JM Financial downgrades CDSL stock to 'Reduce' on weak cash market

JM Financial retained its target price of ₹1,500 per share but downgraded CDSL stock from hold to reduce, citing expensive valuations

Shares of Central Depository Services (India) Ltd. fell over 3 per cent as analysts at JM Financial downgraded the stock after the company reported its second-quarter earnings amid weakening cash market activity.  

The company's stock fell as much as 3.21 per cent during the day to ₹1,589.9 per share, the biggest intraday fall since August 26 this year. The CDSL  stock pared losses to trade 2.6 per cent lower at ₹1,551.3 apiece, compared to a 0.35 per cent advance in Nifty 50 as of 12:34 PM. 

 

The depositary firm reported a 36.7 per cent jump in its September quarter net profit to ₹140 crore, while it reported a 23.2 per cent growth in its revenue on a sequential basis to ₹319 crore.

 

 

JM Financial said CDSL's net profit of ₹140 crore came in above its estimate of ₹125 crore, driven by higher sales and a lower effective tax rate. Revenue grew 23 per cent, led by a 195 per cent jump in IPO and corporate action charges and a 48 per cent rise in online data charges, partly offset by a 5 per cent decline in transaction charges.

 

Consolidated Ebitda rose 36 per cent sequentially to ₹180 crore, supported by moderate growth in employee and technology costs relative to sales. Annual issuer charges, which contributed 36 per cent of total revenue, remained flat quarter-on-quarter (Q-o-Q) at ₹115 crore.

 

The brokerage noted that income from annual issuer charges was steady as the first quarter is typically seasonally strong. Revenue from newly admitted companies stood at 3,593 in the quarter. Integration of LIC’s insurance repository is expected to be completed by November 2025, with the company recording 30 per cent year-on-year (Y-o-Y) growth in the number of policies issued despite a decline in industry volumes. 

 

Income from unlisted issuer and processing charges totalled ₹8.92 crore, while other income stood at about ₹59 crore, including ₹12 crore from e-CAS, ₹20 crore from e-voting, and ₹21.4 crore from investment income.

 

JM Financial said that while CDSL remains well-positioned to benefit from rising capital market participation, weak capital market activity and lower trading volumes could weigh on earnings. The brokerage retained its target price of ₹1,500 per share but downgraded the stock from hold to reduce, citing expensive valuations.

 

The company saw a decline of around 18 per cent Y-o-Y in combined average daily turnover (ADTO) across the BSE and NSE during the second quarter of FY26. JM Financial noted that while a competitor, KFintech, has recently entered the KYC segment, CDSL has not experienced any significant impact from this development.

 

However, Motilal Oswal said that while CDSL's core business drivers, such as steady demat account additions, healthy unlisted company admissions, and growing KYC fetch activity, continue to support recurring revenue visibility, ongoing investments in technology and human resources could limit gains from operating leverage.

 

The brokerage raised its FY26 earnings estimate by 11 per cent to reflect the strong quarterly performance but maintained its FY27 and FY28 estimates to factor in higher cost expectations.