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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to BSE's Q3 FY '19 Earnings Conference Call. My name is Basu, and I will be the moderator for the -- today's conference. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Yatin Padia, the Chief Investor Relation Officer, BSE Limited. Thank you, and over to you, sir.
Hello, everyone, and welcome to BSE's earning call to discuss Q3 FY '19 results.This is Yatin, the Chief Investor Relation Officer. Joining us today on this earning call is BSE's leadership team, consisting of Ashish Kumar Chauhan, Managing Director and Chief Executive Officer; Mr. Nayan Mehta, Chief Financial Officer; Mr. Neeraj Kulshrestha, Chief of Business Operation. Do note that the conference is being recorded, and transcript of the same will be available on our website. The financial results and investor presentation are also available on our website.I would now request Mr. Ashish Kumar Chauhan to give a brief overview of company's performance followed by Q&A session. Please note that BSE does not provide any specific revenue or earning guidance. Anything said on this call which reflects BSE's outlook for the future or which would constitute of -- as a forward-looking statement must be reviewed and in conjunction with the risks the company faces. With this, I would like to turn the call over to Ashish Kumar Chauhan.
Thank you, Yatin. Good morning, good afternoon, and good evening to all of you wherever you are. We are happy to inform you that BSE has launched BSE Startups on 22 December 2018. As part of the launch, the leading bourse has signed MOU with Cornerstone Ventures Investment Advisers and Venture Catalysts Private Limited to promote such companies on BSE. BSE became the first universal exchange in India on October 1, 2018, with successful launch of Commodity Derivatives Segment with the launch of Gold and Silver futures. We have become the first exchange in India for providing platform to trade and [ miss ] across all asset categories. Further, BSE also provides platform for aggregation and distribution of financial products, bringing a one-stop destination for all investment requirements. I'll now update you on the recent business developments in various segments.BSE has launched BSE Startups, a new platform for entrepreneurs to list their startups, on December 22, 2018. As a part of the launch, BSE signed MOU with Cornerstone Ventures and Venture Catalysts Private Limited. The strategical operation in its 2 forms enable BSE to further incentivize the startup firms in sectors like IT, ITES, biotech and life sciences, 3D printing, space technology, and e-commerce. The platform will also help in listing our firms from high-tech defense drones, nanotechnologies, artificial intelligence, Big Data, virtual reality, e-gaming, robotics, genetic engineering amongst other sectors. As mentioned, BSE has successfully launched Commodity Derivatives Segment with the launch of Gold and Silver futures on October 1, 2018. Thereafter, BSE launched contracts in Oman Crude Oil Futures on October 26, 2018, and Copper contracts on November 2, 2018.Over the past 1 year, BSE Startups with various associations in the commodities business for growth and development of Commodity Derivatives business in India. The entities with whom BSE has signed up includes renowned entities, including Federation of Indian Export Organisations, London Metal Exchange, Bombay Metal Exchange, Cotton Association of India, Federation of Indian Spice Stakeholders, Gems Jewellery Council, Bullion Federation, et cetera.BSE entered into an agreement with Dubai Mercantile Exchange, a premium energy-focused commodity exchange in the Middle East for the growth and systematic development of commodity derivatives markets in the crude oil complex. BSE registered 200 trading members and 27 clearing members in the Commodity Derivatives as on January 22, 2019. Overall, more than 400 members have shown their willingness for this segment. Many more members are in various stages of admission process to membership. BSE's announcement to waive transaction charges has attracted a lot of participants, including all types of brokers and traders, who are [ cautious ] due to their nature of business. Commodity Derivatives, platform with futures trading in gold and silver contracts, hit fresh all-time peak with the traded value logging INR 621 crore on October 25, 2018. Gold contract recorded a trade volume of 1,715 lots with a value of INR 548 crore and the silver contract logged at a volume of 629 lots, the value of INR 73 crore, although same share of gold derivatives is 89% and silver derivatives is 11%. Till December 2018, the turnover in this segment has been steadily improving and recorded turnover of INR 18,000-plus crore as of 31 December 2018.BSE's share in this segment without the other domestic exchanges as on 31 December stands at 90% if you consider the new entrants. BSE StAR MF, India's largest mutual fund distribution platform, recorded new high of 6.4 lakh transactions on 10 December 2018. BSE StAR MF has surpassed the earliest highest of 5.94 lakh transactions a single day on 10 September, 2018. The BSE StAR of telegram group has crossed 6,900 members as of 30 January, 2019.The group has redesigned the service standards of Mutual Fund Distributers in India. The robustness and seamlessness of BSE StAR MF, the swiftness of distributors and query resolution through realtime interaction through BSE StAR MF.User telegram group has created an ideal ecosystem for all stakeholders in India's mutual fund investment. BSE StAR got an overall distribution members of over 200,000 members in [ direct to indirect ] put together in over 3,000 cities and towns in India. BSE has once again exhibited that with scalability, the service standards notch way higher.As on date, more than 2.6 crore investors registered on the platform. [ BSE's ] market share in this segment for the 9 months ended 31 December stands at 80% -- 79%. The number of registered mutual fund distributor increased to 20,082 as of 31 January 2019. That means we have 2 lakh direct or indirect or with 20,000 on our managed members. The total number of SIPs registered under this segment increased by 35% to 3,97,000 for the 9 months ended December 31, 2018, from 2,94,000 for the 9 months ended 31st December 2017.The total number of XSIPs registered under this segment increased by 112% to 11,86,087 for the 9 months ended 31st December, from 5,59,000 for the 9 months ended 31st December. The total number of orders processed in the mutual fund segment increased by 137% to 253 lakhs for the 9 months ended 31st December 2018, from 107 lakhs for the 9 months ended 31st December. The total value of orders processed in the mutual fund segment increased by 44% to INR 1,13,000 crore for the 9 months