing corporation at GIFT City and an exchange in precious metals, gems and other related goods with the India Bullion and Jewelers Association.

IPO Update

IPO UPDATE 11

Business Strategy (Contd…): • Maintain and improve best-in-class platform infrastructure: Maintaining and improving its infrastructure is critical to

BSE’s business, as it lays the foundation for future growth and expansion, provides its customers with a more efficient and accessible marketplace and enhances its competitiveness as an exchange operator on a global scale. The company has regularly allocated substantial resources towards upgrading its information technology systems, with the over-arching goals of achieving higher capacity and lower latency, improving market efficiency and transparency, enhancing user access and providing flexibility for future business growth and market needs. BSE is also considering consolidating its infrastructure and services by moving its key systems to private, public and hybrid cloud-based platforms, which will allow it to leverage infrastructure sharing, service utilization and host of other cloud-based facilities.

• Establish an international exchange and an international clearing corporation at GIFT City: The company intends to operate an international exchange and an international clearing corporation at GIFT City, a multi services Special Economic Zone that is currently being developed as India's first international financial services center. With the approval from the board of directors, in Sept. 2016, it has incorporated BSE International Exchange (IFSC) Ltd., and BSE International Clearing Corporation (IFSC) Ltd. The company has received approvals from the Joint Development Commissioner of the Kandla Special Economic Zone to set up the international exchange and the international clearing corporation in GIFT City, subject to compliance with conditions specified in such approvals.

• Capture growth in the underpenetrated Indian financial markets: With a growing young population in India, more investors are likely to enter the market in the coming years. In order to capture growth in the Indian market, BSE undertakes routine outreach and advertising programs, such as through educational activities targeted towards youths to teach them about the benefits of investing in securities, and through investor awareness activities designed to facilitate an “equity culture” in India. In addition to investor outreach, the company also plans to design platforms and products targeted towards specific demographics in India, such as a mobile phone enabled trading platform, targeted towards the growing number of mobile phone users in India. With such initiatives, it is planning to capture the under penetrated financial market in India.

Risk and Concerns: • Subdued economic activities • Uncertain market activities • Unfavorable transaction charges • Lower interest rate to limit growth in the treasury income

IPO Update

IPO UPDATE 12

Peer Comparison:

Company Name Currency CMP MCAP (mn) Total Operating Revenue ( mn)

EBITDA (mn)

PAT (mn) EBITDA Margin

(%) PAT Margin

(%)

BSE Ltd. INR 806 43,265 6,162 2,584 1,691 41.9% 27.4%

Multi Commodity Exchange of India Ltd. INR 1,210 61,695 2,368 852 1,315 36.0% 55.5%

Hong Kong Exchanges and Clearing Ltd. HKD 188 230,046 10,503 7,858 6,055 74.8% 57.7%

Deutsche Boerse AG EUR 76 14,699 2,371 1,363 814 57.5% 34.3%

Intercontinental Exchange, Inc. USD 57 33,931 4,236 2,731 1,504 64.5% 35.5%

Singapore Exchange Ltd. SGD 8 8,062 789 446 338 56.5% 42.8%

ASX Ltd. AUD 49 9,484 748 576 427 77.0% 57.1%

London Stock Exchange Group Plc. GBp 30 10,544 1,410 654 273 46.3% 19.3%

Nasdaq Inc. USD 67 11,078 3,596 1,121 566 31.2% 15.7%

TMX Group Ltd. CAD 70 3,864 730 365 207 50.1% 28.3%

Bolsas Y Mercados Espaneoles Socdad Holdings EUR 28 2,375 319 222 163 69.6% 51.3%

BM&F Bovespa SA BRL 18 32,398 2,240 1,546 1,405 69.0% 62.7%

JSE Limited ZAC 158 13,743 2,134 1,101 884 51.6% 41.4%

Average 57.0% 41.8%

Company Name EPS (Rs.)

BVPS (Rs.)

DPS (Rs.)

