The historic public offer of CDSL is going to open on Monday and the company has already placed shares worth INR154 crore (INR1.54 billion) by allotting shares to anchor investors. Anchor portion of the IPO, priced in the range of INR145-149 per share, has been subscribed by several domestic and overseas financial institutions. These include FIL Investments (Mauritius) Ltd, ICICI Prudential Dividend Yield Equity Fund, HDFC Standard Life Insurance Co. Ltd, IDFC Equity Fund, HSBC Indian Equity Mother Fund, Axis Mutual Fund, IIFL Special Opportunities Fund, among others. The IPO, which will mobilize INR523.99 crore through sale by existing shareholders, has also garnered positive ratings from equity analysts. Without exception, CDSL IPO recommendations are in the positive territory. In our review, we have also highlighted factors such as limited competition and highly scalable business model among factors which make it a compelling investment. Here is a quick view.
Angel Broking has placed a subscribe recommendation on CDSL IPO citing high entry barriers and less capital requirements. “CDSL has a unique business model with high entry barriers coupled with decent growth prospects. The average ROE for the last six years has been ~17%, which we believe will sustain going ahead as well. The incremental capital required for doing business in this space is very minimal and this makes it an interesting business model. At the issue price band of `145-149, the stock is offered at 17.7x-18.2x its FY2017 EPS, which we believe is reasonably priced, and hence, recommend SUBSRIBE to the issue,” said its research note.
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Analysts at Motilal Oswal are also positive about the prospects for CDSL. The brokerage house has listed several reasons behind the subscribe recommendation. “CDSL is the second largest depository in terms of market share and has been growing at decent CAGR of 23%/14% in 3/5 years (and revenues grew by 13%/18%). Further, the key positive about the company is that it has controlled operating expenses in last 3 years which has led to significant margin expansion of 1150 bps since FY15 to 54% in FY17. At the upper band of INR149, the offer is available at 18.2x FY17 EPS which we believe is attractive considering – 1) strong parentage and entry barrier 2) stable earnings growth 3) strong margins and 4) decent ROE of 16%. Hence we recommend to SUBSCRIBE for long term investment,” noted its research report.
Also adding to the positivity in CDSL IPO recommendations is Choice Broking which believes the stock could find way in investors’ long term portfolio due to attractive and consistent dividend. “At higher price band, the demanded P/E multiple of 18.2x to its FY17 EPS. However, based on FY18E EPS of Rs. 9.2 per share, forward P/E multiple comes out to be 16.3x, which is attractive for a dividend paying company with a RoE of around 15%. Thus, we recommend a “SUBSCRIBE” rating for the public issue,” said its research report on the depository.
GEPL Capital further added to positive CDSL IPO recommendations while noting that the company stands to benefit from operating leverage. In its research note, the research firm opined, “Central Depository Services (India) Ltd. (CDSL) stands to gain from operating leverage. At a P/BV of 2.92xs of FY17 Book Value. We believe that CDSL demands a discount to its domestic peers. We assign a Subscribe rating to the IPO.”
Citing reasonable valuations, KRChoksey has placed positive rating on the IPO. “In terms of valuation, on the upper price band of INR 149, it has been valued at 18.2x on FY17 earnings. We believe, valuations are reasonable given the robust business outlook along with decent financial performance over FY12-17 i.e. Avg OPM: ~48%, Avg NPM: ~60%, Avg ROE: ~16% and Avg FCF/Revenue: ~23%. Hence, we recommend ‘SUBSCRIBE’ rating on the issue,” said its research note.
For more details about the IPO and to find out the latest street talk about the offer, feel free to check out the discussion page on CDSL IPO.
Depositories have played a tremendous role in helping shareholders move away from physical share certificates to holding shares in the electronic form.