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CDSL - Review / Recommendation

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resh:
The Central Depository Services Ltd. (CDSL) is going Public with an IPO and here are the brokerage reviews of the same.

Dalal & Brocha said,


--- Quote ---At the upper end of the issue price Rs 149, the P/E ratio of the company works out to 18.2x on FY17 EPS of Rs 8.2. On P/BV, stock would trade at 2.9x on FY17 BV of Rs 51. Company delivered long term average ROE of 16.6% during FY13-17 period. We expect the company to grow at nominal GDP growth rate (~12%) for long term with stable profitability, hence, long term investor should SUBSCRIBE with a long term view.
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Motilal Oswal's recommendation is as below


--- Quote ---CDSL is the second largest depository in terms of market share and has been growing at decent CAGR of 23%/14% in 3/5 years (and revenues grew by 13%/18%). Further, the key positive about the company is that it has controlled operating expenses in last 3 years which has led to significant margin expansion of 1150 bps since FY15 to 54% in FY17. At the upper band of INR149, the offer is available at 18.2x FY17 EPS which we believe is attractive considering - 1) strong parentage and entry barrier 2) stable earnings growth 3) strong margins and 4) decent ROE of 16%. Hence we recommend to SUBSCRIBE for long term investment.
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K R Choksey has the following, review and recommendation


--- Quote ---In terms of valuation, on the upper price band of INR 149, it has been valued at 18.2x on FY17 earnings. We believe, valuations are reasonable given the robust business outlook along with decent financial performance over FY12-17 i.e. Avg OPM: ~48%, Avg
NPM: ~60%, Avg ROE: ~16% and Avg FCF/Revenue: ~23%. Hence, we recommend ‘SUBSCRIBE’ rating on the issue.
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IIFL Wealth Management analysts said,


--- Quote ---During FY15-17, CDSL posted decent revenue CAGR of 17.8% while operating margin improved significantly from 44% in FY15 to 54.5% in FY17. As the company is the first depository to get listed on the bourses, there are no comparable valuations as such. However, we are upbeat on the IPO and recommend ‘subscribe’ given its strong fundamentals and clean balance sheet.
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Aditya Birla Money has the following Rating,


--- Quote ---Steady growth, asset-light nature of business and decent RoE of ~20% shall enable the stock to command high valuation. Asset light nature of business enables the company to distribute 35-50% of profits as dividend. In FY17, it had paid ` 3/share as dividend. The IPO is attractively priced with TTM PE of 18x at higher price band of ` 149. Recommend SUBSCRIBE on the issue.
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LKP Research has the following Review,


--- Quote ---We believe that the company would continue to grab a bigger market share of the incremental demat accounts because of its lower net worth & reserve requirements and wide geographic coverage. Considering the duopolistic nature of the depository business, high barriers of entry, operational leverage, healthy margins, robust free cash flows & ample reserves parked in investments, we recommend a SUBSCRIBE on the CDSL IPO.
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Destimoney Securities has the following Review,


--- Quote ---On valuation front, even though no listed peer exists, at the upper price of Rs. 149, the PE multiple of 18x and EV/EBITDA multiple of 12.6x it does not seem to be expensive considering the strong balance sheet and earnings and the healthy return ratios. Therefore, we recommend to SUBSCRIBE the issue at cut off price.
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Ambit Capital analyst Bhargav Buddhadev said,


--- Quote ---Moreover, CDSL is a strong play on the financial inclusion theme and its business model is less cyclical than that of stock brokers that trade at a median 36.1x FY17 P/E. Digitisation opportunity from insurance policy and academic certificates is a call option; these revenue streams is also annuity and competition in these segments is limited. We are POSITIVE on the IPO.
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