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CDSL IPO lists at Rs 250 per share; 68% premium to issue price

Fund managers feel that the current valuation for stock is too steep.

Published: Jun 30, 2017

The financial markets generate a lot of number on a per second basis. There are people who have made it a profession to convert this information into trends, buy-sell signals, charts and pivot tables. Over the last 18 years of financial journalism, I have realised that every number has a story to tell. And these numbers as a trend normally never lie. I am forever looking for these trends.

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Image: Shailesh Andrade/ Reuters

The Central Depository Services Limited (CDSL), a leading depository saw its shares open at Rs 250 or a 68 percent premium to its issue price. Investors who borrowed funds to invest into the IPOs expected the price to be higher because at the present listing price they are profitable, but there is no case of windfall gains. High networth Individuals (HNIs) have borrowed money at around 6 to 7 percent to invest into the IPO, which raised their cost of investing.

On the other hand, fund managers feel that the issue was well priced at Rs 149 but is very costly at Rs 250. “This is a good business. The business is a duopoly so as institutional investors will like to be a part of it. But the listing price is very high. I don’t see much growth into the stock price from here onwards”, says a fund manager, on condition of anonymity and had not bid for the issue. The IPO was valued at 18 times the FY17 earnings but now the P/E of the stock is higher than 30 times.

The initial public offering (IPO) of CDSL received the strongest response in terms of subscription for any IPO in the year 2017. The issue was oversubscribed by 170 times. This was higher than Avenue Supermarts (D-mart) which was oversubscribed by 104.59 times.

The CDSL IPO was an offer for sale for 35.2 million shares at a price band of Rs 145 to 149. The issue gave exit opportunities to institutions such as the BSE, State Bank of India, Bank of Baroda and the Calcutta Stock Exchange, the leading shareholders in the company. BSE India which holds 50.1 percent in the company will see its stake come down to 24 percent post-offer.

The overwhelming response to the IPO has a lot to do with the present euphoria in the equity market. The CDSL stock has been offered at 17.7-18.2 times the FY 2017 earnings. This is considered to be reasonable in a market that is trading at extremely high valuations.

CDSL is the leading securities depository in India in terms of incremental growth of Beneficial Owner (“BO”) accounts over the last three years. The company has an annuity kind of a business model where it charges fixed annual fees to its customers which include registered companies and also transaction fees from Depository service providers. NSDL, which is the only competitor of CDSL holds around 56 percent of the BO market share and CDSL has a share of 44 percent. CDSL has 12.4 million accounts and over 253 billion securities of 9934 issuers at a total value of Rs 18.3 trillion. CDSL held 60 percent market share of FY2017 incremental BO accounts at 13.7 percent net growth.

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