Neutral Central Depository Services Ltd for the Target Rs 1,200 by Motilal Oswal Financial Services Ltd
Operating performance in line; other income drives PAT beat
* CDSL’s operating revenue rose 13% YoY/11% QoQ to INR2.9b (in line). Standalone depository income grew 11% YoY/16% QoQ to INR2.5b.
* Operating expenses grew 21% YoY/6% QoQ to INR1.5b, driven by a 20%/21% YoY increase in employee costs/other expenses. EBITDA rose 6% YoY/18% QoQ to INR1.4b (in line), resulting in an EBITDA margin of 47.1% (vs. 50.4% in 1QFY26 and 44.4% in 4QFY26).
* PAT rose 15% YoY and 47% QoQ to ~INR1.2b (7% beat due to higher other income). The PAT margin came in at 40.2% vs. 39.6% in 1QFY26 and 30.4% in 4QFY26.
* KYC pricing impact was limited to ~9% on a QoQ basis, as higher transaction volumes and search API charges largely offset the price cuts. Search API revenues are expected to remain volatile near term before stabilizing and will continue to contribute going forward.
* We broadly retain our earnings estimates to reflect the 1QFY27 performance. We expect a revenue/EBITDA /PAT CAGR of ~11%/8%/10% over FY26–28 and reiterate our Neutral rating with a one-year TP of INR1,200 (based on 45x FY28E P/E).
Key takeaways from the management commentary
* Overall KYC revenue will continue to be driven by the interplay between pricing revisions, transaction volume, and incremental contribution from search API charges.
* Unified KYC integration is currently in the testing phase with ecosystem participants. Commercial rollout will depend on successful testing and regulatory readiness, and it is too early to assess the potential revenue impact.
* Technology investments will continue to be driven by regulatory changes, new product launches, and evolving technology requirements, with no predefined investment cycle.
Valuation and view
* CDSL continues to benefit from structural tailwinds, supported by healthy issuer additions, rising AUC, and resilient transaction activity. While the impact of KYC pricing revisions has been largely mitigated by higher volumes and search API charges, continued investments in technology and talent are likely to impact margins.
* We broadly retain our earnings estimates to reflect its 1Q performance. We expect a revenue/EBITDA /PAT CAGR of ~11%/8%/10% over FY26–28 and reiterate our Neutral rating with a one-year TP of INR1,200 (based on 45x FY28E P/E).
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