CDSL IPO – Should you Subscribe?

CDSL IPO - Should you SubscribeCDSL IPO – Should you Subscribe?


CDSL IPO News has been buzzing for some time. BSE subsidiary, CDSL IPO would open for subscription on 19th June, 2017. CDSL Ltd is leading securities depository in India. Its revenues grew at 13% CAGR in last 3 years. It earned decent profits of 46% in FY17. Since it is the subsidiary of Bombay Stock Exchange (BSE) Limited, it is catching attention of the investors and investors has been waiting for CDSL IPO Date for long time. What are the positive factors in CDSL IPO? Are there any hidden factors in CDSL Ltd IPO?  What is the CDSL IPO Price? In this article, I would provide some interesting insights and do CDSL IPO Review.

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About CDSL Ltd


They are the leading securities depository in India by incremental growth of Beneficial Owner accounts over the last three Fiscals and by the total number of registered Depository Participants, as at the end of Fiscal 2016, according to the CRISIL Report. However, in terms of market share, they are the second largest depository in India.

Issue details of CDSL IPO


  • CDSL IPO open date: 19-Jun-2017
  • CDSL IPO close date: 21-Jun-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 145 to Rs 149 per share
  • Issue size: Rs 500 Crores +
  • CDSL IPO Lot size: 100 shares and in multiples of 100 shares there-of.
  • Minimum investment: Rs 14,500 on lower price band.
  • Listing: NSE (Since it is subsidiary of BSE, it cannot list on BSE)
  • Download CDSL IPO RHP Prospectus at this link

Objects of the CDSL Ltd IPO issue


1) Achieve the benefits of listing the equity share on NSE.

2) Sale of Equity Shares by the Selling Shareholders.

3) Enhance it's visibility and brand image and provide liquidity to it's existing shareholder.

Company Financials (reinstated-consolidated)


  • The company generated revenue of Rs 145 Crores for the year ended Mar-15 and Rs 186 Crores for the year ended Mar-17.
  • The company posted a profit of Rs 57.4 Crores for the year ended Mar-15 and profit of Rs 86.5 Crores for the year ended Mar-17.
  • Its restated basic EPS for FY ending Mar-17 is Rs 8.21 and last 3 years EPS was Rs 7.93.

Financial Summary of CDSL IPO

What are CDSL Key Strenghts?


Here are CDSL strengths.

  • Stable revenue base due to repeat business in multiple offerings in the Indian securities market.
  • High economies of scale leading to steady growth in profitability
  • India’s leading securities depository with the highest share of incremental growth of BO accounts and second largest in terms of market share
  • Convenient and dependable depository services at competitive prices for a wide range of securities
  • State-of-the-art technology and robust infrastructure and IT systems
  • Led by an experienced senior management team

What are its Key Strategies?


Company is focusing on few key strategies.

  • Continue to focus on developing new DPs relationships and leveraging company existing DP network.
  • Continue to introduce new offerings and scale up recently started businesses.
  • Continue to invest and upgrade company IT infrastructure and systems leading to Enhancement of operational efficiency and service quality.
  • Continue investor education initiatives to foster a rise in the number of potential new investors and deepening of the Indian securities market  Sale, Purchase and Transfer of Securities in India.

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Reasons to invest in CDSL IPO


  • Company revenues grew at 13% CAGR in last 3 years.
  • Company earns healthy profits. It earned profits of 46% in FY17.
  • Company is the subsidiary of BSE which has good brand.

Reasons not to invest in a CDSL Ltd IPO


  • Company securities depository business competes closely with company competitor for DPs, investor accounts and number of instruments on company systems.
  • Company inability to effectively manage company growing DP network or any disruptions in company supply or distribution infrastructure may have an adverse effect on company business, results of operations and financial condition.
  • Any interruptions or malfunctions in the operation of company IT systems could damage company reputation and cause loss for the business.
  • If there is a shift in consumer preferences away from investing and trading in securities to other products and services, it could significantly reduce demand for company services and adversely affect company business, financial condition and results of operations.
  • Fraud due to unauthorised transfer of securities or service deficiency could result in losses. Further, if account data disseminated by us contains undetected errors, this could have a material adverse effect on company business, financial condition or results of operations.
  • Appointment of CERSAI as central KYC registration agency may have a significant adverse impact on the business prospects and results of operations of company Subsidiary, CDSL Ventures.
  • Broad market trends, economic and market conditions and other factors beyond company control could significantly reduce demand for company services and harm company business, financial condition and results of operations
  • There is outstanding litigation against company Company, company Promoter, company Group Companies and company Directors which if determined adversely, could affect company business and results of operations.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus.

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Recommendation / Investment strategy – CDSL IPO


On the upper price band of Rs 149 and on consolidated FY17 EPS of Rs 8.21, P/E ratio works out to 18.1x. Even based on last 3 years consolidated EPS of Rs 7.9, P/E ratio works out to 18.7x. Means, company is asking higher price band of Rs 149 in the P/E ratio of 18.1x to 18.7x. There is no listed peers, hence P/E ratio cannot be compared. However P/E ratio of 18x is reasonable (comparing with overall industries), hence issue price can be assumed as reasonably priced.

Company revenues grew at 13% CAGR in last 3 years. It earned strong profits of 46% for FY17. CDSL IPO price is reasonably priced. Considering all these positive factors, I would recommend investors to invest in this IPO.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

CDSL IPO – Should you Subscribe

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