NSDL IPO : Review, Valuation & Dividend Policy

The highly anticipated IPO of NSDL is all set to launch in the stock market, as the company has filed its DRHP with SEBI. The announcement of NSDL's IPO has raised concerns among shareholders of CDSL, the second-largest depository in India, as NSDL will now be a direct competitor.

However, the most intriguing fact is that despite NSDL being the largest depository in India, CDSL manages to achieve higher revenue. But how does CDSL achieve this feat?

Keep reading the blog to find the answer and explore the key differences and similarities between these prominent entities.

 

National Security Depository Limited - Complete Overview

Following the introduction of the Depositories Act in 1996, NSDL pioneered the dematerialization of securities in India. It is a SEBI-registered market infrastructure institution. It is the first and leading depository in India and offers a wide array of products and services to the financial and securities markets in the country.

NSDL offers a robust depository framework that empowers market participants to participate in India's financial and securities markets actively. With innovative and flexible technology systems, NSDL supports investors, brokers, and other market participants, aiming to enhance efficiency, reduce risk, and minimize costs, ensuring the safety and soundness of the Indian securities market.

The company's core functions include facilitating and maintaining comprehensive records of securities ownership in dematerialized form on behalf of issuer entities. NSDL serves investors, issuers, depository participants, financial institutions, stockbrokers, custodians, clearing corporations, and other market intermediaries, fostering an ecosystem for seamless integration with its systems.

As of March 31, 2023, NSDL had over 31.46 million active demat accounts held by 283 registered depository participants. The account holders spanned over 99% of pin codes in India and 186 countries globally. The company had 40,987 registered issuers, witnessing a net increase of 3,509 issuers during the Financial Year 2023. Furthermore, NSDL observed a consistent rise in the average number of Demat accounts opened daily over the years.

In terms of asset custody, NSDL serviced 99.99% of the value of equity, debt, and other securities held by foreign portfolio investors in dematerialized form in India. They held assets in custody amounting to Rs. 43,060.50 billion for individuals (including NRIs) and Hindu Undivided Family (HUF) accounts, constituting 71.79% of the total value of such assets under custody in dematerialized form as of March 31, 2023.

Similarly, NSDL held assets in custody for non-resident Indians amounting to Rs. 2,725.62 billion, making up 88.14% of the total value of such assets held by 157 non-resident Indians under custody in dematerialized form across depositories. Additionally, NSDL had a remarkable market share of 97.84% of the dematerialized value of listed corporate debt securities in custody, amounting to Rs. 34,791.58 billion, as of March 31, 2023.

 

 

What does the company do?

The company's core functions include facilitating and maintaining comprehensive records of securities ownership in dematerialized form on behalf of issuer entities. NSDL serves investors, issuers, depository participants, financial institutions, stockbrokers, custodians, clearing corporations, and other market intermediaries, fostering an ecosystem for seamless integration with its systems.

 

IPO Overview

The NSDL IPO consists of a total OFS of up to 57,260,001 shares. The issue comprises shares from various shareholders, including:

• IDBI Bank Limited aims to offer up to 18,000,001 Equity Shares
• National Stock Exchange of India Limited aims to offer up to 5,625,000 Equity Shares
• Union Bank of India aims to offer up to 4,000,000 Equity Shares
• State Bank of India aims to offer up to 4,000,000 Equity Shares
• HDFC Bank Limited (SS) aims to offer up to 3,415,000 Equity Shares
• Administrator of the Specified Undertaking of the Unit Trust of India aims to offer 34.15 lakh shares.

 

National Security Depository Limited IPO timetable

EVENTS	DATE
IPO Opening Date	Coming Soon
IPO Closing Date	Coming Soon
IPO Allotment Date	Coming Soon
Refund initiation	Coming Soon
IPO Listing Date	Coming Soon

 

National Security Depository Limited IPO Details

IPO Opening & Closing Date	Coming Soon
Face Value	Rs. 2 per share
Issue Price	Coming Soon
Lot Size	Coming Soon
Price of 1 Lot	Coming Soon
Issue Size	Coming Soon
Offer for Sale	Up to 57,260,001 Equity Shares, aggregating to Rs. [?] million
Fresh Issue	NA
Listing at	BSE
Issue Type	Book Built Issue IPO
Registrar	Link Intime India Pvt. Ltd.

