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Central Depository Services (India) Ltd

Stock Rating

Industry Rank:
8
Relative Strength Rating:
94
Very Strong
Acceleration in Earning Rating
56
Positive
Technical Rating
77
Strong
Depository Services
CMP: Rs 419.25
Up
No change
Down

Company details

Market cap:
4381.16
52-week high/low:
Rs. 406.00 / 179.80
NSE volume: (No of shares)
5,320,025.00
BSE code:
CDSL
NSE code:
Not Listed

Shareholding

(in %)
30-Jun
Promoter
20
Public
80
Others
0
Total
100

Indexed Stock Performance

Central Depository Services (India) Ltd Sensex
Central Depository Services (India) Ltd
One Year Performance

Price performance

Return (%)
1m
3m
12m
36m
Absolute
13.34
95.69
262.80
-
Sensex
1.33
-4.78
3.71
22.96

+91 22 6639 3000

research@stockaxis.com

Central Depository Services (India) Ltd

Proxy on the capital markets growth story

Central Depository Services (India) Limited (CDSL) is India’s leading and only listed depository, with an objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. CDSL received its certificate of commencement of business from SEBI in February 1999 and it facilitates holding and transacting in securities in the electronic form and facilitates settlement of trades on stock exchanges.

CDSL maintains and services over 2.4 crore Demat accounts of Investors or Beneficial Owners (BOs) spread across India. These BOs are serviced by CDSL’s 597 Depository Participants (DPs) from over 19,500 locations.

Investment Thesis

Increase in trading volumes and retail participation
CDSL has experienced a substantial growth in the number of companies / Issuers admitted in demat from 541 in FY 1999-00 to 14,018 in FY 2019-20, a growth of 18% CAGR. Retail investors have been increasingly investing in equities, which is evident from the rise in number of investor’s accounts from 1.9 cr. accounts in 2010 to 4.3 cr. accounts as June 2020 and increase in turnover of shares traded on the stock market – trading on BSE increased from 5.21 lakh crore in FY 2013-14 to 6.61 lakh crore in FY 2019-20 (CAGR of 4.05%); while trading on NSE increased from 28.08 lakh crore in FY 2013-14, to 89.99 lakh crore in FY 2019-20 (CAGR of 21.42%).

Gaining market share from NSDL
In terms of cumulative market share of active demat accounts, CDSL has experienced a growth in market share from 40% in FY 2013-14 to 51% in FY 2019-20. As on 30th June, CDSL’s aggregate market share was 54% of investors’ accounts. The number of demat accounts opened with CDSL in FY 2019-20 stood at 38 lakhs as compared to 10.5 lakhs accounts for NSDL. CDSL opened 8.3 lakh investors’ accounts in the month of June 2020, the highest in the history of CDSL.

Central Depository Services India

Duopoly business with high entry barrier
CDSL (promoted by BSE) and NSDL (promoted by NSE) are the only 2 depositories present in India. Because of their strong parentage, these depositories have clear advantage and duopoly nature has resulted in healthy competition. We believe the sector is highly regulated and there is no scope for any other depository.

Diversified revenue stream with high operating leverage
Around 64% of CDSL’s revenue comes from market-linked activities like transaction charges, annual issuer charges and IPO charges. The balance 36% comes from online data charges, E-Voting, Document verification, E-CAS charges and other value added services.

CDSL is an asset light business with high operating leverage, has robust EBITDA margin of 44% with major costs being that for technology and human resources.

Key Risks

  • SEBI regulates the pricing of annual issuer charges and pricing of other services. As a result, CDSL have limited pricing flexibility.
  • If corporates are allowed to enter depository business, which could increase competition for CDSL.
  • Subdued market activities will impact CDSL revenue as majority of revenue comes from market linked activities.

