Shares of CDSL fell by more than 2% following a downgrade by ICICI Securities. The brokerage has lowered its rating on the stock from “Hold” to “Reduce,” citing concerns over elevated valuation and potential risks to earnings growth.
ICICI Securities highlighted that CDSL is currently trading at 53 times its 1-year forward earnings per share (EPS), which is considered high. The report points to historical periods of flat or declining revenue and margins, which have previously led to stock price corrections. The brokerage also noted that the increase in cash volumes from restrictions on options trading is likely to benefit the intraday segment more than the delivery segment, which CDSL primarily relies on.
Additionally, ICICI Securities observed that delivery trades as a percentage of total cash trades have decreased from 26% in FY18 to 21% in FY24. The report also mentioned a decline in EBITDA margins due to higher costs and lower revenue growth in past years.
As of 10:40 am, CDSL shares were trading 2.36% lower at ₹1,502.80.
ICICI Securities has revised its target price for the stock to ₹1,320 from ₹1,118, using a 45 times multiple on the FY26 core EPS estimate of ₹27.9, up from ₹26.
This adjustment reflects strong growth potential in the capital markets and the possibility of higher cash volumes and lower regulatory risks, but it also considers the risks associated with peak cycle multiples and potential lower earnings growth.
