“About 1.2 million new investors have opened demat accounts with Central Depository Services (CDSL) in March and April. National Securities Depository (NSDL) did not disclose data”.
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The growth in accounts has been impressive and CDSL has overtaken NSDL with 52% market share (vs 48% of NSDL)
Unlisted companies is also a good opportunity…
CDSL unlisted market share is at 30%, which can go up with new
incentive structure for CS and RTAs. A total of 2,011 unlisted companies
applied for demat in FY20. CDSL is adding ~150-200 unlisted companies per
month vs. ~350-400 by NSDL. In the near term, new additions can be
impacted due to lockdown, but it remains a multi-year growth opportunity.
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@Aman_Madrecha Interesting Analysis!
I would like to add a few points:
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The discount brokers seem to be preferring CDSL over NSDL…may be because the cost per transaction is lower in case of CDSL and that is driving growth.
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In the near term though there are less threats to the business model but in the medium term one has be to wary of emerging technology trends. Eg. Digilocker was preferred for Academic Records…its a government initiative and free for the customer. Also, there is threat from fintech companies as they can perform better with technologies like block chain etc.
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SEBI for regulatory sandbox.
https://www.livemint.com/market/stock-market-news/sebi-board-clears-regulatory-sandbox-for-registered-entities-11581939727003.html
Disc: Invested
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The transaction charge is same for both CDSL and NSDL. The only reason more DP’s are associated with CDSL is because CDSL ties up with brokers whose net worth is as low as 1-2 crore, and is majorly focusing on tier 3 and 4 cities, whereas NSDL has all the large institutional brokers.
Coming to your second point India is the only country where there are 2 Depository participants and there is no threat of any new entrant. And Digilocker and all other fintech companies could going forward provide just documents storage services and maybe E-KYC services sevices going forward, which forms very small portion of CDSL revenue.
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Hi
Very interesting thread.
Can someone please throw some light on how much are the depository charges (tariff) in few other major countries? Just wanted to understand whether the Indian Depositories are charging more or less when compared to others.
Disc : Not invested (For learning purpose).
As far as I know there are no depository charges in USA, UK & EU(Most markets).
Disc: Not invested, Not tracking
The Depository Trust & Clearing Corporation is depository of US. See the financial statement for comparison.
DTCC-Financial-Statements-Q1-2020.pdf (1.0 MB)
Crest system is depository of UK. Login required to see tariff.
Becoming-a-client-EUI.pdf (462.4 KB)
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Thank You @ Akash Das
Any idea what is the fees/charges per transaction?. I tried looking for few other countries like Indonesia, Japan and US but could not find a relevant answer.
They don’t mention fees or charges in public domain. You have to be a member to get details. See the Crest system document.
Q4FY20 CCT Notes
Business Update
On the business side during the last financial year, the number of active beneficial owner accounts with CDSL has increased to 2.12 Crores as on March 31, 2020 from 1.74 Crores as on March 31, 2019, which indicates a growth of around 22%. During the quarter ended March 31, 2020 the active beneficial owner accounts of 14.96 lakhs were added as compared to 9.2 lakhs for the quarter ended December 31, 2019 and 6.61 lakhs for the quarter ended March 31, 2019. As on March 31, 2020, CDSL has 599 depository participants offering depository participant services from over 20000 locations across the country representing about 94% of the pin codes. These depository participants comprise of clearing members, banks, custodians and nonbanking finance companies. The securities of almost all listed companies have been admitted with CDSL for Demat. Further a large number of private limited and unlisted companies are also admitted with CDSL. As on March 31, 2020, the securities of 14762 companies have been admitted for Demat with CDSL. During the last 12 months the volume of securities and the custody has increased about 26%.
The total income on a consolidated basis for the year ended March 31, 2020 has increased by Rs.38.80 Crores, which is representing 16% to Rs.284.25 Crores from the previous year income of Rs.245.45 Crores. The net profit after tax on a consolidated basis for the year ended March 31, 2020 is Rs.106.72 Crores compared to Rs.114.83 Crores for the year ended March 31, 2019. Total income on a standalone basis for the year ended March 31, 2020 has increased by Rs.22.92 Crores representing 12% increase to Rs.211.39 Crores from the previous year income of Rs.188.47 Crores. The net profit after tax on a standalone basis for the year ended March 31, 2020 is at Rs.77.32 Crores compared to Rs.84.38 Crores for the year ended March 31, 2019. It may be noted that the consolidated and standalone profits have decreased mainly on account of provision for a nonrecurring previous year anticipated statutory liability of Rs.10.56 Crores, contribution towards CSR expenditure of Rs.6.80 Crores, which includes Rs.4.17 Crores of unspent amount of previous years and a legal provision of Rs.1.79 Crores pertaining to an outcome of previous year’s legal matters. The consistent income growth is a reward for the core values that the company believes in of being convenient, secure and dependable. The dip in the net profit is a result of nonrecurring expenses arising out of legacy issues.
