Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities
CDSL (Q4FY20 Results Review): Robust performance continues. Maintain BUY.
(TP Rs 325, CMP Rs 242, MCap Rs 25 bn)
CDSL delivered robust performance in a challenging environment. Both revenue and margin were higher than estimate, and the company's operation is not impacted due to Covid-19. The transaction charges increased for the second consecutive quarter and KYC revenues have surged. SEBI recently allowed Aadhaar based e-KYC for account opening, which will further boost CVL-KYC volumes. CDSL continued to gain BO account market from NSDL (stood at 52.4% in April-20 vs. 48.4% in FY19). We value CDSL on SoTP basis by assigning 30x to FY22E core profit and adding net cash to arrive at a TP of Rs 325. Maintain BUY.
Revenue was up 10.7% QoQ to Rs 599mn (vs est. of Rs 556mn) driven by 17.6/28.4% QoQ growth in Transaction charges/Online data charges. Surprisingly, the IPO/corporate action revenue grew 56.4% QoQ.
Annual issuer revenue (34.4% of rev) was flat QoQ but was up 15.4% in FY20. CDSL unlisted market share is at 30%, which can go up with new incentive structure for CS and RTAs. A total of 2,011 unlisted companies applied for demat in FY20. CDSL is adding ~150-200 unlisted companies per month vs. ~350-400 by NSDL. In the near term, new additions can be impacted due to lockdown, but it remains a multi-year growth opportunity.
Adjusted EBIT margin was up 905bps to 52.7%, higher than our est. of 44.3%. Margin expansion was led by lower employee cost offset by higher technology cost. The EBIT margin for FY20 stood at 42.9, down 793 bps YoY due to lower margin Govt. project in 1HFY20.
CDSL total number of BO account stood at 21.2mn in FY20, +21.7% YoY. The incremental market share of CDSL is at 78% and BO account market share of 52.0% (FY20). Net cash stands at Rs 7.18bn (~29% of MCap) and OCF/EBITDA stands at healthy 80.4% vs. 78.4% in FY19.
CDSL has a diversified revenue stream, ~35% of the revenue is annuity in nature and ~45% is market linked (Transaction, IPO/corporate action and KYC). Positives include (1) Demat of ~70K Unlisted public companies, (2) Proposed hike in Annual Issuer Charges, (3) Pickup in Transaction and KYC revenue and (4) Approval for e-KYC. On the flip side, termination of NAD project was a negative surprise. Other initiatives like Insurance and Commodity repository remain on track. We expect revenue/EBIT/Core PAT to grow at a CAGR of 9/12/12% over FY20-22E. The company trades at a P/E of 21/18x FY21/22E earnings.