CDSL Stock Game Over Or Rally Ahead? | Multibagger CDSL Simplified | Rahul Jain #rahuljainstocks

Rahul Jain
3 Apr 202412:12

TLDRThe video discusses the CDSL stock, which has seen significant growth from 250-260 levels in 2020 to 1,800 currently, leading to divided investor opinions. It explores CDSL's revenue streams, including annual issue income, transaction charges, IPO charges, KYC fees, and other sources. The analysis highlights the stock's cyclical nature, tied to market trends, and potential growth opportunities like compulsory demat for private companies and the company's cash reserves. However, risks include high IBIDA margins that may attract regulatory scrutiny. The video concludes with a valuation analysis, suggesting the stock may be overvalued, and encourages investors to make informed decisions based on thorough research.

Takeaways

  • 📈 CDSL stock has seen significant growth, trading at 1,800 from 250-260 levels in 2020.
  • 🔄 Investors are divided on CDSL's future; some believe it's time to sell, while others see potential for further growth.
  • 🏦 Stander Chartered Bank recently exited their 7.1% stake in CDSL, resulting in a drop in stock price.
  • 💡 Understanding CDSL's business model is crucial for investors, which includes reading annual reports and analyzing revenue streams.
  • 📊 CDSL's revenue comes from five sources: Annual Issue Income, Transaction Charges, IPO charges, KYC fees, and other sources.
  • 📈 The growth in Transaction Charges and the number of transactions is a significant driver of CDSL's revenue.
  • 📉 Market trends impact CDSL's stock; a bearish market can lead to fewer transactions and lower stock prices.
  • 🚀 Upcoming growth opportunities for CDSL include mandatory DMAT form for private companies by September 2024 and potential buyback or bonus shares.
  • 🚨 High EBITDA margins may attract regulatory attention, leading to potential lowering of transaction charges.
  • 💰 CDSL's valuation is currently high with a PE ratio of 53, compared to the industry PE of 37.
  • 📝 Investors should conduct thorough analysis and not solely rely on recommendations when making decisions about CDSL stock.

Q & A

  • What was the trading range of CDSL stock in 2020?

    -CDSL stock used to trade at around 250-260 levels in 2020.

  • What is the current trading level of CDSL stock?

    -CDSL stock is now trading at around 1,800 levels.

  • What event caused CDSL's stock price to drop by nearly 6%?

    -Standard Chartered Bank exited the stock by booking a profit of 166 CR rupees through a bulk deal, causing the stock price to drop by nearly 6%.

  • What are the five different sources of revenue for CDSL?

    -The five sources of revenue for CDSL are Annual Issue Income, Transaction Charges, IPO charges, KYC charges, and other sources including Investment Income, Cash Charges, and EV Voting Income.

  • How has the number of issuers grown in the last two years for CDSL?

    -The number of issuers has grown from close to 177,000 to close to 21,000 or 22,000 in the last two years, showing a CAGR of 11.62%.

  • What is the growth rate of transactions for CDSL in FY 2023 and FY 2024?

    -In FY 2023, the growth rate was 7.86%, while in FY 2024 it has been 16% so far.

  • What is the potential growth opportunity for CDSL by September 2024?

    -By September 2024, many private companies will have to compulsorily put their stocks into demat form, which could potentially increase the revenues for CDSL.

  • What is the concern regarding CDSL's high EBITDA margin?

    -CDSL's high EBITDA margin of close to 72% raises concerns that SEBI, the regulator, may ask the company to lower its transaction charges to protect the well-being of investors.

  • What is the current PE and PB ratio of CDSL compared to the industry average?

    -CDSL is trading at a PE ratio of around 53, while the industry PE is at 37. The stock is trading at a PB ratio of 15.

  • What is the intrinsic value range of CDSL according to Alpha spread?

    -According to Alpha spread, the intrinsic value of CDSL ranges from a best-case scenario of 1,295 to a worst-case scenario of 828.

Outlines

00:00

📈 CDSL Stock Analysis: Past Performance and Investor Sentiments

This paragraph delves into the performance of the CDSL stock, highlighting its significant increase from trading at 250-260 levels in 2020 to around 1,800 currently. It discusses the divergence in investor opinions; one group, exemplified by Stander Chartered Bank, believes it's time to book profits and exit, while another group sees potential for further growth. The paragraph also touches on the impact of the bank's exit on CDSL's stock price and sets the stage for a detailed analysis of the company's business model and revenue streams.

05:01

💡 Understanding CDSL's Business Model and Revenue Streams

The paragraph focuses on explaining CDSL's business model and the five key sources of its revenue. It emphasizes the importance of reading annual reports to comprehend the company's financial health. The first revenue stream, Annual Issue Income, accounts for 27% of the business and comes from listed and unlisted companies paying annual subscription charges. The segment's growth is backed by data showing an increase in the number of issuers. The second revenue stream, Transaction Charges, makes up 25% of the revenue and is experiencing faster growth due to an increase in the number of transactions. The risks associated with this revenue stream are also discussed, including the impact of market trends on the number of transactions and consequently, CDSL's profitability.

10:02

🚀 Growth Opportunities and Risks for CDSL

This paragraph explores the potential growth opportunities for CDSL, such as the mandatory conversion of private company stocks to demat form by September 2024 and the possibility of the company utilizing its cash reserves for buybacks or bonus shares. It also highlights the risks, particularly the high IBIDA margin that may attract regulatory scrutiny, potentially leading to a reduction in transaction charges. The paragraph concludes with a valuation analysis, comparing CDSL's PE and PB ratios to industry standards and discussing the intrinsic value of the company, ultimately guiding viewers to make informed decisions rather than offering direct investment recommendations.

