There were some questions about Patanjali which were hovering over my mind. One, since Patanjali is going through a serious distribution issue and is also facing drop in revenue, what would be the way ahead? And second, since the time Coronavirus started spreading alarmingly people are blindly behind gigantic pharmaceuticals expecting them to create a magical vaccine. Why has Ayurveda not tried creating a cure for Covid-19?
Looks like both of these questions got their answers to some extent just yesterday. Two news reports related to Patanjali cleared the clutter and gave a hint towards its future. Patanjali is entering the Indian bond market and is issuing Non-Convertible Debentures (NCDs). It has already started accepting bids for its debt papers that would mature in three years. Besides this, Patanjali has also started clinical trial for a potential cure of Covid-19 post receiving regulatory approvals.
What Does This Mean?
Through the issuance of NCDs, Patanjali is looking forward to aiding its working capital needs and tackling its supply chain constraints by raising around 250 crores. As per the latest update, the issue was completely subscribed in minutes and hence the target amount was raised quite easily. Also, the debentures would be listed on the stock exchanges and are redeemable. Besides this, Brickwork has rated the debentures as AA. Overall effect of the activity would be visible in near future.
Bombay Stock Exchange Limited (BSE Ltd.)
Whenever anybody has some extra money and wants to get good returns out of it. The first thing that comes to mind is to invest in the stock market and this can be done on one of the largest and oldest stock exchanges of the world, Bombay Stock Exchange (BSE). BSE Ltd started as a native share and stockbroker’s association but over the last few years, it has transformed itself into a universal exchange by adding services such as mutual fund platform, SME platform, currency and commodity derivatives, and trading of sovereign gold bonds to name a few.
The company provides its services to capital market participants with its three primary business segments namely:
Listing business: consists of primary market relating to the issuance of new securities
Market business: consists of the secondary market (trading of listed securities), BSE Star mutual fund platform, BSE SME, and membership (membership in Exchange, ICCL, CDSL)
Data business: sale and licensing of information products
BSE is one of the world’s largest stock exchanges with the highest number of listed companies (5519).
It has market leadership in blue ocean businesses including Star MF (75% market share), BSE SME (60%), BSE Bond (64%), and IndiaINX (84%). Also, it has established leadership in listing related businesses including listed securities (73%), currency derivatives (48%), and fixed income securities (37%). The BSE Index, SENSEX is the most established and popular stock market benchmark index that is composed of 30 stocks from 12 sectors.
Revenues are derived from various sources including securities services, services to corporate, data dissemination fees, investments, and deposits. Revenues earned are a function of volume and value of securities traded. Even in times of crisis such as currently ongoing coronavirus crisis, many investors try to invest more because of reduced securities prices in search of better future returns further contributing to revenue.
This business model with high operating leverage and strong cash flows help BSE Ltd. in sustaining for a longer term. With the market capitalization of ₹ 2002.68 Crores, it is virtually debt free and has consistently given dividends. Also, it has maintained return on Assets (ROA) of 11.15% (3Yr-CAGR) and operating profit margin of 47.17% (10Yr-CAGR).
What is good?
Strong entry barrier:
The business requires huge initial investments and given the duopoly in the market, it becomes extremely difficult for a new player to enter.
State-of-the-art infrastructure and technology:
Given the pace to current technological advancement, the reliability and consistency of IT infrastructure may help in maintaining a competitive position. It is one of the fastest exchanges in the world with a median response time of 6 microseconds.
Integrated business model and diversified revenue sources:
Universal exchange providing a variety of services to market participants with multiple contact points generating revenue and thereby profits.
BSE Star MF, an e-platform for 24X7 order acceptance with a unique overnight investment framework and only platform in the Indian mutual fund industry that supports all modes and types of schemes. It became India’s largest online MF distribution platform with 75% of market share.
What is Bad?
Uncertainty in revenue:
It may be difficult to manage a large fixed nature of expenses because of uncertain operating income as a result of fluctuations in trading activities.
Competition from a broad range of market participants globally for listing, clearing, trading, and settlement volumes. BSE’s cash market share is under stress which is reduced to just 6.7% 2QFY20 from 12.9% in Q2FY18.
Its outsourced products such as electronic trading platforms, networks, and software from third-party service providers may be vulnerable to security risks and cyber-attacks.
It is one of the highly regulated industry which requires several regulatory approvals for its operations. Any failure to renew permission and to comply with obligations promptly may result in huge penalties and sanctions