Q1 Results: BSE’s Revenue Drops On Employee And Regulatory Costs

BSE Ltd.’s revenue and earnings slumped in the quarter ended June as employee and regulatory expenses rose and revenue from smaller stocks shrank for Asia’s oldest exchange.

The benchmark index’s revenue dropped 2.3 percent year-on-year to Rs 112 crore in the first quarter and its net profit slumped about 20 percent to Rs 41 crore, according to its filing.

The overall income remained stable but two large expenses increased, namely employee wages and regulatory fees, its Managing Director and Chief Executive Officer Ashishkumar Chauhan said. The BSE’s newly launched commodities’ market employed additional employees for longer hours due to which wages shot up, he said.

While listing fees increased on the one hand, bringing in more revenue, a spike in regulatory expenses also weighed on the BSE’s bottom line, he said. “On top of that, some of the other employees which were part of other funds have now been made part of BSE’s own payroll because of regulatory dictates and that has increased overall expenses.”

A drop in volume and value of smaller stocks, a key revenue source for the BSE, also weighed on the Mumbai-based exchange. “A large amount of transaction charges come from smaller stocks, which have gone down by up to 80 percent. That’s why overall revenue is coming down,” he said.

But the CEO said things may improve as volumes from interoperability, an option that allows market participants to trade across exchanges at lower overall costs, start flowing in. “Post interoperability, implemented after nine years two weeks back, we have seen an increase in trading volumes.”

The BSE’s Star MF Platform also is doing “exceedingly well”, Chauhan said. “Two years back, it (Star MF) was earning zero but the transaction charges from that have almost now caught up over the main equities market,” he said. “Almost 80 percent of equities market revenue is now coming from Star MF platform, so it has performing even beyond our expectations.”

According to Chauhan, the BSE has a good market share in currencies while SMEs, bonds, and IPOs we have 60 plus market share. He expects interoperability to bolster growth and volumes as equity and equity derivatives continue to face challenge. “It remains to be seen how brokers and market participants perceive this shift in interoperability.”

Q1 Earnings Highlights (Consolidated, Year-On-Year)

• Revenue down 2.3 percent to Rs 112 crore.
• Net Income down 19.7 percent to Rs 41.4 crore.
• Ebitda down 69 percent to Rs 5.5 crore.
• Margin at 5 percent versus 15.5 percent.

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