ended 31st December 2018, from INR 78,000 crore for the months ended 31st December 2017.Further, total number of orders received in the month of December is higher by 108% as compared to the orders received in month of December 2017. We successfully created a digital demography as verified in the mutual fund distribution in India. BSE StAR MF is the most neutral infrastructure for all stakeholders in the Indian mutual fund distribution system. These universal distributors are AMC, RTA, et cetera, without any conflict of interest.BSE launched its platform for Electronic Book Mechanism, BSE BOND, for issuance of debt securities on private placement basis, about INR 500 crore, on 1st July, 2016. So you certainly revise the threshold limit downward to debt issuance about INR 200 crores with effect from 1st April, 2018. Issues in the segment include renowned corporates from public as well as private sector in India. During the 9 months ended 31 December 2018, amount traded on the BSE BOOK bank -- platform grew by 58% to INR 2,15,000 crore as compared to INR 1,35,000 crore for the corresponding period in the previous year.The BSE BOND platform has a number of issues of debt securities more than INR 6,39,000 crore since 1st July 2016 when it was launched. BSE BOND platform is a market-leading platform compared to other exchanges in India. BSE SME platform has 282 companies listed on its platform as of late as compared to 180 companies listed on 31st December 2018, and 216 companies listed on 31st December 2017. Of the total number of companies listed on BSE SME platform, 57 companies have migrated to the BSE Mainboard as on 31st December 2018. 45 companies were listed on this platform during the 9 months ended 31st December 2018. BSE's market share and listing of its companies is close to 60% as on December 31, 2018.BSE average daily turnover in Currency Derivative Segment increased by 82% to INR 31,384 crore for the 9 months ended 31st December from INR 17,270 crores. Total contracts too have grown by 67% to 80.06 crore contracts (sic) [ 82.06 crore contracts ] as on 31st December 2018, to 49.0 crore on 31st December 2017. The growth has been aided by increase in turnover in both currency mutuals as well as currency option contracts. The average daily turnover in currency futures segment has increased by 89% to INR 13,820 crore.The average daily turnover in currency options segment increased by 76% to INR 17,564 crore as on 31 December 2018. The BSE's market share in this segment stands at 47%. India International Exchange, the wholly owned subsidiary of BSE, continues to expand its footprint through various listings, product offerings and growth of turnover. Average daily turnover in India INX, BSE's wholly owned subsidiary at GIFT City, witnessed the phenomenal growth of almost 1,000%, USD 694 million for the 9 month ended 31st December 2018, from $63 million for the 9 months ended 31st December 2017.The turnover comprises of significant contribution by Equity Derivative Segment as well as Commodity Derivatives Segment. Equity Derivative Segment contributed 67% of the average daily turnover. BSE's market share in this exchange in GIFT City compared to other exchanges in GIFT City is around 70%. [indiscernible] listed its first global notes of USD 700 million with India International Exchange. And IFSC Limited has reached first global notes comprising of both [indiscernible] and 144 million times on India INX's Global Securities Market. As on 19 January 2019, State Bank of India also listed USD 1.25 billion worth bonds on India INX Global Securities Markets. The total value of the bonds and notes listed on this exchange has exceeded $40 billion, out of which smaller amount actually have been issued, but the listing is larger because they keep on issuing later on. India International Clearing Corporation is 100% subsidiary of BSE, which supports the India International Exchange in clearing and settlement. And it is around the acceptance of AAA-rated international sovereign securities as collateral from its clearing numbers and customer use. In India, it is the first and only clearing corporation in GIFT City to offer this.India INX launched India INX Global Access, a single centralized platform through which retailers, traders and investors can access International Exchange news from GIFT IFSC. Global Access, a wholly owned subsidiary of India INX, is a first-of-its-kind platform from India and IFSC of GIFT City, which will offer access to derivative investment product traded on international exchanges. India INX Global Access has already started necessary connectivity and trading links, which CME Group of exchange enables CME, CBOT, COMEX, NYMEX through its global futures commission merchant and CME-traded member. India INX Global Access aims to become the leading financial services provider in IFSC GIFT City in the years ahead.BSE along with PTC and ICICI Bank have signed a petition with power market regulator CERC on September 7, 2018, for grant of license for setting up of a new power exchange, same as they admitted by central links in the regulatory commission. This proposed institutional exchange, subject to necessary regulatory approvals, would leverage on the experience and expertise of its stakeholders in their fields. BSE will be having a minority stake in this exchange. BSE has set up a joint venture, Ebix, named BSE-Ebix Insurance Broking Private Limited, where BSE holds equity stake of 40% through its subsidiary, BSE Investments Ltd. The regulatory approval from Insurance Regulatory and Development Authority for the same is awaited. With the respect to listing of securities, the number of companies listed with their equity capital BSE, which are available for trade, are 4,067 as on 24 January 2019. BSE has the highest number of companies listed on the exchange and on the globe.Market capitalization of companies listed on BSE is INR 142 lakh crore. The total number of investors listed on BSE exceeds 4.13 crore, which is much higher than any other exchange in India. Interoperability among clearing corporations necessitates linking of multiple clearing corporations. It allows market participants to consider their clearance and settlement functions at a single CCP irrespective of the stock exchanges on which the trade is executed. We expect that the interoperability amongst CCPs would lead to efficient allocation of capital for the market participants.City board’s wide circular dated 27 November approved suitable amendments to the SCRA and SCRR to internally enable interoperability amount clearing corporation issued guidelines to take all necessary steps to operate interoperability as early as but not late than June 1, 2019. The interoperability amendment shall be applicable to all the administrative corporations, including those operating in the IFSC. All the products