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The brokerage initiated coverage on CDSL with a “neutral” rating and a price target of ₹2,000, which implies a potential upside of 6% from Monday’s closing levels.
CDSL derived 22% of its revenue from issuer charges in the September quarter and 23% from transaction charges, which are dependent on increase in retail participation, enhanced IPO activity and an increase in free-float on the bourses. Motilal Oswal expects this momentum to sustain over the next few years due to these factors.
“We believe CDSL will maintain its leadership position, as discount brokers will continue to gain market share from traditional brokers in terms of demat accounts,” the Motilal Oswal note said.
The brokerage expects EBITDA margins for CDSL to expand to nearly 66% by financial year 2027 from 60.3% in the previous financial year despite continued human resource and technology investments for future growth restricting potential gains from operating leverage.
CDSL’s Return on Equity (RoE) is likely to rise to 42% by financial year 2027 compared to 31% from the last financial year. The company’s revenue, Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and net profit is likely to grow at a Compounded Annual Growth Rate (CAGR) of 31%, 35% and 33% respectively over financial year 2024-2027.
However, Motilal Oswal remains “neutral” on CDSL as valuations are rich. Shares of CDSL are already up over 100% so far this year, marking its third year of over 100% returns since it listed in July 2017.
An unfavourable movement in the market, regulation on annual issuer charges, competition of fintechs, loss of market share, cyber attacks are some of the key risks to CDSL’s profile going forward, Motilal Oswal said.
Shares of CDSL are trading 0.7% lower on Tuesday at ₹1,891.1.
