Central Depository Services stock is a good long-term investment

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Published: January 25, 2018 4:51:55 AM

Central Depository Services (CDSL) has reported another impressive financial performance in 3QFY18.

Central Depository Services, cdsl, investment, impressive financial performanceCentral Depository Services (CDSL) has reported another impressive financial performance in 3QFY18. (Image: Reuters)

Central Depository Services (CDSL) has reported another impressive financial performance in 3QFY18. Surpassing our estimates by 9%, its revenue rose by a healthy 36.1% y-o-y to Rs 51.1 crore, led by robust growth in key verticals, including Transaction Charges, IPO/Corporate Action Charges and KYC/Online Data Charges (+74%). From a segmental perspective, while revenue from Depository Services rose by 31.1% y-o-y to Rs 39.5 crore, revenue from Data Processing surged by a robust 58.1% y-o-y to Rs 10.9 crore. This impressive performance on revenue front can be attributed to good health of capital markets, with the key indices hitting all-time highs, robust primary market with new issuers coming in at a rapid rate and strong number of new demat account openings. Notably, its EBITDA margin expanded by a whopping 785bps y-o-y to 61.1%, which in absolute terms grew by 56.2% y-o-y to Rs 31.2 crore owing to operating leverage and effective cost control measures.

However, its reported PAT rose at a slower pace than EBITDA – albeit still at a healthy pace – by 25.3% y-o-y to Rs 25.4 crore owing to 38.4% y-o-y decline in lower other income led by higher yields on investments, which led to falling bond prices. Aided by all-round growth in both Depository and Data Processing segments, CDSL’s revenue grew by an impressive 36.1% y-o-y to R51.1 crore. Its revenue from Depository Services rose by 31.1% y-o-y (9.6% q-o-q) to Rs 39.5 crore, aided by healthy capital markets, strong primary market and growth in DP accounts due to increasing investor interest. Further, its revenue from Data Processing surged by a robust 58.1% y-o-y (7.7% q-o-q) to Rs 109 crore aided by healthy state of capital markets and strong downstream revenue relating to KYC services led by new demat account openings.

EBIT margin from Depository segment expanded by a strong 769 bps y-o-y, while segmental EBIT surged by 53.9% y-o-y to Rs 205 crore. On the other hand, EBIT margin from Data Processing segment rose by 313 bps y-o-y, while segmental EBIT rose by 64.6% y-o-y to Rs 87 crore. Thus, its consolidated EBIT margin rose by 673bps y-o-y to 57.5%, while consolidated EBIT surged by 54.2% y-o-y. We continue to believe CDSL’s stock is a good long-term investment in light of its highly predictable revenue model and good health of capital markets.

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