Result Update: Central Depository Services (India) Ltd - BUY - TP Rs.320 - Kotak

Central Depository Services (CDSL) 1QFY19 operating performance was in line, but lower other income weigh on PAT. Owing to the volatile capital markets, key segments (except data processing) grew at subdued pace. Data Processing revenue declined on challenging capital markets and lesser primary market traction.

Key Highlights

- Central Depository Services (CDSL) has reported an in-line EBITDA in 1QFY19, which rose 11.9% YoY to Rs257 mn (-13% QoQ), with an EBITDA margin of 56.8% vs 56.6% in 1QFY18 (supported by cost control).

- CDSL continues to focus on increasing DPs with net beneficial owner accounts rising by 24% YoY to 15.3mn, which implies the highest ever incremental addition of ~3mn accounts, with an incremental market share of 71%.

Valuation & outlook

- CDSL's annuity based revenue stream, new growth avenues of Insurance & Academics, fixed operating costs, robust cash flow generation coupled with a strong balance sheet and stable dividend policy is likely to drive earnings growth and keep valuation at the higher side. Return ratios are optically suppressed due to cash in the Balance Sheet. Besides this, compulsory demat of unlisted companies if it materializes, will further support higher valuation. We reiterate our BUY rating with an unchanged target price of Rs320. At CMP, the stock is trading at 25.3x/22.4x FY19E/FY20E earnings.

Source : Equity Bulls

Keywords