CDSL shares soar 12%; stock up 26% in September. Here's why

Shares of CDSL climbed 12 per cent in Monday's trade, taking their recent rise to 26 per cent in September amid optimism over its business prospects. The stock has been in news recently after Ambit Capital initiated coverage on the stock (September 5) with a 'buy' rating and a target of Rs 1,400.

At Monday's high of Rs 1,430, the CDSL stock breached that target with ease. 

CDSL is one of two central securities depositories, which has been benefited from increase in retail participation and IPOs in the last three years, given strong broker relationships, Ambit Capital said.

"CDSL’s demat market share increased to 73 per cent from 50 per cent in December 2019. We expect medium-term revenue/Ebitda growth to be higher (11 per cent/12 per cent) than pre-Covid (8 per cent/6 per cent) on households increasing allocation in equities, growing popularity of mobile investing and iii) equitisation with more companies listing," Ambit Capital said.

At 34 times FY25 EPS, CDSL trades at 8 per cent premium to peers due to better margins, higher returns and lower competition. "Optionality in repositories is an upside risk. A fall in retail investors/cyber-attacks are key downside," Ambit Capital said.

Earlier in August, JM Financial said Indian capital markets stay well-placed aided by strong growth potential of the country, along with political and macro economic stability. "This bodes well for CDSL. However, we believe the stock remained fairly valued," it said while suggesting a target of rs 1,100 on the stock. 

In July, HDFC Institutional Equities had said that CDSL continues to be a market leader in the number of BO accounts, with a 73 per cent market share and 85 per cent incremental share. It said was adding 20 lakh accounts monthly, which were up 46 per cent YoY but down 36 per cent from the peak.

"The insurance opportunity remains an option value (regulatory push) and will add 7 per cent to revenue, assuming a 25 per cent market share," it said while upgrading its rating to 'BUY' from 'ADD' and a target of Rs  1,470.

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