As we are aware we have a new management team, which has joined around the half year mark so around October we have a new board, so the management structure has changed. If you account for the legacy items through the expenses the current year would be in line with the previous years profits. Number two I think the important metrics, which should be seen is the number of accounts, which are getting enrolled. This year has been a landmark year for CDSL on two counts, one is that basically we have crossed our competition in number of Demat accounts open and there continues to be a robust growth there and second is basically we are the only depository in the International Finance Centre, which has been permitted to start a branch.
The other important thing is that we have 599 depository participants so in terms of the distribution reach we are at 92% of the pin codes; our competition is around 280 depository participants. So I think the distribution reach is also going to be extremely critical. We have a lot of connectivity and volumes coming from Tier-2, Tier-3, Tier-4 towns where there is expected to be more of growth and therefore in these times we would really hope and expect that growth will continue.
Just to answer your question on the EBITDA margin, if you were to add back those earlier year expenses, which are debited to this profit and loss account this year I think then you will see a positive EBITDA. If you remember in December quarter, we had charged off Rs.10.5 Crores towards earlier service tax payment and we have paid earlier year CSR expenditure of a tune of around 4 Crores and legal provision of roughly around 2 Crores, so you add up all this expenditure and add back to the EBITDA you will see a positive EBITDA for all nonrecurring expenditure, which has to be incurred during this year to sort out all issues.
So annual issuer charge income for the full financial year March 2020 is 77.5 Crores, transaction charge is around 43 Crores, online data charge is around 37 Crores, IPO and corporate action charge is around 23 Crores. IPO corporate action charges 23 Crores. SEBI project on PACL is around 9.5 Crores, statement that we deliver cash charges is around 9 Crores, eKYC, cKYC charges is around 4 Crores. Document storage charge is around 5 Crores, eVoting charges is around 3.5 Crores and I think this covers almost 94% of our income.
Management Change
Yes that had happened prior to me joining, this was on April 1, 2020 it was an effect from April 1, 2020 and I joined in September end. What I was referring is to we have a new CFO, CTO and MD & CEO, so three core management team members have changed in this year, in the second half of this year and the entire board composition has also changed. So there has been a significant management change, which has happened at CDSL.
CDSL Ventures
So far as CDSL Ventures is concerned, the total income was Rs.68.81 Crores as against Rs.51.58 Crores that is an increase of 30% of Rs.15.22 Crores in this year. However the overall expenses increased from 15.5%, an increase of almost Rs.13 Crores that is of up to 90%, based on this the profit after tax actually worked out to Rs.36.42 Crores as against Rs.35.70 Crores. The increase in expenses were mostly related to the increase in the KYCs processed so the charges towards that. Secondly is the inter KRA charges that is whatever we search from other KRA the expenses towards that and third is the expenses towards the PACL projects. So the PACL project, there was a provision worth of Rs.6.5 Crores. I would also like to mention so far as the KYC registrations are concerned in this financial year as of March 31, 2020 it was 2.16 Crores as against 1.88 Crores that was a growth of 29 lakh KYCs in this calendar year, which is a growth of 15%. We are also doing the CKYC processing for other companies so that they can submit their KYCs where this year we processed 11.42 lakh KYCs as against 2.29 lakh KYCs last year, which was a growth of 291%.
So far as the RTA business is concerned, we have been registered with 402 RTAs as of March 31, 2020 as against 121 companies as of March 31, 2019, which is a growth of 281 companies or 230%. So far as the GSP, that is the GST Suvidha Service Provider is concerned, we have processed 277 lakh transaction as against 259 lakh transaction, which is a growth of 7% and finally coming to the NAD project, we have registered 619 academic institution as against 527 academic institution as of March 31, 2019. Also we had good number of awards, which have uploaded about 2.83 Crores awards uploaded into the system as against 1.04 Crores awards uploaded last year and a total of as of March 31, 2020 13.27 lakhs students were registered as against 2.7 lakhs students, which were registered. One adverse news is that the NAD project has been handed over to the DigiLocker and both the depositories will no longer be handling it going forward. So that is all from my side.
