CENTRAL DEPOSITORY (INDIA) SERVICES LIMITED June 15, 2017 SMC Ranking (3.5/5) Issue Highlights Industry Depository Total Issue (Shares) - Offer for sale 35,167,208 Net Offer to the Public 35,167,208 Issue Size (Rs. Cr.) 510-524 Price Band (Rs.) 145-149 Offer Date 19-Jun-17 Close Date 21-Jun-17 Face Value 10 Lot Size 100 Issue Composition Total Issue for Sale In shares 35,167,208 QIB 17,233,604 NIB 5,170,081 Retail 12,063,523 Employee reservation 700,000 Shareholding Pattern (%) Particulars Pre-issue Post issue Promoters & promoters group 50.05% 24.00% QIB 49.95% 58.84% NIB 0.00% 4.95% Retail 0.00% 12.21% Total 100.00% 100.00% *calculated on the upper price band Objects of the Issue Achieve the benefits of listing the equity share on NSE Enhance it's visibility and brand image and provide liquidity to it's existing shareholders. Book Running Lead Manager Axis Capital Limited Haitong Securities India Private Limited Edelweiss Financial Services Limited Nomura Financial Advisory and securities (India) Private Limited IDBI capital Market Services Ltd SBI Capital Markets Limited Yes Bank Limited Name of the registrar Link Intime India Private Limited About the company Central Depository (India) Services Limited (CDSL) is the leading securities depository in India by incremental growth of Beneficial Owner (BO) accounts over the last three Fiscals and by the total number of registered Depository Participants (Dps), as at end of Fiscal 2016, it is the second largest depository in India. It offers dematerialization for a wide range of securities including equity shares, preference shares, mutual fund units, debt instruments and government securities. As a securities depository, it facilitate holding of securities in electronic form and enable securities transactions (including off-market transfer and pledge) to be processed by book entry. It offers facilities to issuers to credit securities to a shareholder's or applicant's demat accounts to give effect to a range of noncash corporate actions such as bonus issue, subdivision of holdings and conversion of securities in a merger, amalgamation or in an initial public offering. It also offers other online services such as e-voting, e-locker, National Academy Depository, easi (Electronic Access to Security Information), easiest (Electronic Access to Security Information and Execution of Secured Transaction) drafting and preparation of wills for succession mobile application and Transactions using Secured Texting (TRUST). It also regularly conduct investor meetings and other awareness programs. Strength Stable revenue base due to repeat business in multiple offerings in the Indian securities and financial services market: Company with its Subsidiaries, offer services to several sub-sectors of the Indian securities and financial services market including capital markets, mutual funds and insurance companies. It has a high stability of operating income from the fixed annual charges collected from the registered companies, transaction-based fees collected from Dps. It offers dematerialization for a wide spectrum of securities including equity shares, preference shares and bonds of public (listed and unlisted) and private companies, units of mutual funds, government securities, commercial papers and certificates of deposits. Further, it has leveraged on existing relationships with corporates to offer them other consistent revenue-generating services including e-notices and e-voting services to companies enabling their shareholders to receive notices in electronic form and to allow shareholders to cast their votes electronically, remotely or at the meeting venue. In addition to securities depository services, CDSL Ventures is registered with the SEBI and the Unique Identification Authority of India (UIDAI) as both a KYC User Agency (KUA) & Authorised User Agency (AUA). As of April 30, 2017, it held over 15 million capital market investor records under the KRA representing approximately 67% market share. India s leading securities depository with the highest share of incremental growth of BO accounts and second largest in terms of market share: It is the leading securities depository in India by incremental growth of BO accounts and by the total number of registered DPs and, according to the CRISIL Report. However, in terms of market share, it is the second largest depository in India. Company has a wide network of DPs, who act as points of service for investors, operating from over 17,000 sites across the country, offering convenience for an investor to select a DP based on its cost structure and locational convenience to engage services. As of April 30, 2017 It has a 589 DPs servicing across 29 states and 7 union