Maintain BUY on CDSL - Market share gain impressive - HDFC Securities

Ms. Amit Chandra, Institutional Research Analyst, HDFC Securities.

CDSL delivered a robust performance both on the revenue and margins front, driven by traction in transaction charges (32% of revenue, +59.2% QoQ). The transaction charges surged due to high retail activity, an increase in delivery volume, and strong addition of new accounts. The COVID-19 impact was felt on KYC revenue (April and May-20) and the addition of unlisted companies. NSDL also witnessed a ~59% drop in the addition of unlisted companies. CDSL continued to gain BO account market share from NSDL (stood at 53.7% in June-20 vs. 48.4% in FY19). Its incremental market share stood at 85% due to exclusive arrangements with discount brokers. BO accounts are the building blocks for a depository and have a high correlation to revenue growth. SEBI allowed Aadhaar-based e-KYC for account opening, which will boost KYC volumes. We increase the FY21/22E EPS estimate by 20.1/16.8% due to a surge in transaction revenue and expansion in margins. We value CDSL on an SoTP basis by assigning 30x to June-22E core profit and adding net cash to arrive at a target price of Rs 412. The stock trades at a P/E of 25.3/22.5x FY21/22E EPS. Maintain BUY.

1QFY21 highlights: CDSL revenue was up 9.0/11.8% QoQ/YoY to Rs 0.65bn, higher than our estimate of Rs 0.64bn. Annual issuer/transaction charges contributed 32.2/31.5% to revenue and were up 7.7/59.2% QoQ. KYC/IPO-corporate action revenue was down 33.2/17.1% QoQ. The total number of BO account stood at 23.16mn in June-20, +28.7% YoY. The incremental market share of the company jumped to 85%, and it now stands at 53.7% (+470bps YoY), which is impressive.

Adjusted for one-offs last quarter, EBIT margin was up 186bps to 54.5%, in line with our estimate of 54.7%. Employee cost was up 8.8% QoQ due to the wage hike. The margins will expand with growth due to embedded non-linearity in the business.

Source : Equity Bulls

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