Thread by @alphaspotcap

CDSL Analysis!

A thread below 🧵👇🏻
#investing #StocksInFocus

(1/22)

About -

• CDSL is a depository in India, promoted by BSE. It was
incorporated in 1999 and primarily
serves as holding securities in dematerialised form.

• CDSL is the only depository listed in Asia Pacific region.

• It’s only competitor is NSDL, promoted by NSE

(2/22)

CDSL, a key Facilitator!

• The company facilitates in holding, transacting & settlement of equities, debentures, bonds, ETFs, units of mutual funds & Alternate Investment Funds, Certificates of deposit (CDs), commercial papers (CPs), G-Secs, Treasury Bills, etc!

(3/22)

• Let’s dive into its 4 subsidiaries, which contributed 21.2% of total revenues of CDSL.

1) CDSL Ventures Ltd (CVL)
2) CDSL Insurance Repository Ltd (CIRL)
3) CDSL Commodity Repository Ltd (CCRL)
4) CDSL IFSC Ltd (CIL)

(4/22)

• CDSL Ventures Limited -

It mainly performs duties of serving as a back-office team for investors. The KRA creates & maintains KYC data of investors.

There are 5 KRAs in India, & CVL is the largest KRA!

It’s 3 Year Revenue CAGR was 25%

(5/22)

• CDSL Insurance Repository Ltd -

CIRL facilitates holding insurance policies in electronic form

The competitors in insurance repository segment are CAMS
Insurance Repository Services, Karvy Insurance Repository
Services & NSDL Database Management

Revenue CAGR - 7.7%

(6/22)

• CDSL Commodity Repository Ltd-

CCRL facilitates holding & transfers of commodity assets in
electronic form through issuance of electronic Negotiable
Warehouse Receipts (eNWRs).

3 Yr revenue CAGR - 18.1%.
CDSL owns 52% of the company

(7/22)

• CDSL IFSC Ltd-

CIL facilitates in transacting & holding foreign securities,
gold, silver, depository receipts & other instruments allowed by IFSCA.

CIL is also in the process of
establishing linkages amongst Global CDs for Clearing and
Settlement of transactions.

(8/22)

• CDSLs Revenue Stream-

1) Transaction income (35% of Revenue)
2) Annual Issuer Charges (25% of Revenue)
3) IPO charges (9.6% of revenue)
4) Online data charges (16.3% of revenue)

(9/22)

• Major Costs-

1) Employee costs

2) Technology cost, which will keep rising due to new developments

3) Regulatory costs which is 5% of operating profit towards Investor Protection Fund and certain % of issuer fees to SEBI.

(10/22)

• Reasons for gain in Market share-

1) Low operating costs

2) Lower net worth criteria for Depository participants

3) Focus in Technology

4) Lower transaction charges

(11/22)

IPO Boom & CDSL

CDSL has benefited from the IPO boom that the fiscal 2021 witnessed. Many new age companies were listed at lofty
valuations. This has set the precedent for more startups to
plan going public in the future.

2021 had 63 IPOs vs 57 in last 3 years in total

(12/22)

• LIC's IPO( ₹70,000 Cr to ₹1,00,000 Cr) is set to be the biggest IPO to debut on Indian markets. This would result in a bumper revenue for CDSL.

LIC's IPO will also result in more account openings (as policyholders will get discount) which is beneficial for CDSL

(13/22)

• Peer Comparison with NSDL

1) BO Accounts Classification

It is clearly seen that the majority of BO account openings are with CDSL.

This growth in account openings could be credited to the discount brokers who have been registering stellar numbers in openings.

(14/22)

2) Market Share

CDSL had a 46% market share in January 2018 but now it has over 67% of market share!

Shows how NSDL is clearly losing ground!

(15/22)

3) Account opening growth-

NSDL also has a very average growth rate in account opening as compared to CDSL

As on Oct 2021, CDSL registered an 84% growth rate while NSDL registered merely 18% YOY

(16/22)

4) DP Participants-

• DP Participants is the main source of growth in Beneficiary account openings.

According to the data, CDSL has more than twice the number of DP Participants as compared to NSDL!

You can see in the chart below 👇🏻

(17/22)

5) Annual Issuer Companies -

• NSDL has almost twice the
no of issuer companies. In 2018, MCA started levying charges for it.

NSDL used to not charge anything for listing the company (before it was made mandatory) which led more registrations with NSDL.

(18/22)

CDSLs Financials -

1) Healthy EBITDA Margin of ~63%

2) High Sales growth in the past couple of years, though it may start to normalise in the near future due to high base effect

3) High PAT margins of ~54%

4) Healthy ROE of 35%+

(19/22)

• Where does CDSL stand?

Only ~4% Indians currently invests in equity. As the awareness will increase, this no is set to rise.

LIC IPO might increase the retail activity & CDSL is all set to benefit from that.

Rise in discount brokers will act as a tailwind for CDSL

(20/22)

Key Risks:

• Volume dry up:
If the No of transactions fall, CDSL will take a major hit in revenue.

• CDSL is vulnerable to any regulatory changes.

• Highly unlikely but possible scenario where a third Depository opens up due to the massive business prospect.

(21/22)

• Conclusion:

CDS is in a category with little scope for additional competition.
The company earns annuity-like
income as well as market driven income. It will benefit from rising demat ac openings, active market participation & boom of IPOs!

But will it last forever?

(22/22)

Do you think CDSL is a long term play?

@caniravkaria @SwarnashishC
@kuttrapali26 @Rishikesh_ADX
@iamrakeshbansal @ValueEducator @safiranand @saketreddy @Jitendra_stock @AnyBodyCanFly

Comment down below 👇🏻

Happy Reading! 🙂