CDSL - Strong momentum continues - HDFC Securities

Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

We maintain our BUY rating, following a strong revenue performance (+13.8% QoQ), driven by continued traction in transaction income and uptick in annual issuer charges. Key attributes that underscore our positive stance include (1) strong momentum in transaction revenue (+20% QoQ), driven by retail activity (online brokers) and pledge income, (2) continued gains in BO account market share (+1000bps YoY to 64%), (3) sustained growth in annual issuer charges (annuity income), driven by BO accounts addition and unlisted opportunity, (4) investments in technology for enhanced capacity/security, (5) high cash generation and net cash of INR 9.1bn and, (6) +27/31% revenue/EBITDA CAGR over FY21-24E, following a strong FY21. The operating margin expanded 156bps QoQ to 61.5% (stood higher than our estimate), led by operating leverage, offset by higher provisions and increase in regulatory cost. We increase our revenue estimates for FY22/23E by 10.7/14.6% and core P/E multiple to 45x (40x earlier). FY22/23E EPS increases by 17.8/17.6%. We value CDSL on an SoTP basis by assigning 45x to June-23E core profit and adding net cash to arrive at a target price of INR 1,440. The stock is trading at a P/E of 48.3/40.7x FY22/23E EPS.

Q1FY22 highlights: CDSL revenue stood at INR 1.17bn (+13.8/+79.7% QoQ/YoY), higher than our estimate of INR 1.08bn. The Annual issuer/transaction/KYC revenue were up +27.5/+19.6/+24.6% QoQ. Revenue from IPO/corporate action was down 40.6% QoQ, while other comprising e- voting and e-CAS revenue was up 11.2% QoQ. On the cost front, employee/technology/other costs were up 6/1.2/13.4%, but EBITDA margin expanded 138bps QoQ, led by strong growth. The other expenses were higher due to provisions (+14.1% QoQ), higher IPF contribution and elevated SMS cost. CDSL derives 67% of its revenue from market linked activity.

Outlook: We expect revenue growth of +40.8/+21.8 and an EBITDA margin of 63.3/66.4% in FY22/23E. The revenue CAGR of 27% over FY21-24E assumes+22/34/18/36% revenue CAGR in issuer/transaction/IPO/KYC revenue. Core PAT CAGR over FY21-24E is at +32%.

Source : Equity Bulls

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