One of the most anticipated IPOs of the year, that of BSE Ltd’s subsidiary Central Depository Services (India) Limited, is set to open for subscription later this month. The issue will open for bidding on 19 June and close on 21 June with a price band of Rs 145-149 per share. The minimum bid size is 100 shares with a total of 35,167,208 shares on offer. The shares with a face value Rs 10 each will list on NSE and the retail allocation has been fixed at 35%.
CDSL was established in 1997 by BSE, which holds a 50.05% equity stake in the depository unit. This has certainly helped CDSL in growing its business while things were made easier by limited competition. The company is one of the two depositories in India which naturally makes it a sought-after upcoming IPO. 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.
CDSL’s parent BSE earlier came with its IPO and it rewarded investors quite well, although the allotment was on the lower side as the issue got subscribed over 51 times. 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. This may reduce BSE’s bargaining power and may hurt CDSL’s valuation, sharply depleting BSE’s expected return on investment. Further, the valuation of BSE’s holding in the depository may also come under pressure, given the limited timeframe available for it to dilute its equity stake.
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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.
Stock trading in India is still considered niche and risky by a large portion of investing public, including people who end up investing in stock markets indirectly through mutual funds. However, the scenario is changing gradually and this is a big positive for players like CDSL. The company has seen its 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.
CDSL has paid dividends regularly to its shareholders in the last four years and considering that BSE will continue to remain the biggest shareholder, this policy is unlikely to change anytime soon. 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.
(Originally published on Monday, 12 June on www.financialexpress.com)