 

National Security Depository Limited IPO Lot Details

Minimum Lot Investment (Retail)	Coming Soon
Maximum Lot Investment (Retail)	Coming Soon
Minimum Lot Investment (HNI)	Coming Soon
Maximum Lot Investment (HNI)	Coming Soon

 

National Security Depository Limited IPO Reservation

Institution Portion	50%
Non-Institution Portion	15%
Retail Portion	35%

 

Company Financial

Amount in Crores

Period	FY 21	FY 22	FY 23
Total Assets	15040.06	16927.47	20934.75
Total Revenue	4675.69	7611.09	10219.88
PAT	1885.65	2125.94	2348.10
Reserve & Surplus	4675.69	7611.09	10219.88
Total Borrowings	4847.11	4811.28	6646.14

 

Details of depository participants, services centers and list of active demat accounts

Amount in Millions

Particulars	FY 23	FY 22	FY 21
Active Demat Accounts	31.46	26.68	21.69
Depository Participants	283	277	276
Service Centers	59, 401	57,026	36,044

 

Segment-wise Revenue Generated from the Operating Segments of NSDL

Amount in Millions

Segment	FY 23	FY 22	FY 21
Depository	4,091.46	3,692.62	3,355.54
Banking services	5,407.78	2,992.45	635.33
Database management	720.64	926.03	684.84
Total Revenue	10,219.88	7,611.10	4,675.71

 

Total Allocable Revenue and Allocable Expenses of NSDL Payments Bank

Amount in Millions

Segment	FY 23	FY22	FY21
Total allocable revenue	5,407.7	2,992.45	635.33
Total allocable expense	5,327.25	3,071.51	764.68
Segmental results/ Operating margin	80.53	79.06	129.35

 

Objective of the Issue

• The Selling Shareholders plan to conduct an Offer for Sale, offering up to 57,260,001 Equity Shares, amounting to Rs. [?] million.
• Listing the Equity Shares on BSE aims to attain the associated advantages and benefits.
• The company aims to improve its visibility, brand image, and establish a public market for Equity Shares within India through the listing.

 

Promoters and Management of National Security Depository Limited

The company's management team comprises Padmaja Chunduru as MD & CEO, Parveen Kumar Gupta as Chairman and Public Interest Director, Madhu Sudan Sahoo as Public Interest Director, Sivakumar Gopalan as Public Interest Director, Rajani Rajiv Gupte as Public Interest Director, and Shailendra Govind Nadkarni as Shareholder Director.

 

Peer Comparison of NSDL vs CDSL

Established in 1996, NSDL is the first and leading depository in India, catering to NSE, while CDSL, established in 1999, holds the position of the second largest depository in the country, dealing with BSE. 

These two depositories in India compete based on factors like the number of depository participants registered, the volume of instruments processed, and the range of innovative products introduced to the market.

Despite both depositories operating in the same segment and handling similar kinds of operations, there is a significant difference in their revenue. CDSL has reported higher revenue than NSDL, and the question is, what is the reason behind this discrepancy?

 

Why CDSL's depository revenue is higher than NSDL's:

1. Earnings from Depository Participants:

• CDSL charges annual fees from depository participants, such as brokers, for their demat accounts.

• Higher demat account openings with CDSL lead to increased annual fee revenue.

2. Custody Fees from Companies:

• CDSL charges custody fees from companies whose shares are held in its depository.

• A greater number of IPOs and corporate activities result in higher custody fees for CDSL.

3. Transactional Charges from Participants:

• CDSL levies transactional charges from depository participants for share transactions.

• Increased share buying and selling activity results in higher transactional charges.

