Result Update: Central Depository Services (India) Ltd - BUY - TP Rs.290 - KotakCentral Depository Services (CDSL) 2QFY19 performance was above our estimates, driven by strong revenue growth and higher than expected other income. Depository activity charges grew 19% sequentially. Owing to the volatile capital markets, the contribution from IPO/corporate action declined ~27% YoY, while transaction charges were largely flat.
- Central Depository Services (CDSL) has reported higher than estimated EBITDA in 2QFY19, which rose 13.9%/33% YoY/QoQ to Rs342 mn, with an EBITDA margin of 64.3%, up 80bps/750bps YoY/QoQ, driven by strong revenue and cost control.
- Strong operating performance coupled with 7.3%/88.6% YoY/QoQ growth in other income, led to 17.2%/42.9% YoY/QoQ jump in PAT to Rs315mn
- CDSL continues to focus on increasing DPs with net beneficial owner accounts increased to 16 mn in Q2FY19 from 15.6 mn in 1QFY19, with an incremental market share of 64%.
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. Besides this, compulsory demat of unlisted companies if it materializes, will further support higher valuation. Despite better than expected performance, we have revised our estimates downwards, factoring lower than expected contribution from IPO/Corporate Action in 1HFY19. Our revised earnings stands at Rs10.2 (earlier Rs10.6) and Rs11 (earlier Rs12) for FY19E and FY20E, respectively. We reiterate our BUY rating with revised target price of Rs290 (earlier Rs.320). At CMP, the stock is trading at 22.5x/21.0x FY19E/FY20E earnings.