territories including two overseas centres. The number of service centres grew at 21.35% from 11,877 in Fiscal 2015 to 17,489 in Fiscal 2017. Its BO accounts grew at a CAGR of 12.98% from 9,610,002 in Fiscal 2015 to 12,267,432 in Fiscal 2017. Convenient and dependable depository services at competitive prices for a wide range of securities: It provide affordable depository services to investors through competitive tariff structures. Company has a wide network of DPs, operating from over 17,000 centres, across India, offering investors convenience of selecting a DP close to them. It is directly connected to DPs through centralised database systems which ensure relatively low initial set up costs and minimal incremental costs. This allows DPs to offer depository services on a real-time basis to investors at competitive prices. 1
State-of-the-art technology and robust infrastructure and IT systems: Company has state-ofthe-art IT systems. It has deployed core depository system based on a centralised architecture providing real-time updated information to users. Its system can be accessed over the internet as well as the intranet though a secure channel using multi-factor user authentication. It has deployed stateofthe-art server hardware, enterprise flash storages and highly resilient network infrastructure. Led by an experienced senior management team: The Company has a management team with extensive experience and know-how in the Indian capital markets. Company believes the quality of management team has been critical in achieving business results. According to the company, experienced management and continuous development in employees through regular training programmes to improve skills and reduce attrition rates and increase productivity. Strategy Company has been shortlisted as an GST Suvidha Provider (GSP) to GST Network Limited (GSTN), a Government of India initiative: Shortlisted as a GSP to GSTN, a Government of India initiative for recording all filings pertaining to the Goods and Services Tax. It had executed an agreement dated February 23, 2017 with GSTN for a period of five years. Continue to focus on developing new DPs relationships and leveraging existing DP network: According to the CRISIL Report, India's demographic dividend with a large working age population and a low dependency ratio, increasing literacy and rising per capital income are likely to drive future growth of the Indian depositories. It will continue to build on existing DP relationships and leverage their extensive network all over India to take offering to new investors. Company will aim to strengthen virtual DP network under which the broker only needs to submit Power of Attorney (PoA) and is no longer required to contact the DP and authorise each and every trade. It also aims to strategically expand its network of DPs and service centres to better reach potential investors. Company will evaluate each opportunity on the basis of several factors including expected investment and financial returns, catchment area served and current levels of depository services available in the area. Management currently expect that a significant portion of new DP relationships will include DPs present in tier II and tier III cities due to relatively lower scale of DP services currently available in these cities. Continue to introduce new offerings and scale up recently started businesses: It endeavour to provide investors with a comprehensive range of services at competitive prices and to maintain optimal service standards. In order to maintain and enhance competitive position, it will continue to offer services at low prices achieved through low operational costs driven by operational efficiency, high economies of scale and innovative service implementation. Continue to invest and upgrade IT infrastructure and systems leading to Enhancement of operational efficiency and service quality: Company believes that maintaining and improving technology is critical to business. It intent to regularly allocate optimal resources towards upgrading IT infrastructure and systems, with the goal of improving market efficiency and transparency, enhancing user access and providing flexibility for future business growth and market needs. Company priority is to improve the in cyber-security framework and information security management systems. It has been identified as a National Critical Information Infrastructure by National Critical Information Infrastructure Protection Centre and it will prioritise further improvements in cyber-security framework and ISMS in the future. Company IT strategy committee consists of external IT experts and professionals advises board in relation to improving and