Hindustan Times (Gurugram)

Analysts say CDSL IPO attractive on firm’s prospects, earnings growth

- Nasrin.s@livemint.com

As Central Depository Services Ltd (CDSL) prepares to offer shares to the public in a three-day sale starting Monday, analysts are positive on the financials and future of India’s first share depository to go public.

At the top end of the price band of ₹145-149 per share, the CDSL initial public offer (IPO) will raise ₹524 crore. Parent BSE Ltd, State Bank of India Ltd (SBI), Bank of Baroda Ltd and The Calcutta Stock Exchange will sell around 3.51 crore shares. The company on Friday raised ₹154 crore from anchor investors. After the IPO, BSE’s stake in CDSL will fall from 50.05% to 24%.

CDSL is one of India’s two depositori­es — the other is National Securities-Depository Ltd — which holds securities in electronic form. The business is regulated with entry barriers, and hence, the market is likely to remain a duopoly, analysts said.

According to Motilal Oswal Securities Ltd, at ₹149 a share, the offer is valued at 18.2 times FY17 earnings per share (EPS) which is attractive due to its strong parentage, stable earnings growth, strong margins and decent return on equity of 17% in FY17. The key positive, the brokerage said in a report, is that it has controlled operating expenses in the last three years, triggering a margin growth of 1150 basis points to 54% in FY17 from FY15.

CDSL’s revenue grew 17.8% to ₹146 crore over FY15-17 while net profit over same period grew 24.8% to ₹87 crore.

It is a debt-free company, with cash and investment­s of ₹551 crore as on March 2017.

Centrum Broking said in a June 16 report that due to its decent financials such as high margins, healthy return ratios, free cash flow generation and strong balance sheet, the issue may attract good subscripti­on.

However, Angel Broking said CDSL has a unique business model with high entry barriers coupled with decent growth prospects. At the issue price band of ₹145-149, the stock is offered at 17.7-18.2 times its FY2017 EPS, which we believe is reasonably priced,” it said in a June 15 report.

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