CDSL IPO

CDSL IPO Analysis

Central Depository Services (India) Limited (CDSL) is entering the primary market on Monday 19 June 2017 with an offer for sale (OFS) of up to 3.52 crore equity shares of Rs. 10 each by BSE, SBI, Bank of Baroda and Calcutta Stock Exchange, in the price band of Rs. 145 to Rs. 149 per share. Listing is expected on 30 June, on NSE alone.

CDSL’s operating profit (before exceptions) stood at Rs. 117 crore in FY17, up 19% YoY, while PAT came in at Rs. 87 crore, leading to net margin of 59%. FY16 reported an exceptional income of Rs. 33 crore.

As of 31-3-17, net worth stood at Rs. 533 crore, translating into BVPS of Rs. 51. Company is debt-free with cash and investments of Rs. 548 crore, or Rs. 52 cash per share. BSE holds 50.05% stake, which will shrink to 24% post issue, in compliance with the provisions of the Depositories Regulations. CDSL has 14 other shareholders including SBI (9.57% pre-offer holding), HDFC Bank (7.18%), Standard Chartered Bank (7.18%), Canara Bank (6.45%), Bank of India (5.57%) and Bank of Baroda (5.07%).    

At Rs. 149 per share, company’s market cap will be Rs. 1,557 crore, with EV of Rs. 1,009 crore. This translates into EV/EBITDA multiple of 8.4x and 7.3x based on FY17 and FY18E earnings, and a PE multiple of 18x and 17x respectively, which is not expensive. Since there are no listed peers, relative valuation comparison cannot be done.

However, on 14 Oct 2016, BSE sold 43.37 lakh equity shares representing 4.15% stake in the company to LIC at Rs. 79 per share. Upper end of Rs. 149 is 89% jump in sale price, in barely 8 months, despite the seller being the same, and FY17 profit growing only in double digit (and not doubling) during this period. While current IPO pricing is a steep premium to last transaction price, based on company’s steady growth and strong fundamentals, IPO valuations, nevertheless, appear fair.

Giving sound fundamentals, sector tailwinds and inexpensive pricing, the issue is a subscribe.

Source: SP Tulsian