Buy CDSL; target of Rs 320: Kotak Securities

Kotak Securities' research report on CDSL

Central Depository Services (India) (CDSL) stable revenue base and fixed cost model enables the company to register strong margins in line with revenue growth. Repeat business in multiple offerings across DP’s, corporate, capital market intermediaries, insurance companies and others has enabled the company to clock ~21% CAGR top-line growth over FY14-FY18, while cost (employee) increased by only 14% during the same period. High FCF generation, stable dividend policy (~40%) and a strong balance sheet (net cash of Rs5.5bn, at end of FY18) provide further support. Stable growth in annual issuer charges, increased market traction, higher number of IPO and inflow in MFs (KYC), is expected to help the company deliver revenue CAGR of 11.3% over FY18-20E. EBITDA is expected to increase at a CAGR of 11% and margin is likely to remain strong in the range of ~59%.

Outlook

We forecast ~10% EPS CAGR over FY18-FY20E and value the core earnings at 32x FY20E and add back net cash to arrive at a target price of Rs320/share, implying an upside of 26.