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Good Set of Results this Quarter!!!
CDSL has reaffirmed my doubts of it being a cyclical company regarding market participation…Everytime market participation reaches new highs (i.e more bullishness) CDSL comes out with Blockbuster results…This is creating a fear that what would happen to CDSL’s Earnings if markets face a long term bear market…Any Contra thoughts…Anybody??
Would love to see a different perspective to what i see…Do share!!
PS : Am an Amateur and kindly correct me if i am wrong…and yes i am invested!!!
Regards,
Abhijith Varma.
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Govt asks all private companies to demat shares by September 2024
The move to demat private company shares is seen boosting the business prospects of the country’s two depositories — Central Depository Services (CDSL) and National Securities Depository (NSDL).
This could perhaps mean that 470 company addition record this quarter may even be exceeded again a few times by end of 2024.
Disclaimer: heavily invested in cdsl. Views are biased. Words not to be construed as financial advice.
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Your understanding is partially correct. It falls under “Shallow Cyclical” category. It has a base set of earnings which are more stable in nature (charges, fees etc.) that are recurring in nature. On top of that is the earnings driven by market trading volumes. Every time a CDSL user sells a stock, CDSL earns money (check CDSL charges and you will get the answer). During Bull run as there is more trading volumes, this part of earnings goes up dramatically and vice versa in Bear market.
Hope this helps!
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Thanks for providing the clarity Sir!!
And one more thing Sir…What income does CDSL get from Companies dematerialsing their shares? Is the charges based on transactions?
All answers cannot be given on platter…where is the learning and growth as a investor if you get all answers ready made. Enough and more information is available, just search for it and learn along the way! Who knows, you might uncover some more insights on the company!
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Positive Triggers for CDSL in Longer Term:
As per the newspaper article there are 13.5 lakh unlisted private companies whose shares are to be dematerialized by September 2024. As per CDSL minimum charge for dematerializing is Rs 5000. Currently, CDSL has 35-40% Market share in dematerializing unlisted private companies. If CDSL maintains the same Market share and if this rule gets implemented, CDSL may generate an extra revenue of Rs 236.25 crores per year (13500000.355000). Further this revenue will not be market linked and hence will provide sustained revenue during Bear phase.
Further, more and more retail people are coming to capital market. This will lead to increase in number of folio’s which in turn will lead to increase in annual issuer charges from each listed company.
In KYC business CDSL have 65% Market share and 6.1 crore records which is a huge database. For every fetch they are getting Rs 35. Along with brokers and Mutual fund Houses, Account aggregators may fetch lot of information from CDSL in the future, which will increase revenue generating opportunities for CDSL.
In total number of demat accounts they have a market share of 74% which is continuously increasing due to their association with discount brokers (Zerodha, Angelone, etc). As more and more youth population are opening accounts with discount brokers, there is multi-decadal revenue opportunities for CDSL as people most often don’t switch brokers and brokers also don’t switch depositories due to switching costs.
E-voting and E-AGMs are new trends and these will continue to increase with each passing day and these will increase revenues for CDSL.
There is optionality in Insurance depository business. In future if its made mandatory, then it may create new revenue generating opportunities.
Invested and biased
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Earnings call for Central Depository Services (India) Limited, the points were discussed:
- Demat Account Growth: The management highlighted that they have seen a significant increase in the number of demat accounts, with a growth of approximately 55% in the second quarter. This surge in demat accounts is seen as a positive development for the company, contributing to its financial inclusion objectives.
- Long-term Approach: CDSL emphasized its long-term approach to business, focusing on creating a sustainable ecosystem and building the right building blocks for the future. The company’s goal is to ensure that more people have access to investing opportunities.
- Regulatory Changes: The management mentioned the regulatory changes proposed by the Ministry of Corporate Affairs (MCA) regarding unlisted public companies, which would require them to have demat accounts for their shareholders. They also emphasized that they have been ready from a technology and system point of view to accommodate these changes, with the timeline for implementation being September 2024.
- E-voting and eCAS Revenue: The company shared the breakup of e-voting and eCAS revenue for the quarter, with eCAS income at INR 7 crores and e-voting at INR 15 crores.
- Incentive Schemes: When asked about incentive schemes for private company opportunities, the management stated that they are transparent about their schemes, which are put out in the public domain. They emphasized that costs would depend on the technology infrastructure required and would be continually assessed to maintain high-quality service.
- Annual Issuer Charges: CDSL’s annual issuer charges have shown significant growth and the management discussed how this revenue was a combination of more private companies joining the ecosystem and an increase in the number of folios.
- Private Companies’ Opportunities: When asked about the proposed MCA regulations for unlisted public companies, CDSL pointed out that they are still analyzing the specifics, but the intention is to start with larger companies and expand the reforms over time.
- Expansion into Other Asset Classes: Regarding expansion into other asset classes, such as insurance, commodities, and mutual funds, the management indicated that they have created the right building blocks and are prepared for future developments in these areas.