Financials

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars FY16 FY17 FY18 FY19 FY20 FY21E FY22E
Net Sales 122.90 146.00 187.70 194.70 225.10 276.60 316.30
Employee Cost 21.50 24.90 30.30 34.20 47.30 52.00 56.90
Technology related Expenses 7.90 8.40 9.70 11.60 15.80 19.40 22.10
Other Operating Expenses 29.60 33.30 37.30 39.90 62.40 56.70 64.90
Total Costs 58.90 66.60 77.30 85.70 125.50 128.10 143.90
EBITDA 63.90 79.40 110.40 108.90 99.60 148.50 172.30
EBITDA Margin 52.00% 54.00% 59.00% 56.00% 44.00% 54.00% 54.00%
Depreciation & Amortization 4.20 3.70 7.00 9.90 11.70 13.20 14.40
Other Income 38.50 40.90 38.00 49.20 59.20 59.20 59.20
Profit Before Tax - Before Exceptional 98.20 116.60 141.40 148.20 146.70 194.20 216.80
Exceptional Items 33.10 - - - -10.60 - -
Profit Before Tax 131.30 116.60 141.40 148.20 136.20 194.20 216.80
Tax Expense 40.20 30.00 37.80 33.40 29.70 48.90 54.60
Net Profit 91.10 86.60 103.60 114.80 106.50 145.30 162.30
EPS 8.70 8.20 9.90 10.90 10.20 13.90 15.50
Source: Stockaxis Research, Company Data

Balance Sheet

(Rs Crores)

Particulars FY16 FY17 FY18 FY19 FY20 FY21E FY22E
Share Capital 104.50 104.50 104.50 104.50 104.50 104.50 104.50
Total Reserves 374.80 428.80 494.30 563.60 619.50 712.50 817.30
Minority Interest 14.70 15.50 15.90 41.30 41.90 41.90 41.90
Shareholders' Funds 494.00 548.80 614.70 709.40 765.90 858.90 963.70
Trade Payables 7.30 9.00 4.00 3.60 12.10 4.80 5.70
Provisions 68.00 105.60 11.80 13.50 18.40 18.40 18.40
Other Liabilities 128.80 117.50 57.90 53.90 66.00 66.00 66.00
Total Equity & Liabilities 698.00 780.90 688.40 780.50 862.30 948.10 1053.80
ASSETS
Property, Plant and Equipment 3.70 5.20 76.10 75.20 75.10 69.00 64.60
Sundry Debtors 13.00 13.30 18.90 19.10 26.00 22.70 26.80
Cash, Bank and Investments 497.80 551.20 563.00 653.00 718.30 813.40 919.40
Other Assets 183.50 211.20 30.50 33.10 42.90 43.00 42.90
Total Assets 698.00 780.90 688.40 780.50 862.30 948.10 1053.80
Source: Stockaxis Research, Company Data

Cash Flow Statement

(Rs Crores)
Particulars FY16 FY17 FY18 FY19 FY20 FY21E FY22E
Profit After Tax 91.10 86.60 103.60 114.80 106.50 145.30 162.30
Cash From Operating Activities 28.40 42.70 79.30 85.40 82.10 154.60 173.40
Cash Flow from Investing Activities 0.30 18.20 -67.10 -66.80 -32.70 -10.00 -10.00
Cash from Financing Activites -27.70 -31.40 -37.70 -20.10 -50.50 -52.30 -57.50
Net Cash Inflow / Outflow 1.00 29.50 -25.50 -1.40 -1.00 92.40 105.90
Opening Cash & Cash Equivalents 0.90 2.00 31.40 5.90 4.50 3.50 95.80
Closing Cash & Cash Equivalent 2.00 31.40 5.90 4.50 3.50 95.80 201.70

Valuation

CDSL delivered robust performance in Q1 driven by strong traction in transaction charges. We believe there is a strong tailwind with increase in trading volumes and retail participation. CDSL is a proxy to capital market growth and it continues to gain market share from NSDL. We like CDSL because of duopoly nature of business, low capex requirement and cash rich balance sheet. We initiate ‘Buy’ on CDSL for long term horizon.