National

 Stock  Exchange  of  India  Ltd.  

October  2018  

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Key Highlights

§ NSE is India’s largest stock exchnage overall and second largest in the world for
derivative trading volume.
§ NSE has close to 100% market share in Equity Derivative and Cash segments which form
the biggest (80%) revenue share among all exchange traded products. It also has
largest market share in all almost all other segments.
§ NSE is the clear leader in terms of trading liquiduty in all segments and has superior
technology framework to maintain its business lead and innovation
§ New Opportunities in Commodities Trading, IFSC GIFT CITY, Masla Bonds and Bullion
Exchnage hold promise.
§ NSE has far superior RoE and Net Profit Margin than its nearest competitors – BSE and
MCX, thus justifying a superior valuation befitting a monopolistic leader
§ Secondary market exit for investors soon as NSE is likely to get listed in near future
§ The floor price offer of Rs.824 is 12% below the current traded price in grey market
§ The fair value of the stock based on trading comparables is between Rs.1040 – Rs.1190.

TRADING COMPARABLES
EBIDTA (Rs. Net Profit EPS (Rs.) RoE (%) Mkt Cap EV / EBIDTA PE (x)
Cr) (Rs. Cr) / Sales (x) (x)
NSE 2201 1461 29.5 20%
BSE 321 237 43 7% 7x 8x 15x
MCX 160 106 21 8% 15x 21x 37x

Given its near monopoly status, superior RoE, superior profit margin, it would be fair to
asume 20% higher valuation than MCX the other exchange with a near monopoly status in
one segment.

Fair Value of NSE’s Equity as per Trading Comparables

Mkt Cap / Sales (x) EV / EBIDTA (x) PE (x)
20 25 40
Per Share Vale Per Share Value Per Share Value
Rs. 1040 Rs.1100 Rs.1180

Transaction Details
§ Union Bank of India inviting bids for 20.21 lac shares at a floor price of Rs.824
§ Bids have to be submitted through a registered Category I Merchant Banker by
October 30, 2018.
BACKGROUND
Launched in 1994, the National Stock Exchange (“NSE”, the “Exchange”) is India’s leading
stock exchange and the 2nd largest in the world by volume of derivatives traded during
Jan-Jun 2018 (Source: World Federation of Exchanges Report)

The growth of capital markets and exchange traded volume is directly proportional to the
country’s economic growth, reforms and widening of wealth distribution in the economy.
India is presently ranked 5th among world economies but its stock market capitalization is
ranked 8th presently. The market capitalisation to GDP ratio is likely to further improve with
greater generation and distribution of wealth in the economy. As India is projected to grow
to third largest econoy in the world, its stock market capitalization is likely to follow suit. And
NSE is best positioned to benefit from the upswing.

A Dominant Leader
Among all the financial products traded on exchange, Equity Derivatives and Cash
segments have the biggest share as detailed in the table below.

Market Segment Comparative

Equity Equity Commodity Currency

Derivative Cash
Revenue Market Share (FY18) 70% 19% 8% 3%
10 yr Growth Rate 80% 6% -10%* 0%
No of Exchanges** 2 2 5 4
Ease of Product Innovation High High Moderate Low
Regulator One One One Two
Overall Segment High High Moderate Low
Attractiveness
*Last 5 years growth

And NSE dominates across exchanges across products - Segment wise Market Share %

NSE BSE MSE MCX NCDEX

Equity Cash 84 16 0 - -
Equity Derivatives 99 1 0 - -
Currency Derivatives 58 36 6 - -
IRF 70 30 0 - -
Corporate Bonds 80 20 0 - -
SME Trading 35 65 0 - -
ETFs 77 23 0 - -
MF Distribution 24 76 0 - -
Agri Commodities - - - 15 85
Non Agri Commodities - - - 99 1
Source: Exchange Annual Reports
NSE’s Superior Product Innovation

NSE pioneered derivatives and technological revolution in capital markets in early 90s.
Since then, it has continued to introduce new and innovative products and has
continuously evolved its technological offerings. NSE has successfully maintained its
monopoly status in equity segment and is clear market leader in most other segments.

