Multiple tailwinds propel CDSL scrip

KS Badri Narayanan Chennai | Updated on September 02, 2020 Published on September 02, 2020

Hits new high of ₹491 as new margin system and market share gains boost the sentiment

Shares of BSE-owned Central Depository Services (India) Ltd (CDSL) hit a fresh all-time high of ₹490.65 on Wednesday as developments such as introduction of new margin system by SEBI and record high new account openings acted as a trigger for the stock.

The NSE-listed CDSL closed the day at ₹481, up 17.63 per cent from its previous day's close. Analysts said growing revenue opportunities on account of SEBI regulation, higher market share vis-a-vis NSDL, forthcoming big public issues (LIC and UTI to name a few) and strong fundamentals boosted the bullish sentiment for CDSL.

2.5-crore accounts

The company, which recently received UIDAI approval to use Aadhaar-based eKYC, on Wednesday said that the net number of active demat accounts crossed a new milestone of 2.5 crore. According to CDSL, it has added 1.5 crore fresh demat accounts in less than five years.

The asset-light model and duopoly play on the secular increase in stockholder accounts, coupled with potential market share gains, are an added positive, said Monarch Networh Capital.

SEBI has made it mandatory to collect upfront margin from investors in the cash segment from September 1. The process of placing the shares in the margin has changed. The value of shares in a demat account cannot be counted in the credit against the margin.

SEBI has said that brokers should create a legal pledge of share based on specific instructions. This creation and revocation of pledge attracts charges from the depository players (DPs) such as Central Depository Services Ltd (CDSL) and National Services Depository Ltd (NSDL) and has to be borne by clients.

Revenue opportunities

“Our interaction with laterals hints that this could well be a good revenue opportunity for the depositories,” Monarch Networth said. "However, given the nascent nature of its implementation and the potential therein, it is difficult to pre-empt the extent of revenue opportunity for depositories,” it added.

According to Ventura Securities, “With the brokerage industry undergoing a rapid pricing-based disruption, we expect retail participation to grow significantly. Consequently, CDSL’s DP revenues are expected to grow at a CAGR of 18.7 per cent to ₹72 crore by FY23.”

Improving macro variables (demographics, per capita income), push towards financial inclusion, and a shift in savings towards financial assets bode well for capital market intermediaries. “Among various market participants (AMCs, exchanges, securities), we believe depositories are better-placed,” said Monarch Networth, which initiated the stock with a ‘Buy’ and a price target of ₹525.

Given market share gains in terms of beneficiary accounts, diversified revenue mix, including healthy contribution from subsidiaries, operating leverage benefit and an asset-light model, Monarch Networth expects CDSL to deliver 15.1 per cent/18.7 per cent/21.1 per cent CAGR in revenue/EBIDTA /earnings over FY20-22.

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Published on September 02, 2020
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