maintaing IT infrastructure on an ongoing basis. It also plans to invest further in IT and data management systems to improve productivity and time savings thereby increasing operating efficiency. Continue investor education initiatives to foster a rise in the number of potential new investors and deepening of the Indian securities market: Company intends to continue to focus on financial inclusion through retail participation. Company believe investor education is a significant key to achieving financial inclusion in the Indian securities market. It conducted over 400 investor awareness programs in Fiscal 2017, allowing investors across geographies, professions and age groups to come together and learn about the advantages of holding securities in dematerialised form and the investment opportunities available to them. 2
Sale, Purchase and Transfer of Securities in India: Company s core business involves enabling shareholders to hold and transfer their securities in an electronic form. It includes the deposit, transfer and withdrawal of securities, book-entry for trade settlement, and book-keeping in respect of investors securities accounts. It also facilitates crediting of securities for initial public offerings and other corporate actions, such as share splits and consolidation, as well as payment of dividends. Company operates and maintain a central depository system, an electronic book-entry system used to record and maintain securities and to register the transfer of securities. The system changes the ownership of securities without any physical movement or endorsement of certificates and execution of transfer instruments. It manage a wide range of instruments including equity shares, preference shares, mutual fund units, debt instruments, government securities, certificates of deposits and commercial papers. Risk Factor Securities depository business competes closely with competitor for DPs, investor accounts and number of instruments on systems: It is one of the two securities depositories in India. Company face significant competition for investor accounts from competitor and expect such competition to continue. It compete with its competitor in many ways, including cost, quality and speed of service, functionality, ease of use and performance of systems, the range of services offered to clients and technological innovation and reputation. Any interruptions or malfunctions in the operation of IT systems could damage reputation and cause loss the business: It has to rely heavily on technological equipment and IT at facilities and typically the supply and maintenance of these systems and equipment is undertaken by third party contractors. Interruptions in the availability of technological equipment or IT systems could adversely impact business, and inability to make alternative arrangements in a timely manner could cause losses to the company due to temporary loss of connectivity with DPs. Any such loss in connectivity would negatively affect the service offer to clients, and may subject to litigation or damage reputation and adversely affect results of operations and financial condition. Electronic platform, networks and those of third-party service providers may be vulnerable to security risks and cyber-attacks: Company s electronic platforms involve the storage and transmission of clients proprietary information. A failure of the platform, including a security breach or a cyber-attack, could result in the loss or misappropriation of client data and, as a consequence, activities could be disrupted and could face litigation and required to compensate a portion of damages incurred by clients. Any significant changes in financial laws and regulations in India could increase expenses or significantly affect trading volumes: As a securities depository it is subject to the rules and regulations of both the SEBI and other legislative acts. India continues to develop new financial legislation and there is no guarantee that, as the regulatory landscape of India develops, it will be able to adequately comply with all of legal obligations. It is difficult to forecast how the changes in financial regulation will affect the Indian financial system, and no assurance can be given that the regulatory system will not change in a way that will increase the cost and complexity of compliance with the relevant legislation. Peer Comparison There is no peer comparison Valuation: At upper price band of Rs.149, EPS and P/E of FY2017 are Rs. 8.25 and 18.05 multiple respectively and at a lower price band of Rs. 145, P/E multiple is 17.57; at upper price band of Rs.149, book value and P/B of FY2017 are Rs.52.52 and 2.84 multiple respectively and at a lower price