Debt Equity Ratio

Asset Turnover Ratio

RoE (%)

RoCE (%)

P / E (x)

P / B (x)

EV / Sales (x)

EV / EBITDA (x)

MCAP / Sales (x)

BSE Ltd. 31.5 530.5 8.1 0.0 0.1 5.9% 6.7% 25.6 1.5 3.5 8.4 7.0 Multi Commodity Exchange of India Ltd. 25.8 257.7 6.5 0.0 0.1 10.0% 4.9% 46.9 4.7 20.4 56.8 26.1 Hong Kong Exchanges and Clearing Ltd. 4.9 24.5 2.5 0.1 0.0 20.2% 20.7% 38.0 7.7 12.2 16.4 21.9 Deutsche Boerse AG 4.2 19.1 2.0 0.7 0.0 22.0% 8.6% 18.1 4.0 7.0 12.2 6.2 Intercontinental Exchange, Inc. 2.5 25.0 0.7 0.5 0.1 10.1% 9.3% 22.6 2.3 9.6 14.9 8.0 Singapore Exchange Ltd. 0.3 0.9 0.3 0.0 0.4 34.1% 38.7% 23.9 8.1 9.1 16.1 10.2 ASX Ltd. 2.2 19.8 1.9 1.6 0.1 11.2% 13.1% 22.2 2.5 11.4 14.8 12.7 London Stock Exchange Group Plc. 0.8 9.1 0.3 0.5 0.0 8.5% 14.0% 38.7 3.3 8.0 17.2 7.5 Nasdaq Inc. 3.4 34.0 1.1 0.4 0.3 10.1% 10.8% 19.6 2.0 3.6 11.5 3.1 TMX Group Ltd. 3.8 51.2 1.6 0.2 0.0 7.3% 7.0% 18.7 1.4 5.9 11.7 5.3 Bolsas Y Mercados Espaneoles Socdad Holdings

2.0 5.2 1.8 70.9 0.0 37.7% 47.4% 14.5 5.5 6.4 9.3 7.5

BM&F Bovespa SA 0.8 10.1 0.6 0.1 0.1 7.7% 8.4% 23.1 1.8 11.9 17.2 14.5 JSE Limited 10.2 34.0 6.2 0.0 0.1 29.9% 32.5% 15.5 4.6 5.5 10.7 6.4 Average 2.1 6.3 0.1 0.2 0.2 25.1 4.0 9.3 17.4 10.8

Source: Choice Broking Research, Company RHP

Source: Choice Broking Research, Company RHP

At the higher price band of Rs. 806 per share, BSE’s share is valued at a P/E multiple of 25.6x (to its restated FY16 EPS of Rs. 31.5), which is in line with the global listed peer average of 25.1x. However, on other valuation metric it is at a significant discount to its peer average.

IPO Update

IPO UPDATE 13

Peer Comparison (Contd…): Below are few key observations of the issue: • BSE is the oldest stock exchange in Asia and would be the first multi-platform stock exchange in the domestic market to

get listed. With solid brand recognition, the company might get first movers advantage.

• The equity market is expected to benefit from the recent demonetization exercise, which led to a fall in the interest rate and lower demand for other asset class like gold. As equity investment have outperformed in terms of return over the period of time over other asset classes, we feel that most of the investment will come to equity market, which will be positive for BSE.

• Transaction charges, one of its core operating services has increased by 9.9% CAGR over FY12-16. With the help of

government tax incentives for equity market investment and increasing equity market penetration among the populations, this business line is expected to continue to show healthy growth rate going forward.

• Another core operating service is the listing fees, which increased by 33% CAGR over FY12-16. Being a sticky business (BSE charges a listing fees from the listed companies, like annuity payment) it is also expected to post a consistent growth going forward.

• Globally, the information services contribute around 10-25% of the total revenue for the exchanges. As of FY16, BSE generated around 5.3% of the core operating revenue from the data dissemination business. This offers huge future growth potential for the company.

• As per SEBI regulation, with effective from 01st Apr. 2017, stock exchanges are not required to hold more than 24% stake in depositaries. Currently, BSE has around 50% stake in CDSL, which is scheduled to hit the equity market with an IPO in near term. Post the IPO of CDSL, BSE stake will reduce to around 24% and CDSL will cease to be the subsidiary of BSE. As of FY16, depositary services contributed around 29% to the total core operating revenue of the company. Without CSDL consolidation, BSE’s top-line and bottom-line are likely to get reduced. However, we are of the opinion, that growth across the existing business and additional revenue source coming in for BSE, are expected to partially offset the impact from the disinvestment of CDSL.

• BSE has a mutual fund investment platform (BSE StAR), with a market share of 70-75%. The number of mutual fund schemes available on this platform increased from 5,724 in FY14 to 5,989 in FY16 and 6,303 in H1 FY17. Till recent times, its mutual fund investment platform was free for the user and has around 6 lakhs transactions per month. From Dec. 2016, the company has started charging for these transactions and thus will be a new revenue source for it.

• The company is in the process of launching various innovative products like, listing of startups (BSE Hi-Tech), market for sovereign gold bonds, index based products for national & international investors etc. These products will be an additional source of revenue for it and will increase its product offerings.

