CDSL’s IPO jackpot comes with a valuation catch. Jefferies sets Rs 1,315 target

India’s IPO revival is adding fuel to Central Depository Services’ growth story but Jefferies says investors may already have paid for much of the upside. The brokerage retained a Hold rating on CDSL and set a price target of ₹1,315, below the stock’s previous close of ₹1,414.90. The target implies a potential downside of 7%.

The caution comes even as a strong IPO pipeline is expected to add 3%-4% to CDSL’s earnings. Jefferies estimates the company’s earnings per share will grow at a compound annual rate of 19% over the next two years, supported by new demat accounts, IPO-related income and improving margins.

“IPOs have typically played a key role in driving demat account additions,” Jefferies said. But the brokerage added that the relationship between IPO activity and demat additions had weakened over the past 12 months.


Also Read | Are NSE unlisted shareholders staring at losses? Here's what IPO pricing indicates

IPO tailwinds are already priced in

Demat additions rose to 3.3 million in August 2026, the highest since February, while IPO activity picked up during July and August. More large offerings are expected in September and November.

Jefferies’ analysis of large IPOs, those with issue sizes above ₹10,000 crore, suggests they have a positive impact on about half of CDSL’s operating revenue. This includes corporate-action and IPO-related revenue as well as annual issuer charges.

However, IPOs have little correlation with transaction revenue and income from CDSL’s KYC Registration Agency business, according to the brokerage.

Jefferies estimates that the large IPOs in the pipeline could generate about 14.6 million new folios, assuming 35% retail participation. That would represent roughly 4% of CDSL’s folios at the end of fiscal 2026.

The new accounts could support annual issuer revenue growth in fiscal 2028. The IPOs could also generate at least ₹30 million in IPO charges and expand the margin trading facility, potentially adding pledge income equivalent to 2%-3% of standalone revenue.

Overall, Jefferies estimates the upcoming IPOs could generate total revenue of about ₹190 million and net income of ₹143 million, equivalent to 3% of its estimated fiscal 2027 profit after tax.

The valuation problem

Despite the earnings boost, Jefferies believes a return to CDSL’s peak valuation multiples will be difficult.

The stock trades at about 50 times one-year forward earnings, compared with a historical peak multiple of 80 times. The brokerage cited three reasons why a re-rating to those levels may be challenging.

First, the listing of NSDL has reduced CDSL’s scarcity premium. Second, CDSL has faced price deflation in transaction and KRA charges. Third, competition is narrowing the margin gap between the two depositories.

Jefferies said these factors could limit the scope for valuation expansion even if CDSL delivers healthy earnings growth.

The brokerage’s ₹1,315 target is based on a lower valuation multiple than the stock’s current trading level. Its target price represents about 41 times estimated fiscal 2027 earnings, compared with the current multiple of about 50 times.

Margin recovery offers some support

CDSL’s EBITDA margins have come under pressure in recent years because of higher technology and employee costs. Technology expenses have grown fourfold since fiscal 2023, while employee costs have nearly doubled.

Jefferies expects the pace of technology-cost growth to moderate over the next three years. That, combined with operating leverage, could help CDSL expand its EBITDA margin by about 215 basis points by fiscal 2029.

The brokerage estimates operating revenue will rise from ₹11 billion in fiscal 2026 to ₹18 billion in fiscal 2029. EBITDA is projected to increase from ₹5.9 billion to ₹9.5 billion over the same period, while earnings per share are expected to rise from ₹22 to ₹35.

Growth remains intact, but upside is limited

Jefferies’ estimates point to continued growth for CDSL, supported by demat account additions, IPO activity and cost moderation. But the brokerage believes the market has already factored in much of the IPO benefit.

The key risk to the cautious view is stronger-than-expected IPO activity, which could drive higher folio additions, issuer charges and IPO income. A sharper-than-expected recovery in margins could also support earnings.

For now, however, Jefferies’ assessment is that CDSL’s IPO jackpot comes with a valuation catch: the earnings opportunity is visible, but the stock’s premium leaves limited room for further upside.

Disclaimer: This article has been written by Nikhil Agarwal, who is not a SEBI-registered Research Analyst or an Investment Adviser. Nikhil Agarwal and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here