What is CDSL?
Central Depository Services India Limited (CDSL) is a depository that holds securities in dematerialized form and facilitates trading and settlement of securities to be processed by book entry. It is the second largest central depository of securities in India, based in Mumbai, Maharashtra. The depository began its operations in February 1999. It is promoted by Bombay Stock Exchange in association with prominent banks of the nation, i.e. State Bank of India, Union Bank of India, Bank of Baroda, Bank of India, Standard Chartered Bank, etc…
CDSL also offers facilities to issuers to credit securities to a shareholder’s or applicant’s demat accounts; Know your customer(KYC) services in respect of investors in capital markets to capital market intermediaries; and facilities to allow holding of insurance policies in electronic form to the holders of these insurance policies of various insurance companies. The primary competitor of CDSL is NSDL(National Securities Depository Ltd).
NSDL, the first and largest depository in India, established in August 1996 and promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standards that handles most of the securities held and settled in dematerialized form in the Indian capital market.
CDSL IS OFFERING IPO:
CDSL is the first mover for IPO in the depository segment. After the blockbuster debut at premium of 35%, BSE had astonished the markets in early months of 2017. Now, investors are bracing themselves for the much-awaited initial public offering (IPO) of BSE promoted Central Depository Services Limited (CDSL). CDSL would be the first depository in the country to get listed on the Indian bourses.
Market speculates that the CDSL IPO may have price band of Rs 145 to Rs 149 per share to rise around Rs 520 cr. The IPO is expected to open on June 19.
The depository is seeking valuations of around Rs 1,500 crore and BSE’s stake in the company is likely to come down to 24% from current holding of 50%, according to sources quoted by a leading national news agency.
Issue Detail:
- Issue Open
- Issue Type: Book Built Issue IPO
- Issue Size: 35,167,208 Equity Shares of Rs 10 aggregating up to Rs [.] Cr
- Face Value: Rs 10 Per Equity Share
- Issue Price: Rs – Rs Per Equity Share
- Market Lot:
- Minimum Order Quantity:100
- Listing At: 30th june ,onNSE
Tentative timetable in respect of the Offer:
- Bid/Offer Opens On: 19 June 2017
- Bid/Offer Closes On: 21 June 2017
- Issue Price: Rs 113 – Rs 115 per Equity Share
- Offer for Sale of 3,51,67,208 Equity Shares @upper price band = Rs 404.42 Crores
- Finalization of Basis of Allotment:
- Initiation of refunds
- Credit of Equity Shares to demat accounts:
- Commencement of trading of the Equity Shares on the Stock Exchanges:
The list of shareholders with effect from 14th October, 2016 is as under.
| Sr.no. | Name of shareholders | Value of holding (in Rupees Lacs) | % terms to total equity |
| 1 | BSE Ltd. | 5,229.79 | 50.05 |
| 2 | Bank of India | 582 | 5.57 |
| 3 | Bank of Baroda | 530 | 5.07 |
| 4 | State Bank of India | 1,000.00 | 9.57 |
| 5 | HDFC Bank Limited | 750 | 7.18 |
| 6 | Standard Chartered Bank | 750 | 7.18 |
| 7 | Canara Bank | 674.46 | 6.45 |
| 8 | Life Insurance Corporation Of India | 433.67 | 4.15 |
| 9 | Union Bank of India | 200 | 1.91 |
| 10 | Bank of Maharashtra | 200 | 1.91 |
| 11 | The Calcutta Stock Exchange Limited | 100 | 0.96 |
| 12 | Others | 0.08 | 0 |
| Total | 10450 | 100 |
As it can be seen BSE is a major promoter of CDSL. So the major proceeds from this issue will go to BSE and not to CDSL since this is a pure Offer for Sale (existing shareholders are exiting via IPO) as it can be seen BSE is a major promoter of CDSL. So the major proceeds from this issue will go to BSE and not to CDSL since this is a pure Offer for Sale (existing shareholders are exiting via IPO) SBI which holds 9.57 per cent now will hold 5 per cent after the IPO, while Bank of Baroda’s stake will come down to 2.99% from 5.07%. The Calcutta Stock Exchange, which holds 0.96%, will cease to be a shareholder after the IPO. The net offer would constitute 32.98%of CDSL’s post offer paid up equity share capital.
CDSL FINANCIAL GROWTH:
| FY2012 | FY2013 | FY2014 | FY2015 | FY2016 | |
| Total | 120.7 | 124 | 122.8 | 127.2 | 139.4 |
| Revenue | |||||
| Total | 39.8 | 57.6 | 61.2 | 66.2 | 63.5 |
| Expenses | |||||
| Profit after | 55.3 | 49.9 | 49.3 | 43.7 | 74.1 |
| Tax | |||||
| Net margin | 45.8 | 40.2 | 40.1 | 34.4 | 53.2 |
| (%) | |||||
Stock trading in India is still considered niche and risky by a large portion of investing public, including people who end up investing in stock markets indirectly through mutual funds. However, the scenario is changing gradually and this is a big positive for players like CDSL. The company has seen its revenues grow over time and even though the top line growth has not been high, it is steady. A graphical illustration of revenue growth for CDSL.
CDSL’s consolidated financial performance (in INR crore)
Stocks trading were not considered a good thing in the recent past in India, but currently the number of investors investing in stocks has increased gradually through direct means or through indirect means by investing in mutual funds. This is a very positive sign to invest in CDSL.
CDSL has around 42% market share and it is also increasing day by day.
The company has seen its revenues grow at a CAGR of 3.67% over the past four years with the revenue in FY2016 being Rs 139.4 crore.
At Rs. 149 per share, company’s market cap will be Rs. 1,557 crore, with EV of Rs. 1,009 crore. This translates into EV/EBITDA multiple of 8.4x and 7.3x based on FY17 and FY18E earnings, and a PE multiple of 18x and 17x respectively, which is not expensive. Since there are no listed peers, relative valuation comparison cannot be done. However, on 14th Oct 2016, BSE sold 43.37 lakh equity shares representing 4.15% stake in the company to LIC at Rs. 79 per share. Upper end of Rs. 149 is 89% jump in sale price, in barely 8 months, despite the seller being the same, and FY17 profit growing only in double digit (and not doubling) during this period. While current IPO pricing is a steep premium to last transaction price, based on company’s steady growth and strong fundamentals, IPO valuations, nevertheless, appear fair.
CDSL has paid dividends regularly to its shareholders in the last four years and considering that BSE will continue to remain the biggest shareholder; this policy is unlikely to change anytime soon. Out of the Rs 74.1 crore, it earned last year, CDSL paid a total of Rs 31.4 crore in the form of dividends. CDSL paid a dividend at the rate of 25% (Rs 2.5 per share) and this was up from 22% in FY2015.
So even if the market share is 42%, there are only two entities providing the same service. In the near future, CDSL will definitely try to capture more market share.
- Conclusion:
It is a known fact that less than 2% invest directly in stock markets through demat accounts. Compare that with double digits in developed economies such as US, UK and China. This poses a great opportunity for this sector since more people will open demat accounts and CDSL/NSDL will get more business. It is safe to say that the party is just getting started for these 2 businesses.
Also since CDSL is the first one to list, it is set to get a first mover advantage as experience by BSE when it listed.
Contributed by:
Nagarjuna Konduru
Tejaswini Konda
Tradewell Securities Ltd 