IPO Update: NSE IPO Likely to be Delayed by a Year

IPO Update: NSE IPO Likely to be Delayed by a Year Investors in India's largest stock exchange may have to wait even longer for an exit through an initial share sale, as regulatory investigations into former NSE officials for alleged infractions have pushed back timetables for a public listing. The NSE share sale is likely to be delayed by at least a year, according to bankers, following market regulator Sebi's recent order on NSE for violation of securities contract rules and a subsequent probe initiated by other agencies such as income tax and the Central Bureau of Investigation (CBI) against former CEO Chitra Ramkrishna. The NSE filed for its initial public offering with SEBI in December 2016, two months before current SEBI chairman Ajay Tyagi assumed office. The exchange was then obliged to retract its offer paperwork after becoming implicated in the algo trading incident, according to Tyagi. The entire sequence of governance concerns and system flaws in India's top stock market has sparked interest. The con is centred on NSE's co-location facility (used by algo traders). Between 2012 and 2014, OPG Securities, one of the trading members, was allegedly granted preferential access to check in and acquire data before the rest of the co-location facility. They took advantage of this opportunity to get ahead of the pack in terms of order execution. After a whistleblower report to SEBI in 2015, the scheme was exposed. For the time being, SEBI is unlikely to approve the NSE IPO because the system will need to be cleaned up for another year. In 2017, SEBI issued show-cause notices to fourteen high-ranking current and former exchange executives, including Chitra Ramkrishna, the former MD and CEO, and Ravi Narain, the former MD and CEO. The NSE is India's largest stock exchange, with a market capitalization of about $3.4 trillion. On the heels of robust profits, the NSE's stock has grown fourfold in the last two years. For the fiscal year ending December 2021, the stock exchange reported a 56 percent increase in net earnings over the previous year. The BSE now has a trailing PE (price to earnings) ratio of 38, whereas significant private deals on the NSE have a PE of 80-100. According to the sources, the NSE IPO will be priced in the higher PE band, given the high PE of listed monopoly plays. The NSE has a monopoly on stock derivatives and boasts operating margins of approximately 80% EBITDA (profits before interest, taxes, depreciation, and amortisation) and a 93% operating to total income ratio. The NSE's operating income increased by 60% to $5,625 crore in March 2021, compared to the previous year. Its net profit increased by 89 percent to 3,574 crore from 1,885 crore the year before. The sole flaw in NSE's present value is that a portion of its net income came from a one-time stock sale in CAMS last year.