Why is CDSL under pressure? Nuvama reveals why 71% slump in IPO activity is the big gamechanger

Let’s take a look at the key reasons why the brokerage is cautious and what investors need to watch out for next –

Nuvama on CDSL: Revenue growth slows on a sequential basis

According to the brokerage report, the company did report growth on a year-on-year basis, but the quarter-on-quarter trend was weaker.

Nuvama in its report, pointed out that the revenue increased by 17.1% compared to last year but fell 13.6% compared to the previous quarter, reaching around Rs 260 crore, which was slightly below expectations.

The report pointed out that this drop was largely due to weaker activity in areas like initial public offerings (IPOs) and corporate actions.

Furthermore, the brokerage added, “the QoQ decline was largely due to weaker IPO/corporate action charges (-71.2% QoQ) and transaction charges (-1.7% QoQ).”

Nuvama on CDSL: Profit takes a hit despite stable costs

Even though expenses were broadly in line with expectations, profitability came under pressure.

As per the brokerage house, “Higher than estimated technology cost was offset by lower employee cost, taking total expense higher by 2.2% QoQ (in line with our estimate), resulting in an EBIT margin of 37.6% (-473bp YoY/-965bp QoQ).”

The impact was also visible in net profit.

The report added that lower other income pulled down profits. Adjusted profit after tax (APAT) came in at around Rs 80 crore, down 20% compared to last year and 39.8% lower than the previous quarter.

Nuvama on CDSL: IPO activity and market trends play a role

A key factor behind the weaker performance was reduced activity in the primary market.

According to the brokerage report, fewer IPOs impacted revenue. Furthermore, lower retail participation also hurt earnings from these segments.

Even though overall market trading volumes were higher, investor participation remained weak.

At the same time, the report highlighted that the pipeline for future IPOs remains strong, which could support recovery in the coming quarters. Increased fund-raising activity and a steady rise in demat account openings also indicate long-term structural growth.

Nuvama on CDSL: Rising costs continue to weigh on margins

Another concern flagged in the report is the increase in technology-related spending.

“Management continues to invest in capacity creation and process streamlining, driving technology expense by 41.1% YoY/12.0% QoQ,” added the brokerage house report.

Nuvama on CDSL: Valuation reset leads to rating downgrade

The brokerage has also revised its earnings estimates downward, reflecting the near-term challenges.

The brokerage has cut its profit estimates for FY27 and FY28 by 9.6% and 11.1%. It has also lowered the target price to Rs 1,250 from Rs 1,660 earlier. Based on its valuation, the stock trades at 45 times FY28 estimated earnings, and the rating has been revised to ‘Hold’.

What should investors do next?

CDSL remains part of a structurally growing segment linked to increasing financial participation in India, near-term headwinds cannot be ignored.

Factors like IPO activity, retail participation, cost control, and margin stability will be key to watch going forward. For now, according to the brokerage report, the stock appears fairly valued, which explains the ‘Hold’ stance.

Disclaimer: The following analysis includes specific brokerage ratings and price targets which do not constitute an offer to buy or sell securities. As the stock market involves significant risk, investors should consult with a SEBI-registered investment advisor before making any financial decisions based on this report. This information is for educational purposes only and is not a substitute for professional financial advice.