CDSL
, a leading securities depository in the country is coming out with Public issue of 35,167,208 Equity Shares by way of an Offer for Sale. This Offer would constitute up to 33.65% of the post-Offer paid-up capital of the company. CSDL IPO is coming in quick succession to IPO of its promoter company BSE Ltd. The offer could value CDSL depository around Rs. 1400 crore. A quick review of CDSL IPO has been attempted.

Issue Period March 15,  2017 – March 17, 2017 (Expected)
Price BandRs.115 – 125
Issue Size (Rs.)Rs.1,400  Crores (Expected)
Issue size (Shares)Offer for Sale of 35,167,208 Shares
Lead ManagerEdelweiss Fin, Axis Capital,SBI Capital, Nomura 
About CDSL:

CDSL began depository business in 1999 with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. CDSL was initially promoted by the BSE which subsequently divested a part of its stake to leading Indian banks. The top 10 shareholders of CDSL at end of 2016 are BSE (50.05 per cent), SBI (9.57 per cent), HDFC Bank (7.18 per cent), Standard Chartered Bank (7.18 per cent), Canara Bank (6.45 per cent), Bank of India (5.57 per cent), Bank of Baroda (5.07 per cent), LIC (4.15 per cent), Union Bank (1.91 per cent) and Bank of Maharashtra (1.91 per cent). Promoter BSE, which holds 50.05% in CDSL will hold 24% post the offer in line with SEBI guidelines. SBI which holds 9.57% now will hold 5% while Bank of Baroda holding will come down to 2.99% from 5.07% currently . Calcutta Stock Exchange’s which holds 0.96% will have no stake after the IPO

CDSL has connectivity with clearing corporations of all the leading Indian stock exchanges including the BSE, National Stock Exchange (“NSE”) and Metropolitan  Stock Exchange of India. We have also entered into MoUs with depositories globally including with DTCC, JASDEC and Euroclear. CDSL derives its revenue from operations which includes transaction charges, account maintenance charges and settlement charges paid by DPs and annual fees, corporate action charges and e-voting charges paid by companies whose securities are admitted to its systems. Its major services offered to clients are:

  • Depository Participants and other capital market intermediaries: CDSL offers dematerialization for a wide range of securities including equity shares, preference shares, mutual fund units, debt instruments, government As a securities depository. CDSL facilitate holding of securities in electronic form and enable securities transactions (including off-market transfer and pledge) to be processed by book entry. The DPs act as its agent and offer depository services to the BO (Beneficial Owners) of the securities. The Registrar and Transfer Agents are the other intermediaries involved in the process of issue and transfer of securities on its electronic platform.
  • Corporates: CDSL offers facilities to issuers to credit securities to a shareholder’s or applicant’s demat accounts to give effect to a range of non-cash corporate actions such as bonus issue, subdivision of holdings and conversion of securities in a merger, amalgamation or in an initial public
  • Capital market intermediaries: CDSL offers KYC services in respect of investors in Indian capital markets to capital market intermediaries including to mutual funds
  • Insurance Companies: CDSL offers facilities to allow holding of insurance policies in electronic form to the holders of these insurance policies of several insurance companies.
  • Others: CDSL also offers other online services such as e-voting, e-Locker, National Academy Depository, easi (Electronic Access to Security Information), easiest (Electronic Access to Security Information and Execution of Secured Transaction) drafting and preparation of wills for succession (myeasiwill), mobile application (myeasi, m-voting) and Transactions using Secured Texting (TRUST). We also regularly conduct investor meetings and other awareness
As of November 30, 2016, CDSL had Over 11.6 million investor accounts. In Fiscal 2016, it held a 58% market share of incremental BO accounts with a net growth in BO accounts of 12.29% from Fiscal 2015 to Fiscal 2016. It had • Over 250 billion securities of 9,694 issuers under our custody representing a total value of `15.8 trillion. CDSL had 584 registered DPs who had over 17,000 service centres across India. CDSL also held over 14 million KYC records with a market share of approximately 67%.


In addition to securities depository services, CDSL Ventures is registered with the SEBI and the Unique Identification Authority of India, UIDAI as both an AUA (AADHAAR Authentication User Agency) and KUA(KYC User Agency. CDSL Ventures undertakes common Know Your Client “KYC” services for investors in the capital markets including to the mutual fund industry. As of November 30, 2016, it held over 14 million capital market investor records under the KRA representing approximately 67% market share.

Comparison of NSDL & CDSL

In terms of revenue, CDSL holds an approximate market share of 43% while NSDL’s market share is 57%.

The revenue of NSDL has grown at a CAGR of 12% over the previous four fiscals as opposed to CDSL’s 11%.

In terms of market share of demat accounts, CDSL has been growing at a higher rate with a CAGR of 8%, compared with 5% for NSDL.CDSL has experienced a growth in market share from 39% in Fiscal 2011 to 43% in Fiscal 2016.

CDSL’s market share with respect to incremental demat accounts has been growing at a higher rate, with a CAGR of 28% (as opposed to NSDL’s 14% growth) from year 2011 to year 2016.

