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Maintain BUY on CDSL - Firing on all cylinders - HDFC Securities

Posted On: 2020-10-28 09:18:48

Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

CDSL delivered a robust performance, driven by traction in transaction charges (34% of revenue, +48.2% QoQ). The transaction charges surged due to high retail activity, an increase in delivery volume, and strong addition of new accounts (+35% YoY). Increase in pledge activity due to change in regulations will further boost transaction revenue in 2H. Online data charges (+32% QoQ) revived, led by a strong increase in KRA records (+26% YoY). The pandemic has led to increased demand for Digital services (virtual AGMs, e-voting, Aadhaar based e-KYC, etc.) and CDSL is the prime beneficiary. CDSL continued to gain BO account market share from NSDL (stood at 56.1% in Sep-20 vs. 51.8% in FY20). Its incremental market share stood at 87% due to exclusive arrangements with discount brokers. BO accounts are the building blocks for a depository and have a high correlation to revenue growth. Margin expanded 264bps QoQ to 60.9% and was in line with expectation. We increase the FY22/23E EPS estimate by +9.1/+8.2% due to a surge in transaction revenue. We value CDSL on SoTP basis by assigning 30x to Sep-22E core profit and adding net cash to arrive at a target price of Rs 565. The stock trades at a P/E of 25.6/23.4x FY21/22E EPS. Maintain BUY.

2QFY21 highlights: CDSL revenue was up 36.7/69.4% QoQ/YoY to Rs 0.89bn, higher than our estimate of Rs 0.72bn. Annual Issuer/Transaction/IPO/KYC revenue was up 3.9/48.6/54.2/32.0% QoQ. Net cash stood at Rs 8.1bn (16% of Mcap) and cash conversion (FCF/PAT at 98%) improved. Technology cost was up 42.3% QoQ due investment in IT infrastructure and other expenses increased 43.3% QoQ, driven by higher provisions (+243% QoQ). Investments in technology will continue, and further margin expansion will be a function of growth; we have assumed EBITDA margin of 59.4/60.1/60.7% in FY21/22/23E.

Source: Equity Bulls

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