stock exchanges' own financials--analysis of revenues & profits of nse & bse

I did an analytical piece on Indian stock exchanges' financials, a few days ago for the newspaper I work for presently. Here is what I wrote:

F&O turnover rise of no help to NSE's own financials

NSE sees a fall in operating revenue, gets bailed out by investment income

Corporatised stock exchanges attract attention on their own financials and not just on the financials of the companies listed on their stock exchange platforms. An analysis of the financial statements of the two major stock exchanges in the country, National Stock Exchange (BSE) and Bombay Stock Exchange (BSE) reveals some interesting facets of the financial consequences of their trading services.

Despite a 6.5 per cent decline in its revenues from trading services which form its core stock exchange operations to Rs 1,001 crore, the NSE managed to shore up its net profit by almost 25 per cent to Rs 878 crore in FY13. Its operating profit from trading services, however, did take a knocking of 8.8 per cent falling from Rs 522 crore in FY12 to Rs 476 crore in FY13.

NSE's financial statement for FY13 splits its total income from operations into two accounting heads, one of which is referred to as 'income from operations' and the other as 'other operating revenues'. The first, apparently, covers the core of NSE's operations which is the transaction charge NSE imposes on its member-brokers on every trade. In the past, the exchange's transaction fee income had risen from Rs 573 crore in FY09 to Rs 768 crore in FY10. It peaked recently in FY12 when it touched Rs 821 crore, only to fall by 6.2 per cent in FY13 to a level of Rs 770 crore.

NSE's turnover in its equity cash market on the decline since FY10, came down in FY13 as well but the quantum of fall was less than in previous years. The cash market turnover was about Rs 27,08,000 crore in FY13 compared to Rs 28,11,000 crore in FY12, Rs 35,77,000 crore in FY11 and Rs 41,38,000 crore in FY10.

No such decline was seen in NSE's equity futures and options turnover but that did not help its core operating revenues since the level of transaction charges in equity F&O segment are far lower than that in cash market. In FY13, NSE's equity F&O turnover rose to an all-time yearly aggregate high of Rs 315,33,000 crore, up from FY12's level of Rs 313,50,000 crore.

The 'other operation revenues' head, in the case of NSE, includes listing fees, annual subscription charges on members, book building fees and the charges the exchange collects on its co-location services for brokers.

Interestingly, NSE's income from its investments and deposits in the form of interest and dividends helped shore up its bottomline such that a 24.5 per cent growth was seen in NSE's profit after tax figures from Rs 705 crore in FY12 to Rs 878 crore in FY13. The FY13 figure included an exceptional income item of Rs 36 crore which was a profit NSE recorded on selling its equity holdings in two of its subsidiary companies, to a newly formed subsidiary called NSE Strategic Investment Corporation.

BSE, main competitor to NSE, had no luck with its profit after tax, which on a consolidated accounting basis, fell from Rs 178 crore in FY12 to Rs 109 crore in FY13. Its total income from its stock exchange operations fell to Rs 384 crore in FY13 from Rs 418 crore in the previous year, while its operating profit from stock exchange operations fell to Rs 118 crore from Rs 203 crore.

Part of the hit on BSE's net profit was the amount it expended on its liquidity enhancements schemes for its equity F&O segement which shot up to Rs 95.50 crore in FY13 from Rs 60.50 crore in FY12.