One of the most anticipated IPOs of the year, that of BSE Ltd’s subsidiary Central Depository Services (India) Limited (CDSL), will be open for subscription from 19-21 June with a price band of Rs 145-149 per share. The minimum bid size is 100 shares and the retail allocation has been fixed at 35%. Angel Broking has recommended to ‘subscribe’ to the issue citing unique business model with high entry barriers coupled with decent growth prospects.
“The average ROE for the last six years has been ~17%, which we believe will sustain going ahead as well. The incremental capital required for doing business in this space is very minimal and this makes it an interesting business model. At the issue price band of `145-149, the stock is offered at 17.7x-18.2x its FY2017 EPS, which we believe is reasonably priced,” Siddharth Purohit (Sr. Equity Research Analyst- Banking, Angel Broking) said in a research note.
CDSL was established in 1997 by BSE, which holds a 50.05% equity stake in the depository unit. NSE’s NSDL is the only competitor for CDSL. Just like BSE was the first stock exchange to list in India, CDSL will be the first depository to be quoted on an Indian stock exchange (NSE). SEBI rules bar stock exchange companies from self-listing.
Like the recently launched BSE IPO, all the shares in the CDSL IPO will be sold by existing shareholders through an Offer for Sale (OFS). BSE’s stake is set to decline to 24% after CDSL IPO which will be in line with the regulatory requirements. In addition to BSE, SBI and Bank of Baroda will also reduce their shareholding while Calcutta Stock Exchange will sell all the 1,000,000 shares it owns.
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CDSL has seen revenues grow at a CAGR of 3.67% over the past four years with the revenue in FY2016 being Rs 139.4 crore. Just like its revenues, CDSL has seen an uptick in profits as well. Its net profits have grown at a CAGR of 7.59% over the last four years with the FY2016 profits being Rs 74.1 crore.
The company’s margins have been are solid and have never dipped below 34% in the last four years. In the latest year, its profitability was at 53.2%. The company credits this strong profitability to its scalable business model. Out of the Rs 74.1 crore, it earned last year, CDSL paid a total of Rs 31.4 crore in the form of dividends. CDSL paid a dividend at the rate of 25% (Rs 2.5 per share) and this was up from 22% in FY2015.