1. CDSL IPO opens at Rs 145-149 price band; analysts say ‘subscribe’ for long term value

CDSL IPO opens at Rs 145-149 price band; analysts say ‘subscribe’ for long term value

Brokerages recommend 'buy' citing strong parentage, steady growth, a decent return on equity, and high barriers to entry. The risks are revenue losses from an interruption in the IT systems or from falling trading volumes.

By: | Updated: June 19, 2017 2:39 PM
CDSL’s IPO, one of the most anticipated public offers of the year, is open for subscription from today until the 21st 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%. (Image: Reuters)

CDSL’s IPO, one of the most anticipated public offers of the year, is open for subscription from today till the 21st 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%.

On Friday, the issue raised Rs 154.07 crore by issuing 1.03 crore equity shares to 15 anchor investors – SBI Magnum Tax Gain Scheme, ICICI Prudential, HSBC Indian Equity Mother Fund, Abu Dhabi Investment Authority–Behave, FIL Investments (Mauritius), Goldman Sachs India etc.

Brokerage houses recommend subscribing to the issue citing strong parentage, steady growth, a decent return on equity, and high barriers to entry. However, there are risks as well, such as losses from an interruption in the IT systems or revenue loss from falling trading volumes.

Here’s what brokerage houses have to say about the issue:

Angel Broking

Angel Broking recommends subscribing 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.

ICICI Direct

ICICI Direct recommends subscribing to the issue based on revenue stability, robust financial performance and healthy return ratios.

“CDSL will continue to diversify its product and service offerings depending on investors’ needs. It has received the letter of intent to register as a warehouse repository. CDSL has also registered as a KYC service agency (KSA), authorised service agency (ASA), as a KYC user agency (KUA) and authorised user agency (AUA) with UIDAI. It also plans to expand its NAD project including more educational institutions,” said the brokerage house.

Centrum Wealth Research

Centrum Wealth Research recommends subscribing to the issue given the current decent financials such as high margins, healthy return ratios, free cash flow generation and strong balance sheet. Further, the brokerage house believes that the listing may also be at a premium to the offer price.

“Post the tapering of initial high growth, the business model of the company is more of an annuity type with steady earnings. The Indian market has traditionally not rewarded such businesses handsomely in the past and it is quite likely that the same might be the case with this company as well and its stock price may remain range-bound fo a longish period of time. At the same time, given the high cash flow generation, it could be a good dividend play,” The brokerage house said.

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Motilal Oswal

Motilal Oswal recommends subscribing to the issue for long term investment citing the company’s strong parentage and entry barrier, stable earnings growth, strong margins and a decent ROE of 16%.

“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,” the brokerage house said.

KR Choksey

KR Choksey recommends subscribing to the issue basis valuations being reasonable given a robust business outlook along with decent financial performance for the past five financial years. Also, CDSL being cost effective as compared to NSDL has resulted in the company to outpace overall industry growth.

The brokerage house expects that increased disposable income could pour into the financial market and result better growth opportunities for depository participants such as CDSL.

Choice Broking

Choice Broking recommends subscribing to the issue due to an attractive and consistent dividend.

“At higher price band, the demanded P/E multiple of 18.2x to its FY17 EPS. However, based on FY18E EPS of Rs. 9.2 per share, forward P/E multiple comes out to be 16.3x, which is attractive for a dividend paying company with a RoE of around 15%,” a report from the brokerage house said.

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