Central Depository Services India Ltd (NS:): CDSL delivered a strong revenue performance (+19.7% QoQ), driven by transaction and online data charges (KYC) revenue. Key attributes that underscore our positive stance include (1) strong momentum in transaction revenue (+178% in FY21), driven by retail activity (online brokers) and pledge income; (2) continued gain in BO account market share (+770bps YoY to 60.7%); (3) sustained growth in annual issuer charges (annuity income), led by BO accounts addition and unlisted opportunity; (4) investment in technology for enhanced security; (5) high cash generation (OCF/EBITDA of 90%) and high net cash of INR 9.1bn (11% of MCap); and (6) +18/20% revenue/EBITDA CAGR over FY21-23E, following a strong FY21. Operating margin contracted 220bps QoQ to 59.9% (stood lower than the estimate) due to wage hike and higher investments in technology (cybersecurity). We increase our revenue estimates for FY22/23 by 10.9/12.8% and raise the target multiple to 35x (from 33x earlier). FY22/23E EPS increases by 8.5/10.1%. We value CDSL on a SoTP basis by assigning 35x to FY23E core profit and adding net cash to arrive at a target price of INR 870. The stock trades at a P/E of 34.1/29.3x FY22/23E EPS. Maintain BUY.
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