George Soros Bets on BSE…Picks up 4% of its Equity for US $ 35 M => Rs 380/share…Let’s Update BSE Value

George Soros’ Quantum Fund has purchased a 4% Equity Stake in BSE from shareholder Dubai Financial for US $ 35 Million…this works out to @ Rs 380/share

In December 2009 I had updated the Value of the BSE Share which I had initiated in August 2008

Updated Valuation of BSE Ltd (December 8,2009) and

SHARES OF BSE LTD LOSING VALUE (August 5,2008)

So what’s the BSE Value in August 2010 ?

Let’s have a look at it’s latest unaudited performance for Q 1 FY 11

Bombay Stock Exchange Limited
Unaudited Financial Results for the quarter ended June 30, 2010
Particulars Quarter ended
30-06-2010
Quarter ended
30-06-2009
Year ended
31-03-2010
(Audited)
Rs. in Crores
Average Daily Turnover 4,334 6,298 5,651
Income from :
– Trading Members 25.51 37.59 134.44
– Investment & Deposits 62.20 60.75 245.72
– Services to Corporates 14.64 8.15 59.14
– Training Institute 1.37 1.19 5.81
– Other Income 9.88 8.04 40.10
Total Income 113.60 115.72 485.21
Expenditure :
– Employee Costs 14.19 9.01 55.86
– Computer Technology Related Expenses 12.75 11.07 60.63
– Advertising & Marketing Expenses 0.58 0.26 2.04
– Administration & Other Expenses 10.55 11.60 43.55
– Depreciation 7.42 5.51 34.89
Total Expenditure 45.49 37.45 196.97
Profit Before Interest & Tax 68.11 78.28 288.24
Interest 0.24 0.01 0.04
Profit Before Tax 67.87 78.27 288.20
Tax Expenses 17.10 21.00 75.26
Profit After Tax 50.77 57.27 212.94
Earning Per Share – Basic & Diluted (Rs.) 4.42 5.16 18.30
Paid-up Equity Share Capital
(Face Value Re.1/-)
10.34 10.29 10.33
Reserves as at March 31, 2010 —- —- 1,881.74
Notes to Accounts:
  1. The above-unaudited financial results for the Quarter ended June 30, 2010 have been reviewed by the Audit Committee and approved by the Board of Directors at its meeting held on July 30, 2010.
  2. The Statutory Auditors have carried out a Limited Review of the financial results for the Quarter ended June 30, 2010.
  3. The Company operates only in one Business Segment i.e. “Facilitating Trading in Securities and other related ancillary Services” and hence does not have any reportable Segments as defined by Accounting Standard 17.
  4. The Company appropriates income earned (net of taxes) on earmarked funds to the respective fund balances under Reserves & Surplus. Earnings per share for the respective periods is computed after adjusting for appropriations in respect of earmarked funds.
  5. During the current quarter, the Company acquired additional equity shares of Central Depository Services (India) Limited (CDSL). Accordingly, CDSL became a subsidiary of the company in June, 2010.
  6. The Company in the current quarter has distributed dividend of Rs. 4/- per share aggregating Rs. 49.32 Crores (including Dividend Distribution Tax) as declared in its Annual General Meeting held on May 29, 2010.
  7. Previous period figures have been regrouped and rearranged, wherever necessary to make them comparable.
Place : Mumbai
Date : July 30, 2010
For and on behalf of the Board
Sd/-
(Madhu Kannan)
MD & CEO

Clearly BSE is facing challenges….Average Turnover is declining…Profits are just about being maintained….if it were not for the cushion of  Income from Investments and Deposits,it would have a tough time meeting expenses

Current View on BSE Valuation

Let’s assume BSE just about maintains Profits in FY 11…this would mean a Net Profit of over Rs 200 crs and an EPS of Rs 19 and a 20 Multiple would mean Rs 380….thats what Soros has purchased into BSE at right now

