Target: ₹1,470
CMP: ₹1,207
Central Depository Services India Ltd (CDSL) registered two years of solid growth (over 50 per cent YoY in FY21-22, driven by about 4/4x rise in transaction revenue/Demat accounts), which flattened in FY23. The growth in FY23 was impacted by a 17 per cent decline in market-linked revenue (transaction, IPO and KYC (fetch), offset by a 30% YoY growth in the annuity stream (annual issuer charges, e-voting and e-CAS).
We expect the company growth to recover in FY24, supported by recovery in BO account addition, higher transaction revenue driven by growth in delivery volume and continuity of growth in the annuity revenue stream. CDSL continues to be a market leader in the number of BO accounts, with a 73 per cent market share and 85 per cent incremental share.
CDSL is adding about 20 lakh accounts monthly, which is up 46 per cent YoY but down 36 per cent from the peak. The insurance opportunity remains an option value (regulatory push) and will add about 7 per cent to revenue, assuming a 25 per cent market share.
We increase our EPS estimate by about 5/7 per cent for FY24/25, implying revenue/EBITDA/APAT CAGR of 18/21/20 per cent over FY23-26. We upgrade our rating to BUY from ADD and assign a TP of ₹1,470.