HDFC Securities' research report on CDSL
CDSL delivered a muted performance on revenue but margin came in above estimate. Revenue declined 3.4% QoQ due to a drop in transaction charges, IPO/corporate action, and e-voting. The transaction revenue run-rate, which almost tripled YoY, declined 6.9% QoQ (ex-Pledge) due to moderation in retail activity. Revenue from pledge (~INR 10mn monthly) will provide some cushion to transaction charges (market-linked). The annual issuer revenue (annuity) was stable, the rate hike is pending and the unlisted opportunity is unfolding, albeit at a slower pace. BO accounts are the building blocks for a depository business. CDSL continued to gain BO account market share from NSDL (stood at 58.1% in Dec-20 vs. 50.1% in Dec-19). Its incremental market share stood at 86% due to exclusive arrangements with discount brokers. Margin expanded 409bps QoQ to 65% (above expectation) due to lower provisions and overall cost savings.
Outlook
We cut our revenue estimates for FY22/23 by 6.0/5.9% due to moderation in growth (high base). FY22/23E EPS gets cut by 3.2/1.7%. We value CDSL on SoTP basis by assigning 30x to Dec-22E core profit and adding net cash to arrive at a target price of Rs 580. The stock trades at a P/E of 27.2/26.2x FY21/22E EPS. Maintain BUY.
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