Stock Of The Day: BSE Tanks On SEBI Directions — Analyst Views, Key Levels To Watch

Shares of BSE Ltd. tumbled 18.64% to Rs 2,612.1 apiece during opening trade on Monday after the Securities and Exchange Board of India instructed the exchange to pay its regulatory fee based on the annual turnover of the company by considering the "notional value" in case of options contracts.

Shares of the company traded 17.15% lower at Rs 2,659.9 a piece, compared to the 0.42% gain in the Nifty 50 as of 9.29 a.m.

• Support: Rs 1,950 (Two-month Low)

• Resistance: Rs 2,950

SEBI has asked BSE to pay the regulatory fees based on their annual turnover by considering the "notional value", which is the total value of the underlying asset in an option contract.

Since the introduction of derivatives contracts in June 2000, BSE has been paying its regulatory fee to SEBI based on the annual turnover while taking into account the "premium value", which is the upfront value paid to buy an option contract. Norms dictate that the fees must be based on the notional value of option contracts.

In addition, the fees paid to SEBI by BSE for FY07 were only for a quarter instead of a full year. The exchange will now have to pay up the differential amount in fees, along with 15% interest per year.

While the BSE is currently evaluating the validity of the notice, if ascertained, the company would be liable to pay around Rs 68.64 crore of total differential SEBI regulatory fees for the past periods of FY07–23.

For FY24, the exchange would be liable to pay Rs 96.30 crore plus GST. The due date for payment of the SEBI regulatory fee for FY 2023–24 is April 30, 2024, according to an exchange filing.

Following the SEBI notice, brokers have turned bearish on the stock's earnings outlook.

Jefferies downgraded BSE's rating to "hold" from "buy" earlier and cut the target price to Rs 2,900 apiece, implying a 10% downside from the stock's previous close. The brokerage noted that the 'derivatives' segment makes up 40% of BSE's FY25/26 net profit estimates, and the higher fees would impact EPS negatively by 15–18%. Jefferies expects price hikes to offset two-third of the impact immediately, with the BSE bringing prices on par with the NSE.

Investec also changed its stance on BSE to "under review" from a "buy" earlier. The brokerage said SEBI's directive could impact BSE's profit before tax by 17–18% for FY25–26. Investec noted that the BSE could offset the impact by taking price hikes or making a one-time provision of Rs 96.3 crore for FY24.

IIFL Securities, on the other hand, maintained a 'buy" rating on BSE but cut the target price to Rs 2,550 apiece from Rs 3,100 apiece earlier, implying a 20% downside. The brokerage expects a 40–50% earnings cut for the exchange. It expects a 30–40% cut in FY25–26 EPS estimates due to a one-time cost of Rs 165 crore and recurring expenses. IIFL did note that BSE could increase its option tariff by 44% to offset the impact.

Out of seven analyst tracking the company, four have a 'buy' rating on the stock and three suggest a 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 18.6%.