Buy CDSL; target of Rs 365: JM Financial

JM Financial's research report on CDSL

CDSL reported consolidated net sales of INR 453mn (+11.7% YoY), lower than JMfe of INR 503mn. The miss in net sales was driven by subdued performance in transaction charges and IPO/corporate action charges. Consolidated PAT came in at INR 219mn (-13.6% YoY), lower than JMfe of INR 247mn, driven by lower other income. SEBI in its June’18 board meeting has restricted holding of Sponsor entities in depositories to 15% from 24% currently - to be reduced within five years. Further, Gandhi panel’s recommendation to allow new entrants in depository space may increase the competition intensity going forward. We downward revise FY19E/FY20E earnings estimates marginally by 4.6%/5.3%, respectively, as we recalibrate key assumptions. High FCF generation (FCF yield – c.4%+), stable dividend policy (35% payout) and a strong balance sheet (net cash – INR 5.5bn+) provide support, in our view. Reduction in capital market activity remains the key risk to estimates.

Outlook

We forecast a c.17.2% EPS CAGR over FY18-FY20E and value the stock at 27x FY20E (30x earlier) to arrive at a fair value of INR 365/share (INR 430/share earlier). Maintain BUY.