Buy CDSL Ltd For Target Rs.580 - HDFC Seurities
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Revenue moderates; market share gain continues
CDSL delivered a muted performance on revenue but margin came in above estimate. Revenue declined 3.4% QoQ due to a drop in transaction charges, IPO/corporate action, and e-voting. The transaction revenue run-rate, which almost tripled YoY, declined 6.9% QoQ (ex-Pledge) due to moderation in retail activity. Revenue from pledge (~INR 10mn monthly) will provide some cushion to transaction charges (market-linked). The annual issuer revenue (annuity) was stable, the rate hike is pending and the unlisted opportunity is unfolding, albeit at a slower pace. BO accounts are the building blocks for a depository business. CDSL continued to gain BO account market share from NSDL (stood at 58.1% in Dec-20 vs. 50.1% in Dec-19). Its incremental market share stood at 86% due to exclusive arrangements with discount brokers. Margin expanded 409bps QoQ to 65% (above expectation) due to lower provisions and overall cost savings. We cut our revenue estimates for FY22/23 by 6.0/5.9% due to moderation in growth (high base). FY22/23E EPS gets cut by 3.2/1.7%. We value CDSL on SoTP basis by assigning 30x to Dec-22E core profit and adding net cash to arrive at a target price of Rs 580. The stock trades at a P/E of 27.2/26.2x FY21/22E EPS. Maintain BUY.
* 3QFY21 highlights: CDSL revenue stood at INR 0.86bn (-3.4/+59.2% QoQ/YoY), lower than our estimate of INR 0.92bn. Annual Issuer/Transaction/IPO/KYC revenue was up +0.5/+1.3/-10.9/+0.8% QoQ. Revenue from others was down 17.3% QoQ due to lower e-voting revenue (seasonality). Other income increased 42.7% QoQ due to M2M gains. On the cost front, Employee/Technology/Other cost was down 10.2/23.1/12.5, leading to EBITDA margin expansion. Provisions for the quarter declined 76.5% QoQ as collections improved. Net cash stood at Rs 8.1bn (~15% of Mcap).
* Outlook: We expect revenue growth of +45.8/+8.5/+11.8 and EBITDA margin of 62.3/62.2/63.3% in FY21/22/23E. The revenue CAGR of 10% over FY21-23E assumes +15/8/8/10/8% revenue CAGR in Issuer/Transaction/IPO/KYC/ others. Revenue/core PAT CAGR over FY20-23E is at +21/35%.
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