Nuvama Institutional Equities has upgraded Central Depository Services (India) Limited (CDSL) to a ‘Buy’ rating from ‘Hold’ with a revised target price of ₹1,780, implying a potential upside of over 16% from current levels. The upgrade comes despite a soft year-on-year performance in Q1FY26, as Nuvama expects sustained growth ahead driven by continued market share gains, higher annual issuer charges, and a robust IPO pipeline.
In its Q1FY26 results, CDSL reported revenue of ₹2.59 billion, up just 0.6% YoY but up a strong 15.3% sequentially. The quarter-on-quarter growth was mainly led by a surge in annual issuer charges, which jumped 31% QoQ and 50% YoY, as well as higher transaction charges (+26.5% QoQ) and other operating revenue (+16.5% QoQ).
However, higher costs related to staffing, technology, and operations led to a sharp drop in profitability metrics. EBIT margins contracted by 1,167 basis points YoY to 44.5%, although they improved 216 basis points QoQ. EBIT stood at ₹1.15 billion, down 20.3% YoY but up 21.2% sequentially. A higher effective tax rate of 32.2% further dragged the adjusted profit after tax (APAT) to ₹1.02 billion, a decline of 23.7% YoY and a modest 2.1% QoQ growth.
Despite the profit dip, Nuvama remains optimistic. The brokerage has raised its FY26 and FY27 APAT estimates by 1.9% and 4.7% respectively and revised its valuation multiple to 60x FY27E P/E from 70x earlier.
“With strong fundamentals and structural tailwinds like increasing dematerialization, IPO momentum, and retail participation, we believe CDSL remains well-positioned to deliver long-term value,” the report noted.