available on trading on stock exchanges except commodities shall be made available the interoperability driven in the first week. On a [ concert ] basis, the total revenue for BSE for Q3 is higher by 8% to INR 177 crore as compared to Q2 FY '19. The profit for Q3 from continuation -- continuing operation is higher by 23% to INR 50 crore compared to INR 41 crore in Q2. The profit for Q3 from total operations is higher by 9% to INR 50 crores compared to INR 46 crore in Q2. This is in spite of the fact that, during the current quarter, an amount of INR 12 crore has been incurred over 2 items of extraordinary nature, namely impairments provision for investments in high-level CCR nonconvertible debentures to the extent of INR 7 crore and contribution to core settlement guarantee for about INR 5 crore. And the same amount has been provided a profit for the Q3. From -- continuing operation would have been higher by INR 11 crore to about 49% increase to INR 61 crore compared to INR 41 crore in Q2.During the quarter ended 31st December 2018, the investment income has increased by INR 26 crore. Income from operations has decreased by INR 10 crore, and other income has decreased by INR 3 crore as compared to previous quarter. Further, during the quarter ended 31st December 2018, total expenses increased by INR 4 crore over previous quarter mainly due to the increase in professional fees by INR 2 crore and increase in depreciation by INR 1 crore.The stand-alone total revenue for Q2 (sic) [ Q3 ] is higher by 2% to INR 156 crore as compared to INR 152 crore in Q2. The profit for the Q3 is lower by 1% to INR 52 crore compared to INR 53 crore in Q2. As mentioned earlier, this is in spite of the fact, that during the current quarter, amount of INR 7 crore has been incurred in our income provision for investment in [ INFS ] secured nonconvertible debentures. Had the same not been provided, the profit would have been higher by INR 6 crore. And the same of 2 -- about 9%, around INR 58 crore, as compared to INR 53 crore in Q2 FY '19. During the quarter ended 31st December 2018, the investment income has increased by INR 16 crore, income in operations has decreased by INR 9 crore and other income has decreased by INR 3 crore. Further, during the quarter ended 31st December, total expenses increased by INR 5 crore over previous quarter mainly due to provision of diminution in value of investments, mainly high-levels group secured nonconvertible debenture to the extent of INR 7 crore, including depreciation and amortization by INR 1 crore and profitability by INR 1 crore. You may also be aware that BSE payment in term dividend of INR 5 per equity share to all equity shareholders were equity shares of BSE as on record date of 12th December 2018.As on 31st December 2018, total balance line in settlement guarantee fund maintained by our clearing corporation is INR 382 crore. With this overview, let me welcome you once again to invite all of you for the question and answer. Thank you.
[Operator Instructions] First question comes from Mr. [ Kapoor ] from [ Kapoor ] company.
Sir, firstly, if we drill on the numbers, our -- we are not able to generate profit from our revenue. It is only the support from our investment income that is contributing to the PBT and the PAT. So how would you like to explain this?
Yes. So the first thing which we need to note is that the entire business structure of Indian stock exchanges based on the income which you receive from transaction charges from -- in the various segments, including the equity derivatives mutual funds. Then the second thing is on listing income. And the third thing is on whatever money exchange has, how are we deploying that -- deploying the money for better use. Now if suppose we -- if suppose you exclude the investment income from this -- from operations part, then whatever is that, that we cannot subsidize to the extent we subsidize in terms of transaction charges. So when you talk in terms of exchanges, you will see all exchanges be trade -- all exchanges in India, they were model when they consider investment income to be more or less part of the -- to the operation income because it subsidizes the other cost.
Sir, could you give me breakout of your listing fees that we receive? If you could give me the annual figures? And how are they renewed? We get it quarterly or annual in a lump-sum basis? How is it accounted for?
So what happens that in listing fees, around 60% to 70% of the total listing fees is annual listing fee. And the amount which we have got in listing fee during the 9 months ended December is INR 142 crores, out of the INR 150 crores, if you consider that services to corporate. And this is a recurring fee. This is the additional fee which we earn towards book building and all the other things that is dependent on economic factors, such as how many companies get listed. So this is the -- this answers your question.
No. Sir -- firstly, sir, may I know that who is answering right now, sir.
Yes. I am Nayan Mehta. I am the Chief Financial Officer.
Okay, sir. Sir, firstly, sir -- hello? Yes, sir. I was just trying to get the sense of what is our -- as per the listing agreement with the various listed company, what is the total income that is going to be accrued every year?
So if you see our past listing -- if you see on past received for income in the last few years, you will find that the total annual listing fee which we have received is around INR 150 crores last year. Then we have various other processing fees, which is up to INR 50 crores last year. And then again, book building fees, which was around INR 33 crores last year. This year, the number of issues are less than the last year. So obviously, overall, there will be a big dip.
We are still [indiscernible].
Yes. And obviously, the other thing is that actually if you see with the [indiscernible] that because there was -- because we are expanding our operations into fintech areas, our mutual fund income has actually significantly grown over last 1 year. And in the current year, we have earned more than INR 21 crores in the first 9 months as transaction income.
For this quarter, how much is the mutual fund income, sir?
For this quarter, it will be around INR 8 crores -- INR 7 crores.
INR 7 crore. And for the last quarter, how much it was, sir, for September '18?
It was around -- it's around INR 6 crore or INR 7 crores.
INR 27 crore?
No, no, INR 6 crores and INR 7 crores.
INR 6 crore and INR 7 crore. Sir, now if I come to your expenses part, sir, we see there is a sharp increase in the administrative -- administration and other expenses and even the employee benefit expenses have gone up. So how will you explain this, sir? Because our revenues are going down, and on the other hand, we are putting -- we are expanding more expenses. So how will you explain this rationale, sir?
