Company Background :
Central Depository Services (India) Limited operates as a securities depository in India. The Company offers service for a range of clients, such as depositary participants and other capital market intermediaries, corporates, capital market intermediaries, insurance companies and others. The Company offers dematerialization for a range of securities, including equity shares, preference shares, mutual fund units, debt instruments, government securities.
As a securities depository, the Company facilitates holding of securities in electronic form and enable securities transactions (including off-market transfer and pledge) to be processed by book entry. The Company provides services for capital market intermediaries by offering know your customer (KYC) services in respect of investors in Indian capital markets to capital market intermediaries including mutual funds. It also offer other online services, such as e-voting, e-Locker, easi (electronic access to security information).
Financial Performance :
Central Depository Services Ltd. (CDSL) is the leading securities depository in India offering dematerialization (demat) services to Depository Participants (DPs) and other capital market intermediaries. CDSL’s primary segments consist of annual fees, transaction fees, annual maintenance charges and other charges contributing 39%, 21%, 2% and 38% to revenues respectively. The duopolistic nature of this industry with high entry barriers and constant rise in market share (increasing demat accounts) from 46% in FY12 to 64% in Q3FY18 bodes well for the company.
We expect sales CAGR of 20% over FY18E-20E. The penetration in stock market at mere 2-3% provides significant opportunity to CDSL. The increase in volumes along with efforts to improve efficiency through offering single demat account to investors and enabling centralized billing system and complete bouquet of products / services will support EBITDA growth. Hence, we expect EBITDA CAGR of 22% over FY18E-20E. We see PAT CAGR of 18% over FY18E-20E.
Stock Performance:
During the last 1 year the scrip has given following returns
The scrip has touched a low of 251 and a high of 398.
1 year - minus 39.12%
6 months - minus 14.63%
3 months - minus 12.32%
1 month - minus 4.48%
1 week - minus 4.15%
Recommendation :
Buy and add to your long term portfolio. In the short term 300 will be a good resistance point. The scrip may correct in the short term, and Rs.230 is the support level in case of a correction. Hold long term for a Target price of 365 in next 12 months and 425 for 18 months holding in view of the unique business model and booming primary & Mutual Fund markets.
Investment rationale :
The companies IPO oversubscribed 70 times in June 2017 and had peaked out at 398 it has been declining ever since and is now hovering near 52 week low of 250. A further slide is not ruled out from current levels.
Raghav
Equty Research Analyst
Smart Investor
Equity Research
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