Buy CDSL; target of Rs 370: HDFC Securities

HDFC Securities's research report on CDSL

CDSL posted poor 1QFY19 with fall in revenue but margin was better than expectation. Revenue was down 12.5% QoQ to Rs 453mn (lower than our est of Rs 505mn). Drop was led by 21.3/27.3/18.2% QoQ drop in Transaction/IPO & corporate action/online data charges respectively offset by 6.7% QoQ rise in annual issuer charges. Margin fall was lower than expected, down 24bps QoQ to 56.8% vs our estimate of 55.4%. CDSL continued to gain BO market share (~47% in 1QFY19, +48bps QoQ). Incremental market share gain for CDSL stood at impressive 70% (vs 63% in FY18), which indicates DPs preference of CDSL over NSDL.

Outlook

We expect CDSL revenue/EBITDA/PAT to grow at a CAGR of 13/14/13% over FY18-20E. We maintain our BUY rating, have assigned 33x multiple to core earnings and added back net cash to arrive at a TP of Rs 370 (39% upside from CMP).