Digital Onboarding And Regulatory Reforms Will Secure Future Market Position

Key Takeaways

• Expansion into digital and regulatory services is diversifying revenue streams and lowering dependence on cyclical transaction volumes.
  
• Continued growth in new demat accounts and financial market formalization underpins recurring revenue and long-term earnings potential.
  
• Slowing demat account growth, persistent regulatory caps on fees, rising operating costs, and greater IT risk are compressing margins and challenging future earnings scalability.

Catalysts

Provides depository services in India.

• Robust growth in new demat account openings (over 5.6 million accounts added in the quarter, sustaining ~79% industry market share, especially driven by increasing retail participation and digital onboarding in Tier 2/3 towns) points to a growing base for recurring account maintenance and transaction revenues, supporting strong top-line growth.
  
• Expanding digitization and regulatory reforms (mandatory demat for unlisted companies, onboarding of insurance policies, more asset classes) are broadening CDSL's addressable market and creating recurring fee streams from new clients-this underpins multi-year revenue visibility and operating leverage.
  
• Strategic diversification into value-added digital services (e-voting, KYC, e-insurance, e-locker, proxy advisory integration) is generating new ancillary income streams, enhancing net margins and reducing reliance on cyclical transaction volumes.
  
• Ongoing investment in technology and compliance capabilities (including platform upgrades, cybersecurity, and regulatory alignment) is designed to future-proof the business and accommodate higher transaction loads, positioning CDSL for scalable margin expansion as operating leverage kicks in.
  
• Continued growth in the formalization of household savings and capital market activity (evidenced by higher issuer charges from more folios, increased corporate actions, and broader depository penetration outside metros) ensures a favorable environment for both revenue and potential earnings growth over the long term.

Central Depository Services (India) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Central Depository Services (India)'s revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 41.0% today to 48.5% in 3 years time.
• Analysts expect earnings to reach ₹8.2 billion (and earnings per share of ₹39.38) by about August 2028, up from ₹4.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 54.3x on those 2028 earnings, down from 63.0x today. This future PE is greater than the current PE for the IN Capital Markets industry at 23.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.69%, as per the Simply Wall St company report.

Central Depository Services (India) Future Earnings Per Share Growth

Risks

• KYC revenue, which constitutes approximately 33% of consolidated revenue, has experienced sequential and year-over-year declines for three consecutive quarters, primarily due to lower account creation amid slowing incremental growth in new demat accounts-a trend that may persist as the rapid adoption phase tapers off, directly pressuring topline growth.
  
• Operating costs, particularly employee and technology expenses, have risen sharply, leading to a structural decline in EBITDA margins from around 60% to about 50%; management commentary indicates these higher expenses will be ongoing to support long-term resilience and regulatory compliance, suggesting continued net margin compression and lower profitability leverage.
  
• The company's significant fee income-such as annual issuer charges and application processing for unlisted companies-is largely subject to regulatory frameworks, with explicit mention of the need for regulator approval for fee changes and SEBI-imposed price constraints, posing risks to revenue scalability and potential regulatory interventions that could further cap income streams.
  
• Vulnerability to macroeconomic and market cycles remains high due to CDSL's reliance on transaction-based and account-based fees: any slowdown in capital market activity, retail participation, or a plateau in new account openings could negatively impact revenue and earnings, especially as past high-growth drivers normalize.
  
• Increasing technology investment is necessary due to both the evolving sophistication of the market and heightened regulatory expectation (such as the vertical segmentation mandated by SEBI), but it also exposes CDSL to elevated operational risks-including cybersecurity threats and potential technical failures-that can increase expenses, erode trust, and lead to regulatory penalties, thereby further impacting net margins and long-term earnings stability.

Valuation

• The analysts have a consensus price target of ₹1417.7 for Central Depository Services (India) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1780.0, and the most bearish reporting a price target of just ₹1000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹17.0 billion, earnings will come to ₹8.2 billion, and it would be trading on a PE ratio of 54.3x, assuming you use a discount rate of 14.7%.
  
• Given the current share price of ₹1492.1, the analyst price target of ₹1417.7 is 5.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.