HDFC Securities has upgraded Central Depository Services (CDSL) to Buy from Add with a revised target price of ₹1,620, representing significant upside from the current market price of ₹1,307.30. The stock had declined 3.87 per cent on Tuesday and has underperformed by 15 per cent over the past year, as reported by The Hindu BusinessLine. The brokerage expects the company to benefit from a volume-led growth recovery after a challenging FY26 performance, with the two key headwinds now fully in the base.
CDSL experienced significant headwinds in FY26, with revenue growth decelerating to 5.8 per cent year-on-year compared to a three-year CAGR of 27 per cent. As reported by The Hindu BusinessLine, EBITDA margin contracted by approximately 651 basis points to 51.2 per cent during this period. The company faced two key challenges: pricing cuts in transaction charges and KYC (create and fetch) that dented KYC blended realisations by about 8-10 per cent, and heavy technology and regulatory-led spending that has largely concluded. However, HDFC Securities notes that the pricing cuts in transaction charges and KYC (create and fetch) are fully in the base, and the heavy phase of technology and regulatory-led spending has largely played out.
Primary market activity has shown decisive improvement, with 50 mainboard IPOs in Q2-FY27 versus nine in Q1-FY27, according to The Hindu BusinessLine. BO account additions have recovered to 1 lakh per day from a trough of 70K per day in March 2026. The brokerage expects approximately 10 million new accounts in Q2-FY27E, which would represent the best quarterly addition in eight quarters and should revive transaction revenue growth. This strong IPO activity in the September quarter is expected to drive IPO/corporate action income growth of 18 per cent year-on-year in FY27E versus -1.9 per cent in FY26.
The expected recovery is projected to drive IPO/corporate action income growth of 18 per cent year-on-year in FY27E versus -1.9 per cent in FY26, as reported by The Hindu BusinessLine. A widening issuer base is expected to compound the annual issuer charge annuity, which represents around 40 per cent of revenue. With cost intensity normalising, EBITDA margin is expected to expand by 117/246 basis points YoY to 52.3/54.8 per cent in FY27/28E, driving EBITDA/PAT CAGR of 21/22 per cent over FY26-29E, ahead of the historical average of ~18 per cent. The stock currently trades at 42x FY28E, representing a 7 per cent discount to its historical five-year average one-year forward P/E multiple of 45x.