Account volume translating to revenue
See I think this will be dependent on the market turn, how they are going to use it, our expectation is as more and more people are going to enroll themselves into the Demat mode. Also there are more and more assets, which are expected to move into the Demat mode. That is obviously going to translate into more amount of transactions being done through the Demat, but how that will transfer is a futuristic statement and I would really not like to comment on it at this point of time. Our core is to present facts the way they are and the hope in which we will expect this to go going forward, whether this will translate or not is something which you and I will have to see as the situation unfolds.
NAD
Yes. So far as the NAD is concerned, we had to provide these services free of cost up to November that is in the contract and post that they had renewed the contract and then awarded to DigiLocker. I do not see government will be paying us anything for education project and so far as the government project is concerned if you consider the current projects we are doing for the regulator for processing then that is about 9.5 Crore, so that was income from that project in this particular year as against the expenses of last year. incurred an expense of around 6.5 Crores
So far as the NAD is concerned, we had a contract for three year from the government and post the contract the government is supposed to, rather the MHRD was supposed to review the performance of the work and then give an extension of the contract. After which they did a review of the depositories, it was done by an IIT professor, based on which two subcommittees were appointed by the HR and recommended that DigiLocker should come in as the third depository and when the final statement given to us, we found that DigiLocker will be the only depository.
As far as NAD anyway, there was no income generated or booked by NAD last year, and these are expecting some income to come in from the NAD project this year till the project went to Digilocker.
EKYC
So far as the eKYC business is concerned, we were already providing the services prior to the Supreme Court verdict post that the services were suspended. We had almost 250 odd intermediaries who were availing of the eKYC services, so far as this eKYC’s business is concerned, we are one of the intermediaries who have been permitted to take up AUA/KUA license and we have at the same time also received a new e-signed license from CCA. So both of these put together is definitely correlated to the online account opening as well as add to the number of KYC. So both the eKYC and the e-Sign will definitely facilitate online account opening and add to the number of accounts in CDSL as well as the KYCs in CVL.
As far as the Aadhar based eKYC is concerned, we are fairly hopeful on that because in the last couple of months what we are seeing is for most of the accounts are getting opened online and once the Aadhar based eKYC is in place to make it much more easier for an investor to open an account and we are fairly bullish that it will add to a substantial number of accounts through this vertical, especially when we have eSign as well as our own online account opening product interest.
Provisions
Sir on the one-off charge or one-off expenses, which are flowed in FY2020 and Q4 I just want to clarify a couple of things. So you have mentioned that for FY2020 there is 10.5 Crores on service tax settlement, 7 Crores on CSR and a legal provision of 1.7 Crores. Until Q3 there was a bad debt provision also, which was taken and was classified as one-off, so just want to clarify, is that number and whatever that number is, is it a one-off or it is no more relevant one-off for FY2020 and what is the one-off in Q4 expense because the number for your other expense shoots up from 10 Crores to 20 Crores.
On provision for bad and doubtful debt, now that is a function of collection mechanism and it is also depending upon the market scenario at the customer end level. So given the pandemic situation the overall collection is not that fast as what each and every company must have desired. You must be also experiencing that payments are coming with a delayed timeframe. So when we say bad debts, bad debts would be required to be provided based on the criteria specified in the accounting standard based on the collection history. Now if there is an overlapping collection, suppose our collection is delayed then there will be provision prescribed under the accounting standard that is how it works. So yes on an average, our provision will work out to around 8% to 9% of our total invoicing that we do for any financial year because it is based on our recovery ratio that we have right now. So provision for bad debts will continue to happen on a quarter-to-quarter basis that is the reason we have not said that it is a nonrecurring expenditure.
To answer your question on provision, the provision for bad debt is around 7.5 Crores in the financial year 2020 ending March 2020, and correspondingly the provision made during last year was roughly around 3 Crores.
Growth Avenues
To compensate for that, we are looking at the projects performed eKYC where will be registered as an AUA/KUA with UIDAI where we will enable investors through online KYC. The second project we are looking at is becoming an eSign service provider, as you are aware that the SEBI has made it mandatory for all investors to eSign their document and they can make an online application for either booking or Demat and the third part is we also have an online account opening service which you would be providing so we hope that once licenses are in place that it will make up for the income what we would have got from the NAD projects.
Price Hike
The first question on when on 2005, 2010, 2015 is where that price increase has happened, I think there is no particular trend in which that increase is. So I do not think that is going to really matter in terms of going forward what SEBI sees is the current market conditions before they approve on any kind of increase in the charges. So it is not a trend which can be put in that every five years, and so much percent increase was happened. It depends on the facts and circumstances which have been presented and therefore it is also not put down that every five years the increase would happen, it could happen in three years, it could happen in more than five years, it is basically on the facts and circumstances, which are there at that point of time.
