Indian capital market is essentially a technology play and hence it is a natural play for NSDL as well, says Vijay Chandok, MD & CEO of NSDL, whose IPO will open for subscription today. The top honcho of the depository further said that they are actively involved in identifying the pain points of various market intermediaries and working on resolving those given the important role played by depositories.
Excerpts:
The IPO price band has been fixed between Rs 760 and Rs 800. How was the price determined since there was a lot of buzz earlier that the valuation would be higher and even if we look at the grey market premium, the pricing has been at a steep discount?
There's nothing very new about this whole affair. We have already stated in DRHP that there is a book building process and the SEBI's book building process is fairly well articulated, practices are well set and established. So, we simply followed that process and it's a process which consumes time, right? Whatever numbers were being talked about was, I don't know, from what place, but it was probably their own. So, we followed that process. That process gave an input. That input was debated, deliberated by the board, specifically the independent directors and after due consideration and discussion internally, the independent directors took a call that this is the valuation.
Can you elaborate on the current revenue model and how do you see it evolve over the next 3-4 years because the market dynamics are changing rapidly?
So, you will notice that some of the aspects where we have leadership position is, if you look at the total value of custody in our depository… it will be close to 86-87 percent. If you look at the retail and HUF segment within that, it is about 68 percent. If you look at FPIs, almost close to 99 percent plus is actually dealing with us. If you look at debt instruments, we have more than 95 percent market share. If you look at number of issuers, number of instruments, again, we have a very strong market share. If you look at unlisted companies, which is again an important source of business, we have more than 70 percent market share.
The demat account is an area where we have a 20 percent market share. However, we have a revenue share of about 43 percent approximately in the industry. Given the fact that we have a much more diversified business model, it is not singularly dependent on demat accounts. There are other parameters and also within the demat segment, we have a more evolved customer, which leads to a better revenue per account. So even with the 20 percent market share, in the overall revenue mix we have around almost 43 percent.
Also Read: NSDL IPO to open on July 30: Institutional investors buy Rs 1,201 crore shares via anchor book
Given the fact that we have two depositories, how do you ensure a competitive edge for NSDL? What is the strategy given the fact that it is a tightly regulated industry?
It's currently a duopoly. And we have two of us catering to India. Market opportunity is massive. And you can see that probably there is more growth opportunities and we have to continuously keep investing to keep up to speed. We also need to keep adding new products, which keep getting added. I certainly see that the opportunity for both of us is enormous. And both of us have been growing extremely strongly. If you look at our revenue growth over the last three years, it is 19% CAGR. Profit growth has been about 21% CAGR, which is healthy. So, one should look more at the opportunity and the growth of the Indian capital markets that is ahead of us.
You mentioned about new products or the next set of products. What are the products that you believe could take you to the next level of growth?
So if you look at the product suite that we offer, we fundamentally offer a demat account, which is nothing but a record of digital storage of all your financial ownership and the transactions. Around that we offer a slew of services, whether it is pledges, whether it is consolidated account statements, whether it is, e-voting, e-AGM, all these solutions which are core.
Then we have ancillary or value-added service, which are adjacencies to this. So there we look at various types of adjacencies which are digital in nature. Things like the Covenant monitoring platform, which is a debt market adjacency to us, where we sort of have gained a very strong market share in the debt capital markets. Then there is something on the commercial paper side, we have launched that platform. We have also launched something for the FPIs for their monitoring. So there are various value-added services that we add.
Our approach is, we are digital. There's a whole set of market participants, ideas to identify their pain points, weave a product or a solution around it. And as more and more products come into form factor of dematerialization, we build solutions around it.
Also Read: How does NSDL stack up against peer CDSL?
Given the whole importance of MII in the capital market system, what are the kind of initiatives that you have taken or you plan to take to improve the transparency or the corporate governance levels?
We are an MII. Under the MII, there is a very clearly and strongly defined governance framework of SEBI and we are governed by SEBI and we are in a way a first-line regulator as well ourselves. Given that kind of a positioning and regulations which have to be complied with, itself embeds a fair amount of governance standards within the construct of our company. No single shareholder can own more than 15%. The construct of the board is public interest directors. They are majority in number. So the construct itself has fair amount of focus on governance.
In addition to this, there are subcommittees and some of the subcommittees are very unique for an MII. For example, we have something called a Regulatory Oversight Committee. Then, we have something called SCOT, which is Standing Committee on Technology. And these have got IEPs or independent expert professionals who are brought in and who have a very strong domain expertise in the areas of technology regulations, risk management.
You spoke about technology as a focus area. But we do keep seeing regular reports of technical glitches in the stock markets. What are the 2-3 key things that an MII can do to address these challenges?
The whole of Indian capital markets is a tech play. I think the extent of technology at work for us is probably one of the best globally, comparatively, which is what has given us a number of benefits. Look at the scale we handle, look at the kind of cybersecurity sort of experience we've had. We will continue to focus on that. look at the kind of efficiencies that have come in terms of settlement… from T+3 to T+1, and now even the beta version of T+0. I think virtually no other capital markets can boast of anything better than this. So, tech is an important play for Indian capital markets. And we are part of that system. So tech is therefore an automatically a natural play for us and focus area for us. And when we build systems, there are focuses on a lot of redundancies.
So when you hear of glitches, it is not as if there are no backups. These are those redundancies… we take it extremely seriously and keep working on this. Our effort is really to ensure that operations remain smooth for the working of the capital markets, risk-free, and build trust. And I think over the years, we have done that quite decisively.
You have been at the helm at NSDL for only a few months but how often are you faced with the NSDL versus CDSL questions? Like, the competition is better in terms of certain metrics and what can NSDL do to improve itself?
It a very common discussion within NSDL or at the boardroom or at the strategy meetings that there are certain things where CDSL is ahead of and we need to catch up or we need to do better. But we are completely focused on where NSDL is, what is the opportunity? And what can we do to make a better version of ourselves? You know, that's the lens and that's the angle.
If there are learnings to be learnt from the market, I think we are very clear that we would want to learn. I think we are very open to make the course corrections. If some investments need to be done, we'll make those investments. We are well endowed in terms of resources. And we have a very supportive board, very supportive regulator. So our effort is to identify gaps and focus on them on what NSDL can do better.
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