Yes, so it's like this. BSE has a model of -- [indiscernible] has decided that it needs to really diversify into related activities, such as e-commerce activities. We are sort of [indiscernible] which our MD just spoke about, such as the insurance broking and then power exchange and commodities, international exchanges. See, these are things which we are building up today. Now we need sufficient, talented manpower for this purpose. And obviously, we have to figure -- we have to report some guys who you see -- the public might think that this is a regular performance. But these are the people who are going to deliver performance over a period of time. Yes, this is an investment for us. And second thing is this that if you're really expecting [indiscernible] we find that the general increment would be much more in the line of industry standard. So there's nothing much special about the prospect of having [indiscernible]. It is attributable more to the investment we are making in the project.
Sir, for just knowledge purpose, are these expenses allowed under the income tax act? Because I don't think to your -- from the income which you are receiving from the investment income, you will be able to deduct expenses to the tune -- I think you get my point? Are these expenses admittable or disallowed?
No, this will be -- everything will be allowed. But the thing is that disallowance comes under Section 14A, where I have got a tax-free income, which is the excessive -- as a income, which I’ve earned as tax-free income, a part of it is disallowed for the extent of which is attributable to earning that income. So this is a business expense, and everything is allowed.
So, sir, for the 9 months, what is our tax-free income?
So the tax-free income will be pretty less right now. I'll just -- we'll have to give you this thing off-line. Right now, I don't have figures with me.
No, I will get back. And, sir, we are one of the largest shareholder in the Calcutta Stock Exchange also. So what is the future of -- what are we doing to safeguard our investment there, and things that topsy out there? This question is to Mr. Chauhan.
Basically, SEBI has canceled their license. So the only thing remaining is some sort of land and all. Discussions are on our person representing in the board. But there are too many participants, and we don't have too much of say in the matter. So we continue to watch as interested party on how the terms of event takes place.
But, sir, we have many 5% shareholders there. We can form a forum and get hold of the situation. Sir, it's a big -- it's like a good amount invested there.
We have fully provided for the investment and as far as BSE is concerned. But the idea is to spend more time and efforts on things where we are winning, like mutual funds. Today, just -- since you have not asked, but I'm telling you, that is, mutual fund was a separate business, and coming out of Bangalore, many of you would have given it a few billion dollars of valuation. It is -- because it will be BSE. Today, BSE's market capitalization is lower than the value of the assets in hand, right. So that is how these things work. But for me, Calcutta is clearly not in the priority for BSE. Instead we would rather spend our bandwidth fund where we are winning and there are productive activities.
Sir, 2 more questions. What is the cash in our book, sir, right as now? How much cash are we holding, Mr. Nayan?
So, see, it's like this that the booking -- the cash which you see in our balance sheet, in our half yearly balance sheet so, whatever, they actually are very misrepresentative because it includes the money which you have received towards defaulters and [indiscernible]. So the cash in our books -- and again, this is a matter of right setting able to see how much cash in book because a lot of it is we invest for different purposes. If you have to really just see the amount of money which we are having as a corporation, then you have to just figure out the net worth from our balance sheet, that's it. And it will give you around INR 2,500 crores. But then it obviously -- that's the money which is for business purpose.
Sir, so INR 2,500 crore cash which we are having, we are accruing all the benefit? Or we have to share the same with the people whose margin money and all are there with us?
So one thing, what happens that in BSE, whatever cash is in the books, it is BSE's net worth. The margin money which is there, it is in our clearing corporation. So that cannot be calculated as cash for the company.
So INR 2,500 crore cash benefit is directly accrued to BSE Limited?
Yes, obviously, it is utilized for various projects, which [indiscernible] from time to time. So I mean, that's a lot of -- there's a lot of full money which is available for earnings or any utilization as such.
Sir, my last question. One more to Mr. Chauhan. Sir, there has been a great thirst to -- for retail investor to participate in the bond market, directly in the GSEG market, sir, but to the surprise of the investor, we do not get a bid and quote by -- there in the GSEG market. What steps are you taking? Or in what consultation stage are you with the government in developing that bond market where retail people can put their money in the GSEG directly?
Basically, we have taken up with RBI, with SEBI and others to allow for small lot market making in GSEG-related activities. It has not yet started. But at some stage, the entire process of subscription, transfer and other things get cleaned up. And that basically, we'll be able to do, resolve these issues. Yesterday, we also started the BSE Direct, which is allowing people to directly participate in the government bond auctions instead of going through the brokers because SEBI had kind of told us. We have just started as a first exchange. And then also, it tells you about our technological superiority, our ability to stitch up newer products faster compared to other exchanges. And that's how I would take it. The bonds don't trade much as you know across the world. But still, the investors require some experience of smaller investors they require from liquidity. We are well aware. We have taken up with the regulators, and hopefully, they will allow market making through some other people in this market.
Sir, the market which you are speaking, what is a large size? What is the minimum amount to be invested, the one where we can directly participate?
Basically, it could be INR 1 lakh or something. But we also sell SGB, sovereign gold bond, right. So that is also government bond only, where you are able to directly subscribe on and so forth. But it's not -- we are not talking about like crores of rupees per lot size. It depends on very small lot size.
Sir, one more point. We find that, sir, now the corporate governance in the mid-cap, the micro caps, all -- there is a raise of bar there. We can very easily understand the efforts being put by SEBI through the stock exchanges module. There, the small caps, mid-caps, all are trying to be more compliant, otherwise, they are losing their listing power also. Sir, we find that, for the benefit of the investor and as a duty of the exchange, my recommendation -- my suggestion is, sir, that press release and investor conference call should be made mandatory after a threshold level. If a company starts reporting turnover or a profit of, say, such -- of one amount, then press release and conference call should be made mandatory so that investors can get a better idea of how the future unfolds. Today, it is -- today, it is not voluntary for the small and mid-cap companies to host or address investors. And it is -- the platform is only one AGM, where investors can raise their queries. So I think you, in consultation with SEBI, should come up and frame the ideas so that it could be a streamlined process where investors can participate, sir.
It's a good idea. We'll take up with SEBI. I think you should also write topically to SEBI and us. We will take up with...
