Central Depository (India) Services Ltd. (CDSL) IPO: Subscribe!! IIFL

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IPO: Central Depository (India) Services Ltd. – Subscribe
Issue Opens: 19-June-17, Issue Closes: 21-June-17, Price Band: Rs.145-149
Central Depository (India) Services Ltd. (CDSL), one of the two depositories in the country, has picked up pace over the last three fiscals to become India’s leading securities depository by incremental growth of Beneficial Owner (BO) accounts and by total number of registered Depository Participants (DPs) . While its sole competitor, NSDL, currently holds ~56% of BO market share, CDSL has improved its share from 40% in FY14 to 44% in FY17, to achieve a client base of ~12.4mn. Stability in operating income is the key growth stimulant for CDSL on the back of fixed annual charges from registered companies and transaction-based fees from DPs. Besides, corporate services like e-notices and e-voting, KYC offerings via CDSL Ventures and electronic insurance policies via CDSL Insurance provide additional source of revenue.
Robust margins have come from stable income sources, helped by low operational costs from efficient operations, high economies of scale and innovative service implementations. Also, its direct DP connection through a centralized database system ensures relatively low initial set up costs and minimal incremental costs. During FY15-17, CDSL posted decent revenue CAGR of 17.8% while operating margin improved significantly from 44% in FY15 to 54.5% in FY17. As the company is the first depository to get listed on the bourses, there are no comparable valuations as such. However, we are upbeat on the IPO and recommend ‘subscribe ’ given its strong fundamentals and clean balance sheet.