Buy Central Depository Services; target of Rs 380: HDFC Securities

HDFC Securities' research report on Central Depository Services

CDSL posted robust 2QFY19, both revenue and margin performance was better than expectation. Revenue was up 17.4% QoQ to Rs 531mn (vs est. of Rs 433mn). Growth was led by 6.2/48.5% QoQ rise in Transaction/Online data charges revenue (MF KYC). Discontinuation of OTP based Aadhaar KYC for MFs led to surge in demand for CVL KYC. Margin expanded 504bps QoQ to 61.8% vs our estimate of 54% led by non-linearity. CDSL continued to gain BO market share (~48% in 2QFY19, +56bps QoQ). Incremental market share for CDSL stood at 64% (vs 63% in FY18), which indicates DPs preference of CDSL over NSDL.

Outlook

We maintain our BUY rating, have assigned 33x multiple to core Sep-20 earnings and added back net cash to arrive at a TP of Rs 380 (~59% upside form CMP).