CDSL Stock Rating- Brokerage upgrades to ‘Buy’, expects solid growth recovery; check target price

CDSL Stock Rating: Brokerage upgrades to ‘Buy’, expects solid growth recovery; check target price

HDFC Securities has upgraded its rating to ‘BUY’ on the Central Depository Services (India) stock, in a research note citing several favourable factors including high annuity revenue, recovery in market-linked revenue, and Insurance opportunity. “We upgrade our rating to ‘BUY’ from ‘ADD’ and assign a Target Price of Rs 1,470, based on 37x June-25E EPS,” said the report.

The report pointed out that although the company’s growth rate in FY23 was flat mostly because of a decline in the market-linked revenue by 17%, it is expected to restore the solid growth that it had registered in FY21-22 (>50% YoY in FY21-22, driven by ~4/4x rise in transaction revenue/Demat accounts).

Additionally, a higher transaction revenue driven by growth in delivery volume, and the continuity of growth in the annuity revenue stream, are some of the factors that are going to boost its growth rate in FY24.

Demat of insurance policies opens additional opportunities

The Insurance Regulatory and Development Authority of India (IRDAI) has mandated the dematerialisation of all insurance policies by December 2023. This is expected to open fresh opportunities to CDSL and other IRDA-registered insurance repositories including NDML, CAMS, KARVY, and CIRL. The report expected this regulatory push to contribute up to 7% to the CDSL’s revenue.

“Currently, only 2% of the policies are in demat form, and as per our estimate, the total recurring opportunity for repositories will be ~INR 1.52bn. CDSL can generate additional revenue of INR 0.38bn, assuming a 25% market share, which is ~7% of FY23 revenue,” said the report.

CDSL Stock performance

CDSL’s market cap stands at Rs 12,665.40 crore, the P/E ratio is 45.90, and the dividend yield is 1.32 %. The prices for the 52-week high were at Rs 1451.90 on September 8, 2022, whereas the 52-week low fell to Rs 880.90 on March 8, 2023. CDSL’S share price has gained 2.2% in the last one week and surged 18.8% in the last one month. It has jumped 11.8% in the last six months and has gained nearly 10% in the last one year.