Private Co. DEMAT
See there are close to about 80,000 companies in the unlisted space. Out of that approximately 11000 have been admitted till now. The balance are to be admitted but what MCA guidelines says is that if there is corporate action or any transfer then it is mandatory to do it in the Demat form that is first part. The second part which you asked was of the incentive or the referral fee structure, so we are actually matched the referral fee structure of the other depository and now we are also offering the same referral fee to RTAs as well as to the practicing company secretaries also.
Roughly around 16 lakhs has been contributed by the unlisted company during the quarter ended March 2020. Includes the one-time registration charges and the annuity part. The full year income is around 2.24 Crores.
During the financial year ended March 2020 the number of companies added is around 2120 companies.
Again it is a futuristic question, but if I can just answer in a broad basis that as Yogesh had mentioned earlier that there is a significant portion of companies which are yet to be enrolled under the Demat mode. So whenever transfers are required to be done, or they are going to raise capital, they will have to come into the Demat mode. So the way I would look at is that there is a significant opportunity of growth and difficult to predict how FY2021 is going to pan out because of the pandemic. There are around 73000 Companies.
Commodity Repository
On the commodity repository its currently and basically agri based commodities is where it has been permitted. I think there are discussions, the government move to non-agri base also. So, that is something we have to wait and watch how it moves forward. There we can really contribute a lot more in what we have been contributing. We have to wait and watch how the rules change.
KRA vs KYC
Sir, currently PAN is not compulsory for eKYC, but the security market will require PAN number and therefore broker and mutual fund needs KYC data stored by CVL KRA. However, if eKYC makes PAN number mandatory in their data, then who will use CVL KRA? That is my first question. Second other than securities market intermediaries who will use CVL KRA and last question is how much CVL KRA charge for one-time fetching data?
As far as CVL KRA is concerned, it is only that the secondary market intermediaries who can use the CVL KRA. Point number two, what you mentioned is if PAN number is made mandatory in database, who will use the CVL KRA. The point is that it is not only the PAN number which matters here, it also matters in the quality of the data. Today what is happening the intermediaries are able to fetch data but they are not confident with the type of data they are getting from CERSAI because there is no verification done at the CERSAI so because of that many of the intermediaries depend on the KRA data itself. We charge Rs.35 of fetching a record.
Insurance
The first part of the question was the Digilocker is having x number of policies. As per the present IRDA regulations, only an insurance repository is allowed to hold electronic policies through electronic insurance account that is one part of the answer. Second part is that in the Digilocker, what generally people do is they store their policies. So it is not known whether it is really true or not. In case of some companies Digilocker have got a back to back arrangement, but not in case of all the insurance companies that is part 2 of the first question. The second question that you asked was whether government will in future say that everything will be through Digilocker that is only time will tell, will not be able to comment on that as of now.
My understanding is Digilocker does not charge. However we are a commercial organization to that extent we will not be able to give anything free. Point number one. Point number two is if you compare our cost with the cost of printing a policy and dispatching it or handing it over to the policyholder, ours is much less than that.
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Just a thought, can virtual courts lead to formation of Legal Depository for documents…
CDSL: Close above 303, 315 & 335 next resistance levels
Disc: Charts only for study purpose.
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I am posting the Investor Presentation (they did that for the first time) though it was in Jan’20… Very good details on the CDSL.
presentationQ320192020F.pdf (2.1 MB)
I feel they are still strong on the new demat account openings & covering throughout india. NAD was something a surprise and shifting them to digilocker shows how government decision can affect depositories . Personally I felt that as a good revenue stream.
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Per Share Earning (4.42) of CDSL for Q1 FY21 has increased 61% QoQ and 68% YoY. Attached press release.
Business is awash with cash and continue to generate so. Whimsical Regulation (After years of investment NAD going to Digilocker) will continue to chase business. With increasing DP account next good thing will be if SEBI allow transaction charge increase. Last time increment is taken on 2015 and its up for review after 5 years.CDSL_25072020191503_MEDIARELEASE.pdf (263.9 KB)
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Looking at the trend of SEBI regulations for mutual funds benefitting investors, then expect rationalization of DP charges in upcoming revision
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In my earlier post I wrote about lot of optionalities that this kind of business have. Good to see some of them playing out. In country like ours where there is lack of trust and lot of irregularities coupled with chocked judicial system, there is need of intermediaries like CDSL to bridge the gap.
Plus with things getting digitized, there is even more scope for such triggers and optionalities to materialize.
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Reduction in Margin Pledge and re-pledge transaction fee.
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