4. CDSL Attracts New Demat Account Openings:

• CDSL surpassed NSDL in the number of new demat account openings due to tie-ups with new discount brokers.

• CDSL's online facilities, allowing easy share transfers between different broker accounts, make it appealing to discount brokers and traders.

5. Client Allocation:

• NSDL has a higher proportion of corporate demat accounts, while CDSL has a higher proportion of individual (retail) demat accounts.

•  Retail traders, who form the majority of CDSL's client base, tend to trade more frequently, contributing to higher revenue.

 

CDSL's higher revenue can be attributed to its larger number of demat account openings, popularity among retail traders, and increased activity from discount brokers due to its online facilities. On the other hand, NSDL has a significant share of corporate accounts, which generate revenue from custody fees but might involve fewer trading activities compared to retail accounts.

 

Company Name	Total income (in Million)	Diluted EPS	P/E Ratio	PAT (in Million)
NSDL	10,998.14	11.74	-	2,348.10
CDSL	6,209.35	26.41	45.13	2,759.60

 

IPO's Valuations

To evaluate the NSDL valuation for its IPO, we can leverage data from its competitor. CDSL presently has an EPS of Rs 26.41 per share and a PE ratio of 45. In contrast, NSDL's EPS is Rs 11.74 per share, roughly half of CDSL's EPS. Utilizing this data, if we calculate NSDL's PE ratio, it would be half of CDSL's PE ratio, resulting in a value of 22. Based on this calculation, the estimated share price of NSDL is approximately Rs 258.

 

Dividend Policy

In the financial years 2022 and 2021, NSDL distributed dividends of Rs 5 per share to its shareholders, totalling Rs 200 million. However, it's important to note that as per the NSDL DRHP, there is no assurance that the company will continue to pay the same or higher dividends in the future. NSDL's ability to pay dividends going forward will be contingent on various factors, including future earnings, financial condition, cash flows, and other relevant considerations.

 

IPO's Strengths

• India's first and leading depository engaged in a diverse array of technology-driven businesses.
• Emphasis on product innovation driven by advanced technology.
• Ensures security and integrity of the depository system through robust IT infrastructure, risk management frameworks, and cyber-security measures.
• Possesses a stable revenue base with a substantial portion derived from recurring sources.
• Holds various asset classes in Demat accounts and operates in multiple well-diversified business verticals.
• With a robust global presence, the company faces limited competition, due to high barriers to entry.

 

IPO Weaknesses

• Any shift in investor preferences away from investing and trading in securities to other avenues could reduce the demand for services.
• A significant proportion of the company's operation is transaction-based and reliant on high trading volumes in the securities market. Any changes in that due to external factors beyond their control may affect the trading volumes, which could adversely affect the business.
• Technical glitches or security breaches in IT systems could negatively impact the business.
• The company competes closely with its competitors across various businesses in a highly regulated environment.
• The company needs to complete the listing process before April 13, 2024, as per SEBI's in-principle approval, and failure to comply may require seeking extensions or fresh approvals, which may not be granted promptly or at all.
• The company has to comply with several legal and regulatory obligations and is required to obtain various approvals.
• Non-compliance with laws relating to privacy and data protection could result in claims, harming the company’s financial condition, and prospects.
• NSDL has a payments bank business, which involves high operating expenses leading to a high cost-to-income ratio.
• The company has experienced negative cash flows in the past, and any negative cash flows in the future could adversely affect the financial condition of the company.

 

IPO GMP

The NSDL GMP is currently unavailable.

 

 

Conclusion

The upcoming IPO of NSDL offers a significant opportunity for investors. As the leading depository in India, NSDL operates in a segment with low competition and high barriers to entry. The company is witnessing revenue growth, which is a positive sign. However, certain details of the NSDL IPO remain undisclosed, so it is advisable to thoroughly analyze all factors before making any decisions for the best possible outcomes.

 

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To Read the Prospectus of the Company Click Here to Download the DRHP

 

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