I HAVE IN PAST ADVISED AGAINST INVESTING IN CDSL STOCK BECAUSE OF UNJUSTIFIED VALUATIONS. AT RS. 280/ SHARE, MY VIEW STANDS CHANGED. FEEL FREE TO TREAT THIS AS A RECOMMENDATION.

Incorporated in 1999, Central Depository Services (India) Limited (CDSL) (promoted by The Bombay Stock Exchange) is the leading securities depository in India. The Company offers dematerialization service for a wide range of securities including equity shares, preference shares, mutual fund units, debt instruments, government securities.

CDSL has 44% market share in terms of total demat accounts (as of end FY 2017).

The Company has also set up CDSL Ventures Limited – the 1st and largest KYC Registration Agency (KRA) in the country and CDSL Insurance Repository Limited for demat of insurance policies and CDSL Commodity Repository Limited for keeping electronic record of Electronic Negotiable Warehouse Receipts (eNWR).

  • On June 30, 2017, CDSL got listed on NSE at a premium of 68% over the issue price of Rs.149.
  • The stock got listed at Rs. 250 on 30th June, 2017 and on 14th July, 2017, the stock touched a high of Rs. 486.
  • CMP (22nd March, 2018) – Rs. 282

CDSL-Stock-Analysis-Revenue-stream

Strong Profitability Margins, Healthy Return Ratios

Particulars (In Rs. Cr.) 2013 2014 2015 2016 2017
Total Income from Operations 90.75 88.93 105.42 122.85 146.00
Expenses 55.01 56.22 60.00 59.30 66.59
EBITDA 35.73 32.72 45.42 63.55 79.41
Depreciation 2.61 4.97 6.24 4.19 3.70
Finance Costs 0.00 0.00 0.00 0.00 0.00
Other income 33.30 33.89 21.76 16.58 40.85
Exceptional items 0.00 0.00 1.68 33.10 0.00
PBT 66.43 61.64 62.62 109.04 116.56
Tax 15.18 12.94 19.20 35.12 29.97
Extraordinary Items 0.73 (0.85)
PAT (before Minority Interest and share of Associates) 50.52 49.55 43.42 73.92 86.59
Profit attributable to MI 0.58 0.20 0.24 0.22 (0.81)
Income Attributable to Consolidated Group 49.94 49.35 43.66 74.14 85.78
EPS 4.78 4.72 4.18 8.71 8.21

Profitability Ratio

Particulars 2013 2014 2015 2016 2017
EBITDA Margin (%) 39.38% 36.79% 43.08% 51.73% 54.39%
Net Profit Margin (%) 55.03% 55.49% 41.42% 60.35% 58.75%

Balance Sheet Figures

Particulars (In Rs. Cr.) 2013 2014 2015 2016 2017
Share Capital 104.50 104.50 104.50 104.50 104.50
Reserves & Surplus 224.01 248.91 264.90 307.60 428.82
Net worth 328.51 353.41 369.40 412.10 533.32
Non-Controlling Interest 12.37 13.57 14.30 14.08 15.49
Long Term Borrowings 0.00 0.00 0.00 0.00 0.00
Current liabilities 53.12 66.26 85.16 64.45 57.08
Other long term liabilities and provisions 21.57 21.64 22.30 23.03 0.61
Deferred tax liabilities 0.11 0.02 0.00 0.75
Total Liabilities 415.57 454.99 491.18 513.66 607.25

 

Particulars (In Rs. Cr.) 2013 2014 2015 2016 2017
Fixed Assets 9.78 9.79 6.69 3.67 5.48
Noncurrent Investments 25.76 44.69 211.72 193.61 272.90
Current assets 364.96 383.68 255.36 294.40 303.78
Long term advances and other noncurrent assets 10.45 12.80 12.02 14.29 22.80
Deferred Tax Assets 4.62 4.04 5.39 7.69 2.29
Total assets 415.57 454.99 491.18 513.66 607.25