Mindmap

Keywords

💡CDSL

CDSL, or Central Depository Services Limited, is the focus of the video. It is a company that provides depository services for securities transactions in India. The video discusses its performance and the debate among investors about its future prospects. The stock price of CDSL has seen a significant increase from around 250-260 levels in 2020 to 1,800 levels at the time of the video, making it a multibagger stock.

💡Multibagger

A 'multibagger' is a term used in investing to describe a stock that has significantly increased in value, often doubling or tripling the initial investment. In the context of the video, CDSL is referred to as a multibagger because its stock price has increased dramatically over a relatively short period of time.

💡Investors

The term 'investors' refers to individuals or entities that purchase shares of stock in companies with the expectation of making a profit. In the video, investors are divided into two groups based on their views on CDSL's future: those who believe it's time to sell and book profits, and those who think there is still potential for growth.

💡Stock Price

The 'stock price' is the cost at which a single share of a company's stock is bought or sold in the stock market. In the video, the discussion revolves around the historical stock price of CDSL and its rapid increase from 2020 levels to the present, which has led to a divergence of opinions among investors about whether to hold or sell the stock.

💡Demat Accounts

A 'demat account', short for dematerialized account, is an account that holds securities in an electronic or digital form, rather than in physical certificates. The video explains that CDSL earns a significant portion of its revenue from the annual charges paid by companies for keeping their shares in dematerialized form, which is a key component of its business model.

💡Transaction Charges

Transaction charges are fees that are levied on each trade or transaction made in the stock market. The video highlights that a substantial part of CDSL's revenue comes from these charges, and the growth in the number of transactions directly impacts the company's profitability. However, it also presents a risk as a decrease in transactions can lead to lower revenues for CDSL.

💡IPOs

An 'IPO', or Initial Public Offering, is the process by which a private company goes public by offering its shares to the public for the first time. CDSL earns revenue from IPOs through charges paid by companies for listing their shares. The video discusses how the number of IPOs in the market affects CDSL's revenue and, consequently, its stock performance.

💡KYC

KYC stands for 'Know Your Customer', a process under anti-money laundering regulations that requires businesses to verify the identity of their customers. In the context of the video, CDSL earns a portion of its revenue from fees paid by brokers for conducting KYC when new demat accounts are opened. The growth in the number of demat accounts is a positive indicator for CDSL's revenue from this segment.

💡Cyclicity

Cyclicity in the context of the stock market refers to the tendency of stock prices to fluctuate in a repetitive pattern, often linked to the broader market conditions. The video explains that CDSL's stock performance has a cyclical nature, with its revenues and profitability being affected by the overall health of the stock market. During bullish markets, transaction volumes and IPOs tend to increase, positively impacting CDSL's revenue.

💡Valuation

Valuation refers to the process of determining the current value of a company or its stock. In the video, the speaker analyzes CDSL's valuation by looking at its PE (Price to Earnings) and PB (Price to Book) ratios, comparing them with industry averages and intrinsic values to assess whether the stock is overvalued or undervalued at the current market price.

💡Risk

In the context of investing, 'risk' refers to the potential for loss or variability of returns on an investment. The video discusses various risks associated with CDSL, such as regulatory pressures that could lead to lower transaction charges and impact the company's profitability, as well as the inherent risks tied to market conditions and the cyclical nature of its business.

Highlights

CDSL stock has seen a significant rise from trading at 250-260 levels in 2020 to around 1,800 currently.

Investors are divided on whether it's time to book profits and exit CDSL or if the stock still has potential for growth.

Sander Chartered Bank recently exited its 7.1% stake in CDSL, resulting in a profit booking of 166 CR rupees and causing a 6% drop in CDSL's share price.

CDSL earns revenue from five different sources, with Annual Issue Income (AI) accounting for 27% of the total revenue.

The number of issuers has grown from 177,000 to 21,000-22,000 in the last two years, showing an 11.62% CAGR and indicating growth in AI revenue stream.

Transaction charge revenue, which makes up 25% of CDSL's income, has shown a growth rate of 16% in FY 2024, indicating a major area of growth for the company.

CDSL's stock price is sensitive to the overall market conditions, with a decrease in transactions affecting profitability and stock price.

IPO revenue, contributing 13.3% to CDSL's income, is dependent on the health of the Indian market and the number of new public listings.

KYC revenue, 18% of the total, is growing as more demat accounts are opened, reflecting a potential for future growth as the Indian population continues to invest in the stock market.

Other sources of revenue, such as investment income, cash charges, and EV voting income, currently show weak growth and do not contribute significantly to CDSL's overall revenue.

CDSL has two major growth opportunities ahead: the compulsory conversion of private company stocks to dematerialized form by September 2024 and potential use of its 700 CR rupees cash reserve for buybacks or bonus shares.

A high IBIDA margin of 72% poses a risk that regulatory bodies like SEBI may ask CDSL to lower transaction charges, affecting profitability.

CDSL's valuation, with a PE ratio of 53 and a PB ratio of 15, suggests that the stock may be overvalued compared to industry standards.

The intrinsic value of CDSL, according to Alpha spread, ranges from 961 in the worst-case scenario to 1,295 in the best-case scenario, indicating a potential overvaluation.

The decision to invest in CDSL should be based on a thorough analysis of the company's business model, growth potential, and market conditions rather than just following recommendations.

Understanding the cyclical nature of CDSL's stock and the factors affecting its price波动 is crucial for investors looking to invest or hold their position in the company.

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