- SEBI Charges: CDSL explained how SEBI charges are based on collections, not revenue, and that the fees are related to the previous years’ collections. They also clarified that it was challenging to predict the specific impact of IPOs on KYC income.
- Impairment Cost and Pledge Income: CDSL mentioned that impairment cost for the quarter was INR 3.3 crores, and pledge income was INR 4.19 crores.
- Market Share: The company’s market share in the KYC business was estimated to be around 65%.
- T+1 Settlement: The management acknowledged that SEBI was planning to implement T+1 settlement and expected SEBI to release circulars or discussion papers regarding this change in the future.
- Forward-Looking Statements: CDSL emphasized that they do not provide forward-looking statements and that many factors influence their income, making it challenging to pinpoint the exact source of growth.
Key Takeaways from the CDSL Q2 FY '24 Conference Call:
1. Healthy Market Growth: The Indian capital markets showed robust growth in the second quarter of FY 2023-24, with increased demat accounts, total market capitalization, and daily turnover. This growth is attributed to increased participation by investors and recent industry advancements.
2. CDSL Milestones: CDSL celebrated its 25th year of operation and achieved a significant milestone of 9 crores demat accounts in July 2023. The company also received recognition for its excellence in digital execution, winning the TechCircle business transformation award.
3. Financial Performance: CDSL reported strong financial performance, with total income and net profit increasing on both a quarterly and half-yearly basis. The company’s focus remains on building value for stakeholders and strengthening the Indian digital financial ecosystem.
4. Factors Influencing IPO and Corporate Action Processing: The increase in IPO and corporate action processing is primarily market-driven. Higher numbers of IPOs in the market lead to increased processing activity. It’s difficult to provide a quantifiable breakdown of the contribution from different sources.
5. KYC KRA Business Growth: The strong performance in the KYC KRA business is attributed to buoyant market conditions, a growing number of demat accounts, and increased participation. The specific breakdown between fetch and creation is not provided.
6. Technology Costs: Technology costs are expected to remain a constant investment to support the company’s growth and infrastructure requirements. This investment is necessary to ensure CDSL can provide best-in-class performance and align with regulatory and market demands.
7. Other Expenses: Other expenses, excluding regulatory costs, increased in the second quarter, primarily due to expenses related to e-voting, consolidated account statements, and corresponding income levels. These expenses are expected to be incurred in the second quarter.
8. Private Companies Demat Opportunity: CDSL has an opportunity in dematerializing private companies registered with the Ministry of Corporate Affairs (MCA). While no specific timeline was mentioned, this represents a potential future growth area for the company.
Overall, CDSL highlighted its focus on long-term sustainability, financial inclusion, and market development while adapting to regulatory changes and preparing for future opportunities in various asset classes. The surge in demat accounts and revenue growth due to annual issuer charges and other factors were key highlights of the discussion.
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Quarterly update:
Number of investor accounts added during the quarter is approximately 85 lakh and live companies addition exceeded 670 - these are significantly better than what they reported during Q2.
The current quarter results are going to be a blockbuster for sure - the best ever numbers from CDSL till date.
AJ
Disclosure: Remain invested. Views are biased.
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Sometimes comparing charts can open your eyes
For many including me think cdsl as a high growth stock but when we compare the up and down and give a clear view sometimes story turns out to be quite different.
Like i have created a small tool in my sheets to compare two stock charts by adjusted figures and found even after 60% rally in one year nifty and cdsl are almost same returns.
(note if we go farther picture is much rosier)
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Google Finance already has the functionality.
CDSL 7x in 5yr
NIFTY ~1x in same
in shorter point-to-point analysis even gold or FD can trump equities. Always do such analysis for longer timeframes. Rolling period analysis is even better.
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you are correct but I am just pointing out the pain with such volatile stocks even after massive gains they can underperform like in the case of 2 year period I mentioned.
like if we ignore the last 2 years’ picture is rosier.
Would say that i might have seen a quite one-sided story only but it is something new investors should know.
For the tool yes Google Finance does that but for a person who uses sheets to make XIIR, Live track, and many more so for me it is good also to have new tools that I can explore and if possible can also share.
like I am into llms so have to make one that you can check out too.
https://forum.valuepickr.com/t/use-of-large-language-models-for-stock-research
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Results
YoY Quarterly Sales growth 47%
YoY Quarterly Profit growth 44%
https://nsearchives.nseindia.com/corporate/BMOutcome03022024FINALL_03022024131726.pdf
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Quarterly update:
The number of new investor accounts added during the quarter exceeded 1 Crore and live company additions exceeded 1000.
For the FY 2023-24, new investor account additions was above 3.2 Crore and live company additions exceeded 2700.
AJ
Disclosure: Remain invested. Views are biased.
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CDSL Q4 Revenue up 86% and Net profit doubles. Rewards Shareholders with Final + Special dividend as it celebrates 25 years Silver jublee
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Quarterly update:
The new invester additions are once again near to 1 Crore and live company additions exceeded 1800 for the current quarter ended on 30th June 2024.
Expect another set of blockbuster numbers when the results get announced later next month.
AJ
Disclosure: Remain invested. Views are biased.
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