Hold Central Depository Services; target of Rs 1212: ICICI Securities

ICICI Securities' research report on Central Depository Services

Depositories remain a structural play on India’s capital markets buoyed by higher retail participation. Central Depository Services (CDSL) benefits from: 1) leadership (in a duopoly) in terms of the number of demat accounts (market share at 73% as of Jun’23); 2) growth optionalities for its digital platforms (insurance repository included); and 3) steady nonmarket-linked revenues (from annuity issuer charges). Mix in terms of market-linked and non-market-linked revenues stood at 45% and 55% respectively in Q1FY24. However, new cost structure with linkage to revenues limits margin expansion even in an upcycle. Downside risks include decline in market volumes and threat from alternate identification stacks other than the KYC CRA. Upside risks can come from revision in annual issuer charges and sharp increase in market volume as seen in FY21/FY22.

Outlook

Downgrade the stock to HOLD (from Add) with a revised target price of INR 1,212 (earlier: INR 1,130) based on 35x (unchanged) FY25E core EPS of INR 30.8 (earlier: FY24E) and cash per share of INR 132.