• BSE has maintained a healthy balance sheet and has sufficient funds for future requirement. Over FY12-16, the company has maintained a dividend payout ratio of around 35% and has guided to maintain the same in future. This might be one of the investment rationales for the investors.

• One of the concerns for the company is the higher proportion of treasury income in total operating income. As of FY16 and H1 FY17, BSE generated around 30% of the total operating revenue from the treasury operations, which in turn mainly depends in the interest rate regime in the country. With lower interest rate anticipated for short to midterm, the income from the treasury operations would be impacted.

• At the higher price band, BSE is demanding a MCAP of Rs. 43,265mn. As of H1 FY17 end, the company has liquid investments and cash balance of Rs. 24,921mn. Additionally, assuming Rs. 10,000mn valuation for the CDSL, the core operations of BSE is valued at around 8,300mn, which is very reasonable and attractive.

Thus, considering the business outlook and attractive valuation demanded by the company, we recommend a “SUBSCRIBE” rating for the public issue.

IPO Update

IPO UPDATE 14

Financial Statements:

Source: Company RHP

Source: Company RHP

Consolidated Profit and Loss Statement (Rs. mn) FY12 FY13 FY14 FY15 FY16 H1 FY17

Total Operating Income 5,377.0 5,095.5 4,850.6 5,837.1 6,161.9 3,533.6 Employee Benefits Expense (749.2) (772.4) (853.7) (998.7) (1,115.5) (640.0) Administration and Other Expenses (1,439.0) (1,648.3) (1,570.0) (2,195.7) (2,462.1) (1,263.6) EBITDA 3,188.8 2,674.8 2,426.9 2,642.7 2,584.3 1,630.0 Depreciation (340.7) (283.1) (323.5) (587.7) (616.8) (246.1) EBIT 2,848.1 2,391.7 2,103.4 2,055.0 1,967.5 1,383.9 Interest (13.6) (24.5) (3.8) (6.6) (6.7) (6.0) Other Income 409.6 433.9 447.6 410.4 420.8 301.1 Exceptional Items (604.9) (979.1) (612.9) (507.5) (466.0) (207.9) PBT 2,639.2 1,822.0 1,934.3 1,951.3 1,915.6 1,471.1 Tax Expenses (642.6) (376.9) (339.9) (437.8) (324.1) (223.6) PAT 1,996.6 1,445.1 1,594.4 1,513.5 1,591.5 1,247.5 Extraordinary Items (4.9) 5.7 Share of Loss of Associate (4.1) (3.3) (4.1) (2.8) (2.7) Minority Interest (268.1) (248.5) (244.1) (213.3) (363.5) (198.2) Reported PAT 1,724.4 1,188.4 1,351.9 1,297.4 1,225.3 1,049.3 Adjusted PAT 2,329.3 2,172.4 1,959.1 1,804.9 1,691.3 1,257.2

Consolidated Balance Sheet Statement (Rs. mn) FY12 FY13 FY14 FY15 FY16 H1 FY17

Equity Capital 103.5 103.7 103.8 107.3 107.4 107.4 Reserves & Surplus 22,093.8 22,785.7 23,603.9 24,501.6 24,385.4 25,421.8 Core Settlement Guarantee Fund 2.2 8.1 56.3 1,112.3 1,760.5 1,920.6

Share Application Money Pending Allotment 0.1 0.1 0.1 0.1 0.1 0.1

Minority Interest 1,553.2 1,733.3 1,875.4 1,986.4 2,223.1 2,277.2 Deferred Tax Liabilities (Net) 56.1 55.3 95.9 26.7 1.5 2.4 Long Term Borrowings 13.1 35.6 18.8 Other Long Term Liabilities 292.9 316.9 286.3 449.9 520.6 537.0 Long Term Provisions 8.9 3.7 4.2 7.7 8.0 11.2 Deposits from Trading Members 2,530.0 2,435.0 310.0 190.0 190.0 172.5 Short Term Borrowings 3,060.5 8.7 Trade Payables 430.8 370.8 469.5 580.5 696.6 774.1 Other Current Liabilities 8,402.1 11,026.2 13,308.9 12,144.0 11,391.2 12,936.8 Short Term Provisions 833.2 600.8 581.7 831.1 766.5 362.3 Total Liabilities 39,367.3 39,448.3 40,709.1 41,973.2 42,069.7 44,523.4

