A decade ago, the idea of millions of Indians actively trading equities seemed distant. Today, CDSL, India’s largest depository, is thriving on this very trend, benefiting from rising demat accounts, issuer fees, and transaction charges. Its capital-light business model, strong margins, and near-monopoly position in a high-barrier industry make it a compelling long-term growth story.
Over the past five years, CDSL’s stock has delivered a 10x return, fuelled by a surge in new demat accounts, increasing retail participation, and India’s prolonged bull market.
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But with such rapid growth comes an inevitable question—can it sustain this momentum? As financial markets evolve, CDSL stands at an inflection point. Can it continue to dominate, or will cyclical headwinds and regulatory shifts impact its trajectory?
The core business
CDSL operates in the depository sector, a business with significant entry barriers and near duopolistic control. CDSL’s primary role as a depository is to safeguard dematerialized securities and facilitate seamless transactions between depository participants, beneficial owners (BOs), clearing corporations, and stock exchanges.
Holding a 79% market share with 115.6 million demat accounts (as of FY24), it caters predominantly to the retail segment and maintains robust relationships with 580 depository participants, while NSDL takes the lead in the institutional sector segment.
The company generates revenue from three core segments—depository services, KYC services (via its subsidiary CDSL Ventures), and insurance repositories. With demat account penetration in India at just 12% compared to 62% in the US, the potential for growth remains enormous as more individuals enter the financial markets.
Revenue streams
CDSL’s capital-light business model thrives on steady, predictable income streams closely tied to India’s expanding financial markets.
One of its most significant revenue sources is annual issuer charges. These fees are charged to issuers for maintaining securities—equities, private company shares, and debt securities—in dematerialized form. Set by the regulator and applied per folio, annual issuer charges account for 24% of CDSL’s consolidated revenue as of Q4FY24.
This revenue stream functions much like an annuity, providing stability while being closely tied to market activity. As transaction volumes rise and new folios are created, this income is expected to strengthen further. Additionally, increasing retail participation in debt and unlisted markets will further bolster growth. Over the past six years, revenue from issuer fees has grown at a CAGR of 31%, reaching ₹2.5 billion, with further expansion projected as market engagement deepens.
Another significant revenue stream comes from transaction fees, which are levied on investors for each debit transaction in the cash delivery segment. CDSL charges ₹3.5 per debit transaction, contributing 28.5% to its consolidated revenue. The growth of this segment is directly linked to overall cash volumes and the proportion of delivery-based trades. Additionally, CDSL generates revenue from pledges created by customers on their securities.
Over the last six years, the market has expanded on all critical fronts, significantly benefiting CDSL. The number of demat accounts has surged 4.9x, from 36 million in FY19 to 179 million, while cash and delivery volumes have grown 3.7x to ₹1.3 trillion and 5x to ₹45 billion, respectively. As a result, transaction fees have grown at an impressive CAGR of 42% to ₹2.2 billion over the same period.
This segment is expected to continue its upward trajectory, driven by the strong pace of demat account openings and rising equity participation. However, stricter margin norms and reduced derivative trading volumes may introduce some moderation in growth.
Beyond issuer and transaction fees, CDSL also earns revenue from IPO processing and corporate action charges. These include fees for handling IPO applications, allotment of securities, and facilitating corporate actions such as dividends, bonus shares, and stock splits, collectively contributing around 10% of total revenue.
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With more companies tapping the capital markets, this segment is poised for continued growth. The increasing frequency of corporate actions such as rights issues, buybacks, and bonus share issuances further enhances CDSL’s revenue potential in this area.
Beyond depository services
CDSL operates India’s largest KYC registration agency, through CVL KRA. The agency provides KYC services to around 2,000 companies, including capital market intermediaries, and manages over 85.7 million KYC records.
CDSL facilitates the creation, maintenance, and management of electronic KYC records while offering document management and electronic repositories for both central and state government educational institutions as well as private organizations.
CDSL Ventures charges ₹20 for each KYC created within the system. When a KYC is transferred to a new intermediary, the recipient intermediary incurs a ₹35 fee.
With capital market activity expected to rise, MOFSL projects a CAGR of 36% for this sector between FY24 and FY27, presenting significant growth potential.
Another promising avenue is the insurance repository business, where CDSL has gained traction following an Irdai mandate requiring all new insurance policies to be issued in electronic form from April 2024. CDSL, alongside CAMS, NSDL, and Karvy, is one of the four authorized entities in this space.
The industry size, which includes approximately 330 million general insurance and 29 million life insurance policies issued in FY24, is projected to be between ₹2.1-2.9 billion annually, based on a fee of ₹6-8 per policy. As of Q3FY25, CDSL already holds more than 1.6 million policies.
CDSL has partnered with 48 companies across the health and life insurance sectors, achieving a market share in the high single digits. This provides CDSL with an incremental revenue potential of ₹150-200 million, or 2-3% of FY24 revenues.
In addition, CDSL has secured a contract with an insurance firm to manage remote offices and facilitate outsourcing services. As more companies adopt outsourcing models, this will generate a new revenue stream, complementing its insurance repository operations.
The best part? This business requires minimal capital expenditure, making it highly profitable. Given the low insurance penetration in India, this segment is poised for growth, presenting strong business prospects.
Moreover, CDSL stands to generate additional revenue from service requests, such as policy modifications, address changes, and loans against policies.
Financial strength
CDSL has delivered stellar financial performance over the past five years. Revenue has grown at a CAGR of 26% to ₹9 billion, while profit has expanded at 32% to ₹4.2 billion. With an Ebitda margin of 61%, a dividend payout of 55%, and a Return on Equity (RoE) of 31%, the company is exceptionally cash-rich.
However, its performance is closely tied to market cycles. The recent market downturn in Q3FY25 led to a 16% decline in revenue and a 19.7% drop in profit sequentially—its first weak quarter in several years. Lower trading volumes impacted transaction fee revenue, a key driver of growth.
Valuation: Still an attractive bet?
The CDSL stock, which opened at ₹1,270 apiece on Wednesday, currently trades at a P/E of 47.6x, slightly above its five-year median of 44.9x but aligned with CAMS (P/E 46x) and at a 16.9% discount to KFin Technologies (P/E 57.3x).
The broader market correction has brought valuations down by 38%, making CDSL’s risk-reward equation far more appealing. Given its monopoly-like status, recurring revenue, and long-term growth tailwinds, it remains an attractive investment for those betting on India’s financial deepening.
Short-term risks
CDSL is well-placed to capitalize on India’s growing capital market participation. Its dominance in the depository space, capital-light business model, and strong cash generation make it a resilient long-term compounder. The company’s annuity-like revenue from issuer fees and transaction charges provides stability, while its newer ventures in KYC services and insurance repositories add incremental growth potential.
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However, short-term headwinds remain. A weak equity market could impact transaction volumes, reducing revenue in the near term. Regulatory changes and shifting investor behaviour could also influence its earnings trajectory.
Despite these risks, CDSL remains a company to watch for long-term investors who believe in India’s financial inclusion story. If India’s retail investing boom continues, CDSL will likely remain at the centre of it.
Note: This article has relied on data from www.Screener.in and Tijorifinance. We have used an alternate, widely used, and accepted source of information only when the data was unavailable.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
About the author: Madhvendra has been a passionate follower of the equity market for over seven years. He is a seasoned financial content writer. He loves reading and sharing his honest opinion about publicly listed Indian companies and macroeconomics.
Disclosure: The writer does not hold the stocks discussed in this article.