Recent Product Innovations By NSE

Nifty Minismaller lot size to attract small investors

Long Dated Optionslonger duration to attract corporates
Weekly Optionsreduced settlement period to reduce premium pricing
Mutual Fund Service Systemonline MF platform for distributors and WMs
NSE
Futures on Volatility (VIX)leveraging its flagship index
NSE Bond Futuresleveraging bond trading platform
REITs and InvITcatching the emerging trend of real estate investments
Green Bondscapitalizing the opportunity of green focus

NSE’s dominance in the whole eco-system of Capital Markets

NSE has over te years invested in developing several

NSE’s Subsidiaries
other businesses through subsidiary structures, which NSCCL
are crtical in maintianing its leadership status. These NSE Infotech Services
subsidiaries are involved in creating of IT India Index Services
infrastructure, software and solutions, Product DotEx International
Development, Spread of Financial Literacy, Clearing NSEIT
and Depository services. All the subsidiraies of NSE are NSEIT (US)
profit making and ad to the core business strength. NSE Academy
NSE IFSC
NSE IFSC Clearing Corporation

NSE’ Global Tie-Ups

Financial markets are globally linked with one market segment and geography feeding
into the other’s business. Similarly, technology and its use is a global commodity, which
cannot be contained rather should be leveraged wherever possible. The leading
exchanges have done several global tie ups for product and technology development,
cross leverage and trading of their products.

NSE’s Global Tie Ups

CME Group – Cross Listing and License agreement
FTSE – Licensing FTSE100 Index to India and Nifty 50 to FTSE
Colombo Stock Exchange – Surveillance system
Chittagong Stock Exchange – Index Creation
Comparative revenue streams across exchanges
All values in %
Revenue Contribution NSE BSE MCX NCDEX MSE
Transaction Fee 65.0 28.0 77.0 49.0 18.0
Listing / Admission Fee 4.5 29.0 2.0 3.0 30.0
Technology Services 9.0 1.0 3.0 2.0 10.0
Data Feed 4.0 1.0 1.5 2.0 1.0
Book Building 0.5 5.0
Index License 3.0
Knowledge Certification 1.0 3.0
Treasury 13.0 33.0 16.5 44.0 41.0
Source: FY17 Annual reports

NSE has amongst the highest revenue contribution from transaction revenue which is the
mark of sustainable market share and leadership. Because of its dominant position in
trading volume acrosss product segments, it is able to generate substantial revenue from
other streams, thus leveraging its assets and network.

New Initiatives
o Launched commodity trading in October 2018
o To enter spot bullion exchange
o Dual Listing of Masala bonds with LSE

Historial P&L
Particulars FY 18 FY 17 FY 16
Operational Income 2,609 2,104 1,864
Other Income 423 577 496
Total Income 3,033 2,681 2,359
Admin & Other Expenses 958 884 721
Operating Profit 0 0 0
EBITDA 2,075 1,797 1,638
Interest 0 0 0
EBDT 2,075 1,797 1,638
Depreciation 126 118 109
EBT 2,071 1,657 768
Tax 0 556 337
PAT 1,461 1,101 431
Minority Interest 9 26 -91
Total profit (loss) for period 1,453 1,074 522
EPS (Rs) 29.52 24.62 12.74
 Historical Balance Sheet
FY18 FY17 FY16
Liabilities
Share capital 50 50 45
Reserves and surplus 7,300 7,160 6,823
Total shareholders' funds 7,350 7,210 6,868
Deferred tax liabilities (net) 157 119 91
Other long-term liabilities 15 15 14
Long-term provisions 2,455 1,994 1,694
Total non-current liabilities 2,627 2,128 1,799
Short-term borrowings 1,916 1,803 1,675
Trade payables 129 97 66
Other current liabilities 6,144 8,199 3,184
Short-term provisions 61 57 49
Total current liabilities 8,250 10,157 4,974
Total equity and liabilities 18,226 19,494 13,641

Assets
Tangible assets 567 564 522
Intangible assets 151 148 137
Total fixed assets 718 711 659
Non-current investments 4,148 3,717 3,918
Deferred tax assets (net) 281 309 286
Other non-current assets 1,090 1,249 591
Total non-current assets 6,238 5,986 5,453
Current investments 2,874 2,868 3,186
Trade receivables 398 314 279
Cash and bank balances 8,345 10,102 4,507
Other current assets 372 224 216
Total current assets 11,988 13,508 8,188
Total assets 18,226 19,494 13,641

LATEST TRANSACTION DETAILS

Date Amount (Rs. Cr) Investors Stake (%) Price per share (Rs.)

Feb-18 640 IIFL VC na 900

Mar-18 93 Undisclosed (Sold by IFCI) 0.22% 873
Source: Secondary Research

Disclaimer  
This   report   is   prepraed   in  the  nature   of   an   Information   Memorandum   and   should  not  b e   construed   as   an   investment  
recommendation.   Public   information   and   data   have   been   relied   upon   for   prepration   of   this   report.   AbRe   Business  
Advisors  is  not  a  registered  Investment  Advisor.