Goodwill on Consolidation 850.4 850.4 850.4 850.4 850.4 850.4 Tangible Assets 881.8 880.2 851.1 1,363.0 1,434.5 1,396.8 Intangible Assets 103.5 206.5 201.9 292.3 185.0 178.6 Capital Work in progress 168.7 200.6 324.2 30.5 6.0 74.6 Intangible Assets Under Development 34.0 4.4 14.5 6.1 20.3 18.1 Non Current Investments 8,186.2 5,273.2 11,252.3 14,102.3 15,250.8 13,639.2 Deferred Tax Assets (Net) 32.1 54.1 47.4 63.1 107.8 114.1 Long Term Loans and Advances 306.6 563.5 790.6 856.3 1,203.9 1,006.7 Other Non Current Assets 14.7 18.8 29.3 21.0 15.0 5.7 Current Investments 5,687.9 8,262.9 10,611.0 8,659.5 5,372.8 8,000.2 Trade Receivables 338.9 344.0 344.3 360.0 479.9 638.9 Cash and Bank Balances 22,202.5 20,484.3 14,694.6 14,524.8 16,100.8 16,920.9 Short Term Loans and Advances 109.7 149.0 168.8 247.0 197.0 543.2 Other Current Assets 450.3 2,156.4 528.7 597.2 845.5 1,136.0 Total Assets 39,367.3 39,448.3 40,709.1 41,973.5 42,069.7 44,523.4

IPO Update

IPO UPDATE 15

Financial Statements (Contd…):

Source: Company RHP

Source: Company RHP

Consolidated Cash Flow Statement (Rs. mn)

Particulars (Rs. mn) FY12 FY13 FY14 FY15 FY16 H1 FY17

Cash Flow from Operating Activities (969.2) 1,738.4 1,728.4 (1,528.2) (491.2) 2,138.2

Cash Flow from Investing Activities 2,698.9 999.9 (747.6) 3,687.1 1,646.3 (2,455.7)

Cash Flow from Financing Activities 2,596.4 (3,994.5) (2,711.2) (454.7) (1,217.0) (679.4)

Net Cash Flow 4,326.1 (1,256.2) (1,730.4) 1,704.2 (61.9) (996.9) Cash and Cash Equivalent at the Beginning of the Year 367.8 4,693.9 3,437.7 1,734.0 3,438.2 3,376.3 Cash and Cash Equivalent at the End of the Year 4,693.9 3,437.7 1,707.3 3,438.2 3,376.3 2,379.4

Consolidated Financial Ratios

Particulars (Rs. mn) FY12 FY13 FY14 FY15 FY16 H1 FY17

Revenue Growth -5.2% -4.8% 20.3% 5.6%

EBIDTA Growth -16.1% -9.3% 8.9% -2.2%

EBIDTA Margin 59.3% 52.5% 50.0% 45.3% 41.9% 46.1%

EBIT Growth -16.0% -12.1% -2.3% -4.3%

EBIT Margin 53.0% 46.9% 43.4% 35.2% 31.9% 39.2%

Reported PAT Growth -6.7% -9.8% -7.9% -6.3%

Reported PAT Margin 43.3% 42.6% 40.4% 30.9% 27.4% 35.6%

Liquidity Ratios

Current Ratio 2.3 2.6 1.8 1.8 1.8 1.9

Debt Equity Ratio 0.1 0.0 0.0 0.0 0.0 0.0

Turnover Ratios

Trade Receivable Turnover Ratio (x) 14.9 14.1 16.6 14.7 6.3

Accounts Payable Turnover Ratio (x) 12.7 11.5 11.1 9.6 4.8

Fixed Asset Turnover Ratio (x) 2.6 2.4 2.2 2.3 2.5 1.4

Total Asset Turnover Ratio (x) 0.1 0.1 0.1 0.1 0.1 0.1

Return Ratios

RoE (%) 9.8% 8.8% 7.6% 6.5% 5.9% 4.2%

RoA (%) 5.9% 5.5% 4.8% 4.3% 4.0% 2.8%

RoCE (%) 10.7% 8.7% 8.0% 7.2% 6.7% 4.5%

Per Share Data

Restated Adjusted EPS (Rs.) 43.4 40.5 36.5 33.6 31.5 23.4

Restated DPS (Rs.) 11.8 7.9 7.9 10.2 8.1 0.0

BVPS (Rs.) 442.5 458.9 477.7 516.2 530.5 553.8

Restated Operating Cash Flow Per Share (Rs.) (18.1) 32.4 32.2 (28.5) (9.2) 39.8

Restated Free Cash Flow Per Share (Rs.) 40.0 (27.2) 167.9 48.6 43.2 (35.4)