Efficiency Ratio

Particulars 2013 2014 2015 2016 2017
Return on Capital Employed 10.48% 8.91% 11.84% 14.91% 14.47%
Return on Equity 15.38% 14.02% 11.75% 17.94% 16.24%

Stable/Recurring Revenue Stream

The Company has diversified offerings for its several clients which are DPs, corporate, stock exchanges, clearing corporations, registrars and investors. This has provided the company with multiple streams of stable and recurring operating revenue like income from fixed annual charges (AMC) collected from companies registered with them and transaction-based fees collection. Nearly 39% of revenues come from annual listing fees, which are steady in nature and 21% from transaction charges. On comparative basis, National Securities Depository Limited (NSDL) derives only 7% of its revenues from annual fees and 51% of revenues come from transaction charges. This lends higher revenue visibility for CDSL compared to NSDL, which is its only competitor.

Various fees/ charges levied by CDSL to DPs

Service offered Charges/fees (Rs.)
Minimum Monthly Bill 8,000
Account Maintenance charges for Corporates 500
Transaction Charges : per credit transaction into the Principle Account that originates from the Clearing House Account 5.5
Settlement Charges per month 500
Rematerialisation Fee For every 100 securities Rs. 10 Part thereof; subject to maximum 5,00,000 Or Flat fee Rs. 10 per certificate , whichever is higher
Corporate Action Charges 10 per record

Record Growth in Number of Demat Accounts

CDSL’s number of demat accounts has grown at a CAGR of 8.6% over FY 2011-17 to 1.23 Cr., compared to 5.1% for NSDL over the same period to 1.56 Cr.

So far in FY 2017 until (March 2017), 3.76 million new Demat accounts have been opened which crosses the all-time high of 3 million accounts opened in FY 2008. Every Demat account is a future revenue stream for Depositories.

Debt Free Company and Consistent Dividend Payouts

Year FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Dividend/Share (In Rs.) 2.00 2.00 2.20 2.50 3.00

Increased Participation of Investors in Equity Market

Competition

There is no listed player in this space. CDSL competes with NSDL (National Securities Depository Limited), which commands 56% market share.

NSDL FINANCIALS

Particulars FY14 FY15 FY16 FY17
Revenue (In Rs. Cr.) 132.47 159.78 184.51 185.98
Growth 21% 15% 1%
EBITDA (In Rs. Cr.) 28.01 41.26 75.33 77.06
EBITDA Margin 21.14% 25.82% 40.82% 41.43%
PAT (In Rs. Cr.) 43.44 51.66 94.76 79.57
PAT Margin 32.79% 32.33% 51.36% 42.79%
EPS (In Rs.) 10.86 12.92 23.69 19.89
EPS Growth Rate 19% 83% -16%

 

Shareholder funds (In Rs. Cr.) 319.21 358.84 441.56 471.18
Debt (In Rs. Cr.) 0.00 0.00 0.00 0.00
Cash (In Rs. Cr.) 79.37 47.76 48.91 79.25
  

Ratios

D/E 0.00 0.00 0.00 0.00
Interest Coverage Ratio NA
ROCE 8.77% 11.50% 17.06% 16.35%
ROE 13.61% 14.40% 21.46% 16.89%

Competition from NSDL – Comparison of CDSL & NSDL

  NSDL CDSL
Market Share FY 2017 56% 44%
Market Share FY 2014 60% 40%
Revenue CAGR (3 year) 12% 11%
No. of Demat Account FY 2017 1.56 Cr. 1.23 Cr.
No. of Demat Account FY 2014 1.31 Cr. 0.88 Cr.

General Risks – Slowdown in share market, change in consumer preference to some other financial products, High dependence on technology and IT services sourced from third parties.

Appointment of CERSAI as central KYC registration agency may have a significant adverse impact on the business prospects and result of operations of its subsidiary, CDSL Ventures.