CDSL IPO - Analysis!

CDSL IPO

Company Profile

Incorporated in 1999, Central Depository Services (India) Limited (CDSL), a subsidiary of BSE Limited operates as a securities depository in India. They offers various services, such as account opening, dematerialization, processing delivery and receipt instructions, account statement, re-materialization, pledging, nomination, transmission of securities, change in address, bank account details and SMS services for depository participants.

CDSL also offers facilities to issuers to credit securities to a shareholder's or applicant's demat accounts; KYC services in respect of investors in capital markets to capital market intermediaries; and facilities to allow holding of insurance policies in electronic form to the holders of these insurance policies of various insurance companies.

In addition, they provides other online services, such as e-voting, e-locker, national academy depository, electronic access to security information, electronic access to security information and execution of secured transaction, drafting and preparation of wills for succession, and mobile application and transactions using secured texting. It serves investors through intermediaries, such as depository participants, issuer companies, registrar and transfer agents, beneficial owners, and clearing members.

BSE Limited is the promoter of the Company.

Issue Details

Issue Open: Jun 19, 2017 - Jun 21, 2017 

Issue Type: Book Built Issue IPO 

Issue Size: 35,167,208 Equity Shares of Rs 10 aggregating up to Rs 523.99 Cr 

Face Value: Rs 10 Per Equity Share 

Issue Price: Rs 145 - Rs 149 Per Equity Share 

Market Lot: 100 Shares 

Minimum Order Quantity: 100 Shares 

Listing At: NSE (Not listed on BSE)

Tentative timetable in respect of the Offer:

Bid/Offer Opens On: June 19, 2017

Bid/Offer Closes On: June 21, 2017

Finalisation of Basis of Allotment: June 29, 2017

Initiation of refunds: June 29, 2017

Credit of Equity Shares to demat accounts: June 29, 2017

Commencement of trading of the Equity Shares on the Stock Exchanges: June 30, 2017

DRAFT PROSPECTUS

Now, let's look what makes this IPO a good option to put your money in -

1. 

Market share of CDSL is 43% in terms of revenue.

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Furthermore, CDSL’s market share with respect to incremental demat accounts has been growing at a higher rate, with a CAGR of 28% (as opposed to NSDL’s 14% growth) from Fiscal 2011 to Fiscal 2016.

4. 

Over the last 4 years, revenue has grown by 10%, whereas profit has shown a growth of 11%

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The Fair value of the shares is considered to be Rs. 220/share, which means the IPO is undervalued and a great opportunity to earn some listing profits.

8. 

It's a forced public issue - According to existing rules, stock exchanges cannot hold more than 24% stake in depositories. BSE, which owns 50.05 percent in CDSL, is looking to divest 26 % stake.

9. 

According to Stallion Assets, "The Company is a high Quality Franchise and has longevity of 10-12% growth for next 1-2 decades. The company throws a lot of FreeCash Flow which doesn’t needs to be reinvested as the business is self sustainable. We believe the company will trade 25-30 PE Multiple due to longevity premium. The Pricing power is limited and SEBI will make sure that the ROE of more than 20% doesn’t happen. If Grey Market is Right and the Stock Indeed List at 250, i.e. 30x FY2017 we will happily exit as expected returned returns are then probably equal to the growth rate of 10-12% which are ok for an institutional Investor but not for Retail investors."

10.

Since the Pricing is controlled by SEBI there is no Pricing power in this company. Financial Inclusion is an important agency for the government and they wouldn’t allow these companies to make a lot of economic profit. Even though they can increase pricing by 100%, and revenue is highly inelastic they cannot due to control by the Government.

CDSL has ROE of 15 whereas it Peer has ROE of 10-15%. The ROE is expected to be sustain at current levels for the forseable future as operating cost are fixed and even if its a Duopoly business the pricing is controlled by SEBI. SEBI will never allow them to have an above 20% ROE.

Conclusion - We suggest investing in this IPO for good.