Broker’s call: CDSL (Buy)
Target: Rs 1,470
CMP: 1,207 rupees
Central Depository Services India Limited (CDSL) had two years of strong growth (over 50 percent yoy in FY21-22, driven by approximately 4/4x increase in transactional revenue/Demat accounts), which leveled off in FY23. Growth in the year was affected Financial 23 declined by 17 percent in market-related revenue (transactions, IPO, and KYC (fetch), offset by a 30 percent annual growth in annuity flow (annual issuer fee, electronic voting, and e-CAS).
We expect the Company’s growth to recover in FY24, supported by recovery in the BO account addition, increased transaction revenue driven by growth in delivery volume and continued growth in the annual revenue stream. CDSL continues to lead the market in the number of BO accounts, with a market share of 73 percent and an additional share of 85 percent.
CDSL is adding about 20 accounts per month, which is up 46 percent year-over-year but down 36 percent from the peak. The insurance opportunity remains an option value (a regulatory payment) and would add about 7 percent to revenue, assuming a 25 percent market share.
We increased our EPS estimate by about 5/7 percent for FY24/25, which means revenue/EBITDA/APAT CAGR of 18/21/20% over FY23-26. We have upgraded our rating to Buy from ADD and set a TP of INR 1,470.