CDSL IPO review – Worth investing

CDSL (Central Depository Services Limited) is one of the depository participants in India. CDSL are also a subsidiary of BSE Limited. They are coming with an IPO which will hit the primary market on 19^th June 2017 and closes on 21^st June 2017. They aim to raise around Rs. 523.99 crore by offering shares at Rs 145 – Rs 149 per Equity Share.

About Company

CDSL was incorporated at Mumbai on December 12, 1997. They are the leading securities depository in India. They commenced their depository business in 1999. They were initially promoted by the BSE which subsequently divested a part of its stake to leading Indian banks. They operate and maintain a central depository system, an electronic book-entry system used to record and maintain securities and to register the transfer of securities. They have connectivity with clearing corporations of all the leading Indian stock exchanges including the BSE, National Stock Exchange (“NSE”) and Metropolitan Stock Exchange of India. They have also entered into MoUs with depositories globally including with DTCC, JASDEC and Euroclear.

CDSL offers services in different sectors

• Depository Participants: They offer dematerialization of different types of securities including equity shares, preference shares, mutual fund units, debt instruments, government securities. As a securities depository, they facilitate holding of securities in electronic form and enable securities transactions (including off-market transfer and pledge) to be processed by book entry.
• Corporates: They offer facilities to issuers to credit securities to a shareholder’s or applicants demat accounts.
• Capital market intermediaries: They offer KYC services in respect of investors in Indian capital markets to capital market intermediaries including to mutual funds.
• Insurance Companies: They offer facilities to allow holding of insurance policies in electronic form to the holders of the insurance policies of several insurance companies.
• Others: They also offer other online services such as e-voting, e-Locker, National Academy Depository, easi (Electronic Access to Security Information), easiest (Electronic Access to Security Information and Execution of Secured Transaction) drafting and preparation of wills for succession (myeasiwill), mobile application (myeasi, m-voting) and Transactions using Secured Texting (TRUST). They also conduct investor meetings and other awareness programs.

They have a wide network of DPs. As of November 30, 2016, the total number of DPs registered with them was 584 with over 17,000 centres spread across 29 states and 7 union territories in India as well as two centres in Dubai and offering investor’s convenience of selecting a DP close to them. They are directly connected to their DPs through centralised database systems which ensure relatively low initial set up costs and minimal incremental costs. They provide affordable depository services to investors through competitive tariff structures.

Comparison of CDSL and NSDL (Both DP’s of India) in terms of Revenue:-

• CDSL holds an approximate market share of 43% while NSDL’s market share is 57%.
• The revenue of NSDL has grown at a CAGR of 12% over the previous four Fiscals as opposed to CDSL’s 11%.
• CDSL has a greater number of cities with at least 10 DP locations indicating greater pan-India coverage than NSDL.

Qualitative Factors

Some of the qualitative factors which form the basis for computing the Offer Price are:

1. a) Stable revenue base due to repeat business in multiple offerings in the Indian securities and financial services market
2. b) High economies of scale leading to steady growth in profitability
3. c) India’s leading securities depository with the highest share of incremental growth of BO accounts
4. d) Convenient and dependable depository services at competitive prices for a wide range of securities
5. e) State-of-the-art technology and robust infrastructure and IT systems and
6. f) Led by experienced senior management.

OBJECTS OF THE OFFER

The objects of the Offer are:-

• To achieve the benefits of listing the Equity Shares on NSE
• To enhance its visibility and brand image and provide liquidity to its existing Shareholders.

Financials

The revenue has been Rs. 145.47 cr. (FY15), Rs.161.34 cr. (FY16) and Rs. 186.85 cr (FY 17). growing at a CAGR of 8.70% over a three year period. The profit has been Rs. 57.49 cr. (FY15), Rs. 90.99 cr. (FY16) and Rs. 85.78 cr (FY 17) growing at an impressive rate of 14.3% CAGR. The EPS turn out to be 7.9 giving it a P/E of around 18. There is no other listed peer of CDSL and only competitor in the marketplace is NSDL which is not public.

With the increase in newer people joining stock market, there is a lot of room to grow for CDSL in the time to come.