Private Client Research

Rating

Buy

Sector

Depository Services

Company

Central Depository Services (India) Ltd

Depository Services

August 18, 2020

Sensex: 38528.32

CNX Nifty: 11385.35

NSE: CDSL

BSE: Not Listed

Reco Price

Rs. 370

3 years to get optimum return

Date

August 18, 2020

Sensex

38528.32

CNX Nifty

11385.35

Exchange

Code

NSE

CDSL

BSE

Not Listed

Stock Data

CMP (Rs)

364.40

Face value (Rs)

52 Week Range (Rs)

372.95 - 179.80

Market cap (Rs Crores)

3807.98

Price To Book Value (x)

6.61

P/E Ratio (x)

40.61

EV/EBIDTA (x)

29.77

One Year indexed Stock Performance

Central Depository Services (India) Ltd Sensex

Return (%)

12m

36m

Absolute

13.34

95.69

262.80

Sensex

1.33

-4.78

3.71

22.96

Shareholders

(in %)

30-Jun

Promoter

Public

Others

Total

100

+91 22 6639 3000

research@stockaxis.com

Profile

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.

Proxy on the capital markets growth story

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 30^th 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.

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.

Industry

The presence of depositories supports the capital market growth in a variety of ways including substantial reduction in bad deliveries, enhanced liquidity of securities, reduction in transaction cost, elimination of problems relating to change of address of investors, transmission etc, makes faster disbursement of non-cash corporate benefits like rights, bonus, etc. possible, faster settlement cycle.

Business of depositories grows in direct proportion to growth in capital markets. The past three-to-four years have witnessed a steady structural shift of savings from physical assets such as real-estate and gold into financial assets. The prevailing positive interest rates should enable this trend to continue. Within financial assets, the allocation towards equities has been increasing steadily due to the relatively low base; given that the retail investor has traditionally been under-invested in equities.

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

Source: Stockaxis Research, Company Data

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.

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