Sir, it's very difficult to, sir, get this -- only this forum. Sir, I had the liberty to speak to you. I have already met you one time in person also in Calcutta. At that time, you were not the MD. Anyway, this is not the forum to discuss that. Best of luck, sir. Other than that, sir, I am worried about our investment in Calcutta Stock Exchange. I think you -- sir, you should collaborate with other investors who are holding 5% equity and form a forum to get hold of the situation there. Sir, it is not a small amount that they have invested.
If you want to take leadership, we'll be collaborating with you. Let me know. Like seriously.
Okay, sir. Then where is the forum? To whom should I come and touch with you, sir?
Nayan Mehta.
Yes, you can contact me. Nayan Mehta here.
Nayan Mehta.
Yes. And my number and my -- all my contacts are there on the website. So you can always reach me.
Okay. Then I'll speak to Yatin-ji and then get the updates from you.
The next question comes from Mr. Amit Chandra from HDFC Securities.
Sir, my question is regarding the market share in the various segments. So we have been constantly losing market share in the cash segment. So it's now around 8.4%, right. And there has been a drop in the market share in the currency segment also, which is now 44%. So how do we see it? Like now, the fall in the market share has been since last 5, 6 quarters. So like, do we see it stabilize at some point of time?
We currently -- basically, we think every time NSE adds a new algorithm, we have a lower market share. It doesn't mean we have a lower absolute trading volume. Understand that?
Okay.
So basically, what you are focusing is on the market share, but our absolute volumes don't seem to go down as much as the market share does. We have not been able to track the Equity Derivatives, that's why we are not able to track the equities. As and when it happens, probably we will be able to do something on the market share of the equities side. In terms of the currency side, sometimes they are up. Sometimes we are up. But currently, we're holding on to our reasonably large market share. And if you see NSE does more options, the underline is where regular trading. We do more on futures. And in the near months, which is the actual market, we are larger than NSE. You might be -- I don't know whether you are tracking that because I read your report also just now. And you seem to be only doing the number which are lower, not the higher ones, which is also interesting. And so it's actually, for me, I'd like to have -- as I told earlier also I am reiteratng, we created the StAR MF. If you are a Bangalore company separated from BSE, if you have a few million dollars, if not few tens of millions of dollars. In BSE, it is actually reviewed negatively but is also interestingly. And the report also seemed to suggest that we are going to lose it completely, which is also interesting. But we seem to be getting more and more number of investors, more and more number of transactions. And that seems to be our current, what I call, revenue winner that we are basically able to chart. And also numbers are increasing. So overall, we are much more hopeful on getting revenues out of that business compared to any other business.
Yes sir. I totally agree that the StAR MF performance has been really amazing in the last year.
Did you get it on record, Amit?
Yes, sir.
So why does your -- your actual writing is very different.
No, no, sir. The StAR MF...
So this will be published, [indiscernible].
No, no. The StAR MF, I have -- so the segments which are performing, I have obviously written positively about that. But sir, the only right now the worry that I have is that in a scenario where our market share or our absolute revenues are also declining, so we're not able to keep the costs under control. So if you just adjust the other income and the INR 10 crores of exceptional items -- the ILFS that we had. So excluding that, also the EBITDA comes to negative. So the total cost and the total revenue is like more or less around the same. So from here, like we have a model where it's like your operating leverage -- [indiscernible] also plays in the same direction. So [indiscernible] control cost scenario where you're not able to generate revenue. So that is the only concern that I had. And also sir, if you can provide us the investments that we're doing in the new initiatives, so the cost that you report. How much of the cost is towards the new initiatives, like the INX and other platforms that you are developing?
See, INX here is separate cost anyway. But like StAR MF and all, it will continue to be important as one -- similarly bonds and all. So for us, currently, we are in the investment phase. You are counting what we have not been successful about, various equity derivatives. You are not counting where we are successful about, that is the bonds, listings. This year, listings having been less otherwise also, but last year, we booked the sort of revenues from that. And so similarly, in the equity itself, we have those -- in the transaction -- in the listings, we have reasonably large. That's the consistent revenues. On the trading side itself, we have 2 parts: one is the equity stock. The other is common stocks. Common stocks, we are generating almost similar revenues pretty much last quarter. But the equity stocks have gone down in value by 50% over last 1 year. And that's where our revenues from them also have gone down substantially. So when I present this amount, you will start seeing larger revenues from there. And so we basically tend to focus on our spend totals but also investing money for newer platforms. We also invested money, including additional, what I call, continued operation cost of running market longer hours to [ 12 in the night ] and so on and so forth. So those are the costs which you don't get to see. But ultimately, they cost some amount. And if these grow up going forward, then who knows. The outcome could be very large, like what mutual fund is. The last 5, 6 years we have been investing in mutual funds. Now we have started realizing the fruit of that. And so if you have patience, yes, but otherwise, currently, the way we look at it is, we are in the investment phase. And some great fruits of sort of new revenue streams just started coming up. And in future, well, we might have more.
All right. Sir, in terms of the INX, the investments, sir, what was the INX investment as of now for the full year? And then from when you should start like charging in the INX so that it can boost somewhat revenues?
Currently, we don't have plan to start charging INX because you might have heard of MCX-SX versus NSE case, where MCX-SX won in Competition Commission. NICCL has the tendency to [indiscernible] other new businesses and not charge them. Similarly, in the interim, in the GIFT City, also they are not charging. Not only that they are not charging, they are paying for the orders for which they've gotten approval. And so we have no choice but to continue to pay for the order flow instead of actually charging. And that's where currently we are stuck. NSE is listed, and they have to worry about cost estimation or not allowing it. That is the time they stop. Otherwise, we'll have to continue to fight those battles in our Indian businesses as well as our INX businesses.