Objective of the IPO:

  1. Achieve the benefits of listing the equity share on NSE
  2. Enhance its visibility and brand image and provide liquidity to its existing shareholder

Financials:
Rs. In Million
ParticularsHY201620162015201420132012
Revenue from Operations701.311,228.531,054.18889.34907.48962.44
Other Income175.01165.68217.62338.91333.01244.82
Total Revenue (I+II)876.321,394.211,271.801,228.251,240.491,207.26
Expenses:      
Employee Benefits 108.36215.62191.58174.52171.51124
Depreciation & Amortization 17.0841.9162.4249.6826.0840.16
Prelim. Exp. written off1.91
Other Expenses187.58377.35408.44387.67378.63231.56
Total Expenses313.02634.88662.44611.87576.22397.63
Profit bef Except./ Extraord Items, Tax 563.3759.33609.36616.38664.27809.63
Exceptional items-331.04-16.8826.68
Profit bef Extraord, Items & Tax 563.31,090.37626.24616.38664.27782.95
Tax expense166351.22192.02126.52154.16229.11
Net Profit aft Tax & bef Extraord. Items 397.3739.15434.22489.86510.11553.84
Extraordinary Items  -5.624.9
Profit after Tax & Extraord Items397.3739.15434.22495.48505.21553.84
Share of Minority7.21-2.23-2.41.985.820.4
Net profit aft Minority sahre390.09741.38436.62493.5499.39553.44
Net Profit Margin55.62%60.35%41.42%55.49%55.03%57.50%
Equity104510451045104510451045
FV101010101010
Net Worth4,511.054,120.963,694.023,534.103,285.123,030.26
RONW17.30%17.99%11.82%13.96%15.20%18.26%
NAV43.1739.4435.3533.8231.4429
EPS (Annualized)7.467.094.184.674.835.3
Estimated IPO size400crore    
Shares on sale35167208     
IPO Price (estimate)114     
P/E Ratio15.28     
P/B ratio2.64     
CAGR Revenue 3 yrs 10.62    
CAGR NP 3 yrs 14.08    
Assessment
  • CDSL is India’s leading securities depository and has shown with the highest share of incremental growth of BO (Beneficial Owner) accounts. It clocked a turnover of 101.4 crore  for the year ended 2016. The corresponding figure for NSDL stood at 137.5 crore.
  • While NSDL enjoys better revenues, In terms of market share of demat accounts, CDSL has been growing at a higher rate with a CAGR of 8%, compared with 5% for NSDL. CDSL has experienced a growth in market share from 39% in Fiscal 2011 to 43% in Fiscal 2016. But it terms of revenue, CDSL holds an approximate market share of 43% while NSDL’s market share is 57%. Further, the revenue of NSDL has grown at a CAGR of 12% over the previous four Fiscals as opposed to CDSL’s 11%.
  • On a consolidated basis, CDSL total revenue grew at a CAGR of 6.54% from Rs. 1,228.25 million in Fiscal 2014 to Rs. 1,394.21 million in Fiscal 2016 and net profit after tax grew  at a CAGR of 22.57% from Rs. 493.50 million in Fiscal 2014 to 741.38 million in Fiscal 2016. The CAGR for revenues and Net profit for last three years stands at 10.62% and 14.08% respectively.
  • CDSL enjoys excellent Profit Margins. Its Net Profit in general has been more than 50% for most of the years. CDSL derives a large proportion of its revenues from sales of it’s services to investors through DPs and service centers of DPs and present lower penetration of market and heightened activity in preceding period bodes well for CDSL.
  • While SBI and BOB are trimming down their stake in CDSL, Some other large holders like HDFC Bank (7.18 percent), Standard Chartered Bank (7.18 percent), Canara Bank (6.45 percent), Bank of India (5.57 percent), LIC (4.15 percent) are not selling their stake which indicated good confidence in growth prospect of CDSL.
  • CDSL has  a high stability of operating income from the fixed DP  charges  and transaction- based fees collected from DPs.
  • CDSL Dividend payout has been increasing over the years. The dividend paid (including dividend distribution tax) in Fiscals 2016, 2015 and 2014 was  Rs. 314.44 million, Rs. 276.70 million and Rs. 244.52 million respectively.
  • CDSL has  a wide network of DPs, who act as points of service for our investors, operating from over 17,000 sites across the country, offering convenience for an investor to select a DP based on its cost structure and locational convenience to engage its services. As of November 30, 2016 CDSL had 584 DPs servicing across 29 states and 7 union territories including two overseas centres. The number of DP locations grew at 21.37% from 11,381 in Fiscal 2014 to 16,764 in Fiscal 2016. 
  • CDSL has considerable investments in debt securities. The yield on these investments may be affected by falling interest rates and could consequently result in lower contribution.
  • Presently NSDL & CDSL are leading players in this segment. Any other entrant can pose a risk to them in terms of market share & pricing.
  • CDSL has been doing some diversification and expansion into related areas. CDSL is now in the process of applying for registration as a registrar and transfer agent.
  • FII Holding in all depositories including CDSL is capped at 49%. However with BSE and sponsors holding more than 50% this is not a issue at this juncture.
  • CDSL Stable revenue base due to repeat business in multiple offerings in the Indian securities and financial services market. Further CDSL has high economies of scale leading to steady growth in profitability.  CDSL offers convenient and dependable depository services at competitive prices for a wide range of securities
  • CDSL has put in place a State-of-the-art technology and robust infrastructure and IT systems which should help it to meet growing demand.
  • CDSL IPO if priced around 115-125, shall be at a PE of approx 16 and considering its unique position and prospects for capital markets with last year being a record year for IPOs and this year too looking promising for IPOs which helps to bring in more Demat accounts, CDSL at estimated price band looks  reasonable.
  • CDSL IPO size being small, investors may get tough allotment. Hence Kostak (application form rate) is likely to be lower.
  • Keeping all factors in mind, I am likely to subscribe to CDSL IPO unless price band is totally of the mark.

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.