The Reserves at March 31,2010 are Rs 1882 crs…these should move to @ Rs 2050 crs net of Dividend at March 31,2011…With Equity at Rs 10.34 crs the Networth should move from Rs 1892 crs in FY 10 to @ 2060 crs in FY 11…Thus Book Value would be @ Rs 200….At Two Book Multiple the BSE Share will be valued at Rs 400

BSE will face increasing Competition from existing and newer Equity Exchanges

Competition should be hotting up…BSE has lost ground in both Spot and Derivatives markets to NSE…In fact Derivatives has been a still born baby on BSE…..Now it will have MCX to contend with also…SEBI has been delaying giving the Green Signal to MCX to commence Equity Trading….MCX has gone to Court and SEBI has been directed to make a decision by September 30,2010 on this

Financial Gleanings from the Annual Report of BSE for FY 10

  • BSE’s Networth of Rs 1892 crs at March 31,2010 is represented by Net Fixed Assets of Rs 85 crs,Investments of Rs 1917 crs ( Long term Rs 1383 crs and Current Rs 534 crs),Net Current Assets of Rs 169 crs net of Deposits from Members of Rs 278 crs and Other liability of Rs One Cr
  • Net Fixed Assets of Rs 85 crs includes Freehold Land of Rs 10 crs and Buildings of Rs 9.4 crs….BSE’s 28 storey Jeejeebhoy Towers (not all is owned by BSE) and the Rotunda are icons for India’s Equity Markets….surely their Value is significantly much more…Tangible Fixed Assets are stated at Cost less accumulated Depreciation and Impairment…would be interesting and serve the need for more transperancy if a small note on potential revaluation is included in the Annual Report
  • Investments have a market value of just @ Rs 40 crs more than on Books at March 31,2010
  • Total Income includes Rs 59 crs from Services to Corporates….this constitutes Rs 19 crs as Listing Fees,Rs 10 crs from Bookbuilding Software and Rs 30 crs from Other Services
  • Total Income also includes Rs 40 crs from Income from Other Services…these largely constitute Rs 13.5 crs from Rent and Maintenance,Rs 18.8 crs from Data Dissemination Fees (Rs 14.7 crs from Overseas) ad Rs 7.5 crs Miscellaneous Income

Conclusion

India Vision 2025 clearly sees India Poised to move smartly ahead in context of Sensex,Market Capitalisation and Equity Fund Inflows

BSE may face increased compettion from the likes of NSE and MCX and any others that may emerge….but the Pie is increasing in Size and BSE will strive to cut out a good piece for itself

A New Professional Team is now at the helm and a lot of ‘excess baggage and complacency’ is being dealt with…surely some good must come out of this….the true test is whether BSE is able to revive Turnover Volumes in Spot and bring to Life it’s F & O Market

BSE is debt free….It clearly has Land and Building Value in excess of what it shows under Fixed Assets

It needs to meet Annual Expenses of @ Rs Rs 180 to Rs 200 crs….Rs 50 crs for Computers,Rs 50 crs for Staff (over 500 Employees),Rs 40 crs for Admin & other Expenses and Rs 40 crs for Depreciation (Non Cash)…It earns Rs 245 crs from Income only from Investments and Deposits…this is thus it’s cushion….Contingent Liabilities reveal Rs 107 crs as possible legal claims against BSE of which Rs 103 crs have been assessed as remotely materialising

In this context paying Rs 380 to Rs 400 for a BSE Share is not really unjustified

My Intuition…reason in a hurry….. tells me that even if the View is Long term,an Investment in BSE Shares may just give you a healthy return even in the short to medium term

At Rs 380,BSE is valued just under Rs 4000 crs or under a Billion Dollars

The Future ahead may be challenging…but in these challenges lie the Opportunities on Scale ….and a Listing of BSE (delayed but should happen) will surely unlock this Potential going forward

Oh ! and BSE has contributed nearly Rs 4 crs to SEBI in FY 10

Cheers !

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