Okay, sir. And sir, in terms of the StAR MF volume, so we have seen like pretty good size in the StAR MF volume. So from here, like what are expectations in terms of the rise in volumes from here? And is there any chances of increasing the pricing there?
So we are currently in the process of sort of working out with some of the mutual funds, the large ones. And over the next few years, we'll be able to continue to increase our charges as well as market share going forward.
Okay, sir. And sir, like the -- we have seen sharp rise in the other income also. So it is up from INR 45 crores to INR 69 crores. So what is the reason?
So Amit, the reason in other income increase is basically that we got some income tax refund, which is a type of onetime income. So that's the reason.
Okay. So how much is -- sir, how much is that, sir?
That is around INR 6 crores.
Okay. INR 6 crores of income tax refund?
Yes.
Next question comes from Mr. Nimit Shah from ICICI Securities.
Sir, could you run us through like the StAR MF platform, which has been seeing an exponential growth? In terms of operating leverage and in terms of profitability, how does that contribute? So currently on an annual basis, the run rate is around INR 30 crores. So in terms of the EBITDA as well as the profitability, how do you see over the next 2, 3 years?
So Nimit, I'll give you this math for your modeling. It may not remain the same, but you should keep this in mind that, currently for this year, we might do 30 lakhs average. And that makes it INR 3.6-crore transactions in a year. And probably, as you rightly said, INR 30 crores of revenue. We're just getting around INR 9 per transaction. We are selling close to INR 400 or INR 300 per transaction today, mutual funds. Of course, mutual funds are not able to probably take out those savings on their risk charts. We're kind of bundling and giving them the cost. And so that's the fight between the funds and the distribution platform like ours that we want to increase because we are selling and we are also getting them the new sales. In fact, if you recall, I think, in the month of December 2018, other than the CTS ETF, the mutual fund industry got around INR 6,100 crores in the equities, out of which INR 2,100 crores came from here, okay. So that is the kind of help BSE has developed. But I've been told by some of the mutual fund industry veterans that, currently, they get around INR 3 crore transactions in a month, out of which 35 lakhs come from us, so we are still only 10%, 12% of their total number of transactions. And if the industry grows by 100% in next 5 years, which is looking reasonable, then they might have INR 6 crore transactions. And if we go from 10%, 12% to, say, 50%, then we may basically go to INR 3 crore transactions a month from 35 lakhs. And from INR 9, INR 10, if you're able to go to INR 35, INR 40 average, you can figure out your modeling. And that's how I see it that if you are able to see that kind of numbers even you can discount it, then reduce whatever softens the sort of change, and you'll still see that this is going to be a good business for BSE to be going forward. And that's basically the modeling part of it. Otherwise, the reality is this, that currently, we are doing around 35 lakhs as of last month. But average would be like 30 lakhs a month for this year as a whole.
Sir, I was asking from the costing side, like what are the major costs which we incur? And even I'd say INR 30 crores of full year revenues, how the EBITDA and profitability would be for the segment?
Marginal costing is not very high because it's part of the same clearing settlements. Same teams work on the half -- I mean, a different portion of their time is spent on some mutual fund stuff, but some liquidity stuff, some commodity stuff, which is not earning -- bonds, which is not earning much rate. So at the same time, you still need to have another round irrespective if you're earning revenue or not, right.
Got it, got it. And sir, after StAR, within the new initiatives, which segment do you feel can have a significant contribution in the next 3 to 5 years?
If you see insurance, if you take policybazaar, they'll probably return INR 3,500 crores, not even return. They'll just raffle INR 3,500 crore of policies in the last probably 1 year or so. That's what I've been told. And that's why revenue of INR 377 crores, okay. Whether it is true or not true, I've been shown those numbers. You guys might have better numbers. And so it's showing even for raffle, they were paying at 9%, 10%. In last year alone, BSE did 1.8 lakh crore rupees, not INR 3,500 crores. It is like 50x more in mutual funds, right. And nobody cares about our revenues are reducing. And so once you figure out their insurance, the quality is not so much, realize they know so much, right. And given our track record in mutual funds, insurance looks to be an interesting aspect of it. Right now we have 40% in that. Similarly, power trading, you know how it does. And we have worked with the ICCL, so that's a formidable combination, right. And so that's how we see it that we are -- basically, even in commodities in many days, we are like 20%, 25% of the gold business in India now, right. Of course, gold business has come down. But on many days, we are about to scoring very large numbers in percentage terms. And so we are kind of scoring reasonably well in many of these new areas. And who knows, somewhere down the line, if we're able to get better revenues, all that will reflect in our P&L.
Sir, on the StAR MF side, apart from NSE, is there any other competition on the online side?
Yes, MF Utilities is there, which is promoted by MP. There are many other guys who are now pretty much on us.
Correct. So our market share remains, let's say, 70% on the online side?
Last -- full year if you take, we are 79%, which is -- basically, 70% and 79% have some difference, although both are 70%.
Got it, sure. And any chances of reincreasing the rates on that side, StAR MF side?
There is a hope. Let's see how far we are able to go. Last year, we were not even sure whether we will charge. People will pay or not. They started paying, albeit small amounts. But the principle has been established, right, which was what our -- this year's objective was, which broadly we have -- I won't say, we have 100% success. But they are pretty much satisfied with what we have achieved in this year. And it is not an easy task, right. Being the -- an exchange which everyone has written off. Nobody wants to even pay despite all the great service we do. And so to make people pay is a big task. We have achieved this. And that means that we are actually growing service, right. Otherwise, people would have told us to go back home and do nothing, right. They would have just stopped us from doing it. And so that is us. But I don't want to increase your hopes. It's better to be sort of being not counted as a Superman and rather continue to work hard.
Next question comes from Mr. Shivam Gupta, CWC Advisors.
