Central Depository Services (India) Ltd. (CDSL) is a leading securities depository in India by incremental growth of Beneficial Owner (BO) accounts over the last three years and by the total number of registered Depository Participants (DPs), as at the end of FY16. However, in terms of market share (44%), it is the second largest depository in India.
CDSL has a 44% market share in total demat accounts in India in FY17. The Company has gained higher proportion of incremental demat accounts in the last four years. Over FY15-17 the Company has reported 17.8% sales CAGR and 23% profit CAGR. It has a distinctive business model which a) operates into highly regulated and high-entry barriers industry b) need limited capital requirement for its operations c) Scalable business model with diversified revenue streams. The Company enjoys debt-free cash – rich status.
CDSL is a play on increasing financial literacy, financial services penetration and secular growth story of securities markets in India. At the upper band of the offer price of Rs149, the issue is priced at PER of 18xFY17 earnings. Given the strong growth prospects and CDSL’s market positioning, we find issue price valuations reasonable and hence recommend SUBSCRIBE to the issue.
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