band of Rs. 145, P/B multiple is 2.76. No change in pre and post issue EPS and Book Value as the company is not making fresh issue of capital. Industry outlook India s per capita income grew at a healthy rate during Fiscals 2015, 2016 and 2017, and rose to Rs 93,653 in Fiscal 2017. In real terms, per capita income is estimated to have grown at 6.6% in Fiscal 2016 compared to 5.9% in Fiscal 2017. The increasing trend in per capita income is expected to continue enabling greater domestic consumption. According to the RBI statistics, the percentage of net investment in shares, mutual funds and debentures has increased at a remarkable 54% CAGR from Fiscal 2012 to Fiscal 2016. The total net investment in shares, mutual funds and debentures is 3
expected to be around 9% of the total household savings invested in financial assets, having increased by 3% over the past year. As of March 31, 2017, there were 15.58 million and 12.30 million demat accounts, respectively, at NSDL and CDSL. The number of demat accounts with NSDL and CDSL grew at a CAGR of approximately 5% and 9% respectively. The number of DPs has increased significantly over the last 15 years. CDSL witnessed a CAGR of approximately 10% between Fiscal 2001 and Fiscal 2017. India s multi-depository system has a wide presence across the country, which has in turn helped investors to transact with DPs locally. Depositories in India are expected to benefit in the future from rising capital market participation, value-added service offerings and SEBI initiatives relating to investor education, promotion of financial literacy and regulatory measures. Company outlook CDSL, promoted by BSE, will continue to diversify their product and service offerings depending on investors' needs. Companies continue to focus on developing new DPs relationships and leveraging existing DP network and also to introduce new offerings and scale up recently started businesses. On a consolidated restated basis, its total revenue grew at a CAGR of 13.33% and net profit after tax grew as restated at a CAGR of 21.96% in Fiscal 2017. Considering all these positive factor, the outlook of the company looks bright. Investors with long time horizon may consider for investment. 4
Indicative Timetable in respect of the Issue Finalisation of Basis of Allotment with the Designated Stock Exchange On or about June 29, 2017 Initiation of refunds (if any, for Anchor Investors)/unblocking of funds from ASBA Account On or about June 29, 2017 Credit of Equity Shares to demat accounts of Allottees On or about June 29, 2017 Commencement of trading of the Equity Shares on the Stock Exchanges On or about June 30, 2017 BID/ISSUE OPENS ON BID/ISSUE CLOSES ON 19-Jun-17 21-Jun-17 Annexure Consolidated Financials Profit & Loss Rs. in Cr. Particulars Period ended 31-Mar-17 Period ended 31-Mar-16 Total Operating Income 146.00 122.85 Total expenditure 66.58 58.94 Operating Profit 79.42 63.92 OPM% 54.40 52.03 Other Income 40.52 38.43 PBDIT 119.94 102.35 Depreciation 3.71 4.19 PBIT 116.23 98.16 Interest 0.00 0.00 PBT 116.23 98.16 Exceptional item 0.00 33.10 Restated Profit 116.23 131.26 Tax 29.98 40.19 PAT 86.25 91.08 Balance sheet is on next page 5
Balance Sheet Rs. in Cr. Particulars As on 31-Mar-17 As on 31-Mar-16 Non-current assets Fixed Assets Tangible assets 4.65 3.02 Intangible assets 0.57 0.65 Intangible assets under development 0.26 0.00 Non-current investments 272.90 210.47 Long-term loans and advances 0.08 0.04 Other financial assets 9.53 16.18 Deferred Tax Asset 2.29 0.00 other non- Current Assets 13.19 13.50 Total Non- Current Assets 303.46 243.86 Current assets Current Investment 230.00 247.00 Inventories 0.00 0.00 Trade receivable 13.27 13.01 Cash & Cash Equivalents 31.44 1.95 Bank Balance other than cash 16.88 38.41 Other financial assets 9.69 6.54 Short Term Loan and Advances 0.11 0.08 Other current assets 2.38 2.14 Total current assets 303.78 309.13 Total Assets 607.24 552.99 Non-current liabilities Financial liability 0.61 0.52 Deferred Tax Liabilities (Net) 0.74 2.91 Total 1.35 3.43 Current liabilities Short-term borrowings 0.00 0.00 Trade payables 0.00 0.00 Total outstanding dues of micro enterprises 0.00 0.00 and small enterprises Total outstanding dues of other then micro 8.98 7.32 enterprises and small enterprises Other financial liabilities 23.23 22.92 Short-term provisions 7.58 5.02 Current Tax liabilities 5.19 3.41 Other current liabilities 12.11 16.90 Total current liabilities 57.09 55.56 Total 58.44 58.99 NET Worth 548.81 494.00 Net worth represented by: Share capital 104.50 104.50 Other Equity 428.82 374.82 Non-Controlling interest 15.49 14.68 Net Worth 548.81 494.00 6
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