So I have a couple of clarifications I need, and then just one question. So Nayan, when you were explaining about the employee cost being at an elevated level, so if I strip out whatever we already see ran, so for the next 2 years, the run rate would remain what it was for these 9 months. Is that interpretation correct?
In this case, more or less, the incremental rate may not be this much because, in our firm, the point of exercise when we scale up our business operations, we may have to just enter a few guys. But then, they have been -- generally they’re able to take bigger notes at some point of time till we reach the next level. But then, one thing is considering inflationary -- inflation and other things, 8% to 10% is something which is [ terrible ] because we're in a very talent industry. We don't get talent. We are required in our industry to be within this market.
Got it. So 8% to 10% inflation on X varies amount of these 9 months, right.
Yes, yes. So that's the basic [indiscernible], which I think we can't ignore it.
And the other thing is that all this 170 million of ILFS, you were now provided around 100 million -- around 100, right. And the outlook over the next 70 is like it may also be getting provided in the next few quarters?
Yes, I'll tell you. So the total amount -- the total exposure we have at BSE along with those mutual fund transactions is INR 19.8 crores, of which we have provided INR 10 crores. And the next thing -- the next thing we are actually going forward is the situation we cannot now predict. So we will have to see whether we need to make any further provision in the next quarter or otherwise.
Okay, got it. And the last question that I had was around the fact that post the interoperability issue, which got cleared, so any initiatives you are doing to evangelize the smart order routing among the buy side from the exchanges perspective?
So we are conducting seminars across the various cities to make them all ran off, make brokers aware of the benefits of that. And there is a clear counter sort of campaign by the competition to not allow clearing -- to make the operator be successful because there is a perception that BSE may be able to get some benefits out of this in derivatives and all. And so this will continue. And ICCL, which is a subsidiary of BSE, provides better services and all. It may be able to get some [ guile ] business from competing clearing operations, and it may or it may not affect BSE's ability to do business. But if it allows overall you to buy it one place and sell in another place without paying margins as of next position being 0, then it's greatly going to improve BSE's position in equity and equity derivatives market along with currencies and all. And so that's how we see it. It remains to be seen whether it will be implemented on June 1. We are working hard on the technology side, on everything else. And so hopefully, evangelizing with the foreign brokers on [indiscernible], which is basically the foreign institutional investors organization which are industries, and all those guys, we can do seminars with them. Hopefully, everyone knows about it because, in other countries, it's actually implemented already.
Next question comes from Mr. Jayesh Gandhi from Harshad Gandhi Securities.
My question was also on the interoperability among clearing corporations. You just said that you are making people aware of the benefits of this -- I mean, post interoperability. Can you just -- I mean, give us, sir, some few benefits which we can enjoy subsequent to this being operational?
So if you buy, say 1,000 shares of Reliance in NSE and sell 990 shares of Reliance in BSE, and if you presented a single clearing corporation, whether NICCL or ICCL then you will end up basically settling only for one share, not 1,000 on one side and 999 on the other side, right. So your money requirement in return comes down by pretty much 99.9%. Your market requirement comes down by 99.9% and so on and so forth. So basically, if you buy in BSE in Reliance and sell in NSE, even derivatives, the fixed stock, again, your margin requirement will be pretty much a fraction of what you would pay otherwise. So effectively, systemic risk comes down, but your total requirement for funds and other things comes down. And so it becomes more easy. And somebody has asked about the smart order routing. It becomes much easier for brokers who are able to pay on both exchanges today. If an FII gives you an order as a broker and you partner on 2 exchanges, first, you have to check out whether you have the market on both exchanges or not. Secondly, you have to pay 2 contract notes, which means the final customer has to pay twice, and they don't want to pay -- prefer one exchange. Margins are not there because you want to keep the margin with one exchange only. All these things get eliminated instantaneously. And that gives more choices to brokers to go. And of course today because you are trading with an exchange, you're also locked in with that exchange's clearinghouse. So today, for example, NICCL does not give you interest on the margin money you keep with them in cash. Whereas, BSE's ICCL gives you interest on the margin money you keep in cash. So what happens is suddenly, your cash which is for your margin, is a benefit for you at NSE. And now even if you trade on NSE, and you pay through ICCL, you'll start realizing some money. And that is a kind of competition. Basically, it will benefit the investors for sure in addition to benefiting BSE probably.
Okay. Sir, can we assume that if this can be -- I mean, this can uplift your market share in future if at all?
I mean, that is the hope, and the hope becomes reality.
Next question comes from Mr. Rahil Jasani from ICICI Securities.
Sir, just a clarification, the income tax refund is accounted in the investment and deposit income? Or it can be other income line item?
No, the other income is basically the interest on the refund. So whatever income tax we receive, that is other income only for us. The actual refund is basically, it will be a tax item.
Next question comes from Mr. Nitin Agarwala from JM Financial.
Just a clarification on the investment income. You said that INR 6 crores is there in the investment income, also INR 68.5 crores. Is that a right understanding?
Just so again, Nitin, which INR 6 crores are you referring to?
The INR 6 crores income tax refund which you mentioned. You said...
This is the other income. This is other income. Whatever interest we receive is included in CapEx.
So what has led to the -- such a high growth in investment income on deposits of INR 68.5 crores in this consolidated quarter? It's almost double if you compare Y-o-Y?
Yes, so this time there were some [ sale ] that were taxable, which we had done as a part of our tax valuation. And the second thing is that, that there was some interim also or mark-to-market on our investments in the mutual funds SMBs. They are the 2 main reasons.
Okay. And secondly sir, just a clarification again. So for employee expenses, you said that, due to building business, the expenses have grown so much. And what about admin and other expenses? Is that also because of the new businesses?
[indiscernible] This is the segment consolidation of all our group businesses. But then basically in admin, but there is one big chunk other than our ILFS diminution, and that is with respect to the amount we have contributed to our fourth settlement guarantee fund, which is a part of our regulatory type of expense. So that is the main reason why you see this increase there.
