What is driving the sudden caution around CDSL? The stock has been under pressure in early trade, down nearly 3%. The company announced its September quarter (Q2FY26) performance on November 1. The Q2 performance failed to impress the Street, with profit declining despite healthy revenue growth.
CDSL Q2 profit slips despite revenue growth
Central Depository Services (India) reported a 13.6% year-on-year decline in net profit to Rs 140.21 crore, compared to Rs 162.02 crore in the same quarter last year. The fall in profit came despite a sharp uptick in business activity, as higher operating and technology costs weighed on margins.
Following the results, major brokerages including Motilal Oswal and JM Financial shared their latest outlook on the stock and both are treading cautiously. Let’s take a look at why they are turning cautious on CDSL after its latest results.
Motilal Oswal stays ‘Neutral’: Sees limited upside
According to the brokerage report by Motilal Oswal, the firm has maintained a ‘Neutral’ rating on CDSL. The brokerage has a target price of Rs 1,520. This implies about 5% downside from current levels. The brokerage also flagged that rising investments in technology and manpower could limit gains from operating leverage.
As per Motilal Oswal, “Though core business drivers such as steady demat account additions, healthy unlisted company admissions, and growing KYC fetch activity continue to support recurring revenue visibility, continued investments in human resources and technology for future growth could restrict gains.”
The brokerage noted, “We raise our FY26 earnings by 11% to reflect the strong quarterly performance, while retaining our FY27 and FY28 estimates to incorporate higher cost expectations.”
It projects CDSL to post a revenue/EBITDA/PAT CAGR of 13%/11%/10% over FY25–28, supported by steady demat account additions and healthy KYC activity.
The brokerage also highlighted a potential growth trigger, noting that “The insurance repository business is set to gain a significant boost with the LIC integration expected to go live in November 25, which should materially accelerate account additions.”
JM Financial downgrades to ‘Reduce’: Flags expensive valuation
Brokerage firm JM Financial took a more conservative view, downgrading CDSL to ‘Reduce’ from ‘Hold,’ with an unchanged target price of Rs 1,500. This indicates a downside of 5.5% from the current market price.
As per the brokerage report, “CDSL delivered a 23% QoQ revenue growth driven by IPO/corporate action charges and online data charges, partially offset by lower transaction charges.”
The report noted that the annual issuer charges, which account for 36% of total revenue, remained flat sequentially at Rs 115 crore. Meanwhile, EBITDA rose 36% QoQ.
JM Financial highlighted several operational updates from the management call, noting that the LIC integration for the insurance repository is expected to be completed by November 2025, and the company saw 30% year-on-year growth in the number of insurance policies issued.
However, the brokerage noted concern over lower trading activity in the broader market, stating that “continued reduction in turnover volumes might weigh on the company’s earnings going ahead.”
