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Robust operating efficiency leads to a beat on profitability

* NSDL’s operating revenue grew 36% YoY/6% QoQ to INR5.5b (in line). Depository revenue (42% of the mix) grew 12% YoY/25% QoQ, while the banking services segment (54% of the mix) surged 66% YoY but dipped 7% QoQ. In 1H, revenue grew ~50% YoY.

* Operating expenses rose 48% YoY, but dipped 3% QoQ to INR4b (6% below our est.). Employee costs increased 20% YoY (6% below est.), while other expenses rose 54% YoY (6% below est.). EBITDA rose 11% YoY/41% QoQ to INR1.4b (22% beat due to strong operational efficiency), resulting in an EBITDA margin of 26.1% (vs. 32% in 2QFY26 and 19.5% in 1QFY27).

* PAT for the quarter rose 11% YoY/25% QoQ to ~INR1.3b (31% beat due to better-than-expected EBITDA and a beat on other income). PAT margin came in at 22.4% vs. 27.6% in 2QFY26 and 19% in 1QFY27. For 1HFY27, PAT grew 10% YoY.

* NSDL’s depository income rebounded as market activity improved, while Payments Bank revenue, which was boosted by a one-time card onboarding project (including a joining fee in the last quarter), normalized in 2QFY27. Margin normalization is expected once tech investments start delivering productivity gains.

* We raise our earnings estimates for FY27/FY28 by 10%/9% due to the strong performance in 2QFY27. We expect NSDL to post a revenue/EBITDA/PAT CAGR of 32%/12%/12% over FY26-28E. We reiterate our Neutral rating on the stock with a one-year TP of INR800 (premised on a P/E multiple of 35x on FY28E earnings).

Key takeaways from the management commentary

* Fintech brokers contributed 23.5% of incremental demat account sourcing in 2QFY27, up from 9.3% in 2QFY26.

* The IPO income trajectory should sustain at current levels if pipeline momentum and SEBI approvals remain favorable.

* Elevated technology and skill-enhancement costs are weighing on the current cost structure without a corresponding pricing reset in issuer solutions.

Valuation and view

* With the share of recurring fees rising YoY to ~44.7% of 2QFY27 depository income, imparting greater stability to the annuity-led business model, and a strong contribution from banking services, NSDL is well positioned to benefit from operating leverage, supporting improvement in profitability. Sustained momentum in demat account additions and successful onboarding of new fintech partners remain key monitorables for future growth.

* We raise our earnings estimates for FY27/FY28 by 10%/9% due to the strong performance in 2QFY27. We expect NSDL to post a revenue/EBITDA/PAT CAGR of 32%/12%/12% over FY26-28E. We reiterate our Neutral rating on the stock with a one-year TP of INR800 (based on a P/E multiple of 35x on FY28E earnings).

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