So in this quarter, have you contributed towards the settlement fund?
Yes. Yes, that has been contributed by our clearing corporation, ICCL.
Yes, yes. So much is that amount? Can you...
INR 5 crores.
INR 5 crores?
Yes.
Okay. And sir, what is the status on the footnote which you have mentioned, where SEBI has asked you to contribute towards the Investor Service Fund of INR 17 crores and INR 18 crores? So I guess, you have applied to SEBI. I'm referring to Note #10 on the [indiscernible].
So that is the SEBI observation on which SEBI should [ mortgage ] to us. And we have taken legal opinion, and we will present it to SEBI that, that is not -- that may not be the right step that they have taken. So we started the conversation with SEBI, and we are presenting it.
Okay, so it is still pending?
Yes.
Okay. And sir, my last question, where is the mutual fund income recorded in the revenue items? So is it under securities services?
Under securities services.
Okay. And under security services, like where -- is there any line item? So is it other income or transaction charges?
Services charges. Services charges line item.
Next question comes from Mr. Ashish Chopra from Motilal Oswal.
Sir, just wanted to understand a couple of things. One is that whenever this interoperability becomes effective, would it be fair to assume that the clearing and the trading will be completely disjointed businesses with separate P&Ls and perhaps even separate teams, changing the members?
It's true, yes. In fact, currently, also last couple of years, we have been seeing this scenario coming because the first committee on interoperability, which was called [ Clearing ] Committee, was signed up almost 6 years or 5 years back. Okay, and since then, we have been pushing for it. The industry doesn't want to do it for whatever reasons they have, but we have been doing it quite extensively. We have prepared ourselves and that's hopefully ICCL will be able to run itself as a separate business with separate everything.
Fair enough. So in that context, if you could just break out since today the charges for transactional bundle for both the clearing services as well as the trading service. If I were to just break it up into trading and clearing, would the proportion be roughly comparable? Or would it be skewed towards 1 of the 2 segments?
Basically, clearing now charges separately. BSE doesn't pay them. So basically, these are all -- whatever transactions -- because NSE does it, they have, I think, the 80-20 rule or something like that. BSE does not pay anything to ICCL, okay.
Right. Understood, understood. Okay. And I'm sorry, if I missed it in the earlier part of the call, but what would be an income in cash on the books as on date?
So for those licenses, the cash which you are seeing in the book as of record, basically, a lot of it is --- they're meant for operational reasons. A lot of it is invested. So when we did our buyback last time, it was around INR 1,500 crores. And that is also subject to utilization of the same, which is just business requirement, such as clearing corporations and other things. The total amount of cash in balance sheet of all group companies put together minus this is in excess of...
INR 2,800 crores.
INR 2,800 crores. If you are asking, to use that money is different from actually having the cash, which is unencumbered. Unencumbered cash in BSE group companies is put together INR 2,800 crores, in that range, okay.
Okay, okay. And sir, just to pick your thoughts on the capital allocation. Since you've done one round of buyback and you've maintained the dividend ratio for almost full extent of profits, so should we assume even the buyback to be periodic instance, considering that a lot of this cash is pretty much distributable as and when the regulatory norms allow you to conduct a new buyback?
So we will take it to the board. We will take it to the board.
[Operator Instructions] Next question comes from Mr. Ajay Bodke from Prabhudas Lilladher. Next question comes from Mr. Nitin Agarwala from JM Financial.
In other expenses, there is a line of Core SGF of INR 5 crores. So like, as far as I know in the last few quarters, we have not been making any provision as the amount of Core SGF was sufficient, but then this quarter, we have done so. Going forward also, do you expect more provisions to come for Core SGF?
Nitin, the provision which we've made this time for Core SGF was for the launching of the commodity segment, which is a statutory requirement. And a lot of our future requirements will depend on our business activities.
This will be the last question for this call. The last question comes from Ajay Bodke from Prabhudas Lilladher.
Sir, this is regarding the insurance broking and the power exchange business. Hello?
Yes, we can hear you.
Yes. Sir, you have applied to the regulators for approval. If you could just give us a perspective about the kind of opportunity size that you expect over the medium term for both these lines of business, sir.
You should look at the listed company called Indian Energy Exchange, or IEX. That will give you an idea about the power business and the exchange part of it. Of course, when a newcomer comes, they all know how to spend money, take market share. There will be some sort of give-and-take and stuff like that. But you look at Indian Energy Exchange, then you might figure out how it works. Interestingly, if you look at the IEX profits for last year, even this year, their market cap is higher than BSE, their profits are much lower than BSE's. If you take IEX, also their profit last quarter are much lower than BSE's quarter result. Today they have suggested -- I mean, they have basically announced. And still, BSE's market cap is lower than that. So that is something in the situation which nobody seems to understand. But having said that, if you just look at IEX, we can give you the power part, and they have only 25% in that business. The regulator approved basically a portion, that power part of it. And we also, of course, have very good investment in that, particularly insurance. We have 40%. Look at the news related to company on policybazaar.com, and you will get an idea of how to value all these companies. Of course, nobody values BSE or anything coming out BSE that way. But in case, you want to do it on a comparable basis, that is the way to do it.
Sir, and I think as a previous participant mentioned, I think it would be a submission for the management to consider sort of when they are allowed to do a buyback, sir. So the stock, as you've been mentioning, is currently undervalued. And I think from the shareholder perspective, it is a submission that you should consider taking to the board.
Your suggestion has been noted. Thank you. Thank you, guys. Have a great evening and a great weekend.
Thank you.
Thank you.
Thank you, sir. Shall we conclude this call?
Yes.
Thank you. That does conclude your conference for today. Thank you for participating on Reliance conference bridge. You may all disconnect now. Thank you all.