CDSL - Good business, rough weather

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CDSL has a diversified revenue stream, ~36% of the revenue is annuity in nature and ~42% is market-linked (Transaction, IPO/corporate action and KYC). The big opportunity related to demat of ~60K unlisted public companies is unfolding. At current run-rate, it will contribute ~7% to FY20 growth with negligible incremental cost. Transactions charges/KYC revenue will revive with better retail participation and improved market sentiments. New revenue streams like National Academic Depository (NAD) and e-warehouse receipts are future growth drivers. We have moderated our estimates for FY20/21E and now expect revenue/EBIT/PAT to grow at a CAGR of 12/5/6% over FY19-22E.

HDFC Sec has a BUY Rating with a Target Price of Rs 286

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JM Financial on the CDSL Stock

CDSL’s annuity based revenue stream, new growth avenues of commodity repository, academics and dematerialisation of unlisted public companies, fixed operating costs, robust cash flow generation coupled with a strong balance sheet and stable dividend policy is likely to drive earnings growth. a) Low pricing power, b) dependence on capital market volume, c) regulatory oversight (new license issue), are the key risks to our estimates. Return ratios are optically suppressed due to net cash of c.INR 7.1bn in the Balance Sheet. We forecast
a c.9% EPS CAGR over FY19-FY21E and value the stock at 25x FY21E. Maintain BUY with target of Rs 322.