Central Depository Services (India) Limited (CDSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CDSL Q1 FY '27 Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. Ladies and gentlemen, please note that CDSL does not provide specific revenue or earnings guidance. Anything said on this call, which reflects CDSL's outlook for the future or which could be constituted as forward-looking statements must be reviewed in conjunction with the risks that the company faces. I would now like to hand the conference over to Mr. Amit Chandra from HDFC Securities. Thank you, and over to you, Mr. Chandra.

Good afternoon, everyone. On behalf of HDFC Securities, we welcome you all to the CDSL Quarter 1 FY '27 Earnings Call. Today, we have with us the management team of CDSL represented by Mr. Nehal Vora, MD and CEO; Mr. Girish Amesara, CFO; and other senior leaders from the management team. We will start the call with a brief overview of the quarter by Mr. Nehal Vora, and then we'll open up the floor for the question-and-answer session. Thank you, and over to you, Nehal, sir.

So first of all, thank you, Amit. A very, very good afternoon, and welcome, everyone. I hope each of you and your loved ones are safe and healthy. Thank you for joining us today to discuss CDSL's financial results for the first quarter of financial year '26-'27. A detailed investor presentation has been uploaded on our website, and I hope you've had an opportunity to see it. I'm joined today by the leadership team of the CDSL Group. Let me begin with a brief overview of the quarter before the CFO takes us through the financial performance in greater detail. From an industry perspective, the activity levels in the securities market remain healthy. CDSL has opened about 58 lakh new demat accounts during the quarter, taking the total demat accounts on our -- on the CDSL platform to 18.59 crores as on 30th June 2026 and maintaining a market share of approximately 80%. The quarter also saw a few important developments for the organization. During the quarter, our governing Board and our shareholders have approved the appointment of Shri Amit Mahajan as Executive Director, Vertical 1; and Srimati Nayana Ovalekar as Executive Director for Vertical 2. These have -- the shareholders' approval happened after SEBI had given the approvals to CDSL. These appointments are expected to further strengthen the leadership across our operations, technology, regulatory, compliance, risk management and investor-facing functions. We were also honored to receive several recognitions during the quarter, including being named as the most innovative fintech company in Asia Pacific by Global Finance Magazine and also receiving the Innovation and Settlement Efficiency Award at the Global Custodian Leaders in Asia Custody Awards. These recognitions reflect the efforts of our employees, depository participants and the wider ecosystem stakeholders. Coming to our financial performance, CDSL reported a stand-alone income of INR 327 crores and a stand-alone net profit of INR 144 crores for Q1 of FY '26, '27. On a consolidated basis, the total income stood at INR 341 crores and a net profit of INR 118 crores. CDSL had also -- has also made strategic investments in Sahamati Foundation, an RBI recognized self-regulatory organization for the account aggregator ecosystem. As the India securities market continues to deepen, our focus remains unchanged, strengthening core infrastructure, improving service quality for our participants and issuers, supporting investors through awareness and education initiatives and building capabilities for the future. We remain grateful to our regulators, SEBI and Ministry of Finance and all other regulators, depository participants, issuers, investors, market intermediaries, shareholders and employees for their continued support and trust. With that, I now hand it over to the CFO, Girish, to take us through the financial performance in greater detail. Thank you.

Thank you, Nehal. Good morning, everyone. I'll start with stand-alone performance. For the June quarter 2026, the total income is achieved at INR 326.51 crores as against INR 312.36 crores for the similar quarter during previous year. The stand-alone net profit for June 2026 quarter is achieved at INR 144 crores as against INR 152 crores for the similar quarter during the previous year. Please note that the other income in stand-alone financial results includes dividend received from subsidiary, which was at INR 39.50 crores in June 2026 quarter as compared to INR 62 crores in the similar quarter during the previous year. The same dividend is eliminated on consolidation as that is received from a subsidiary. Now on a consolidated basis, the total income for June 2026 quarter is achieved at INR 340.50 crores as against INR 295.14 crores for the similar quarter in the previous year. The consolidated net profit for June 2026 quarter is achieved at INR 118 crores as against INR 102 crores for the similar quarter in the previous year. With this, I will request Sunil Alvares to take us through CVL numbers. Thank you, and over to you, Sunil.

Good afternoon. During Q1 FY '27, CVL reported revenue from operations of INR 45 crores as compared to INR 36 crores during the same period last year, reflecting a growth of INR 8 crores or 22%. The growth was largely driven by improvement in our other businesses and other digital service offering. Total income for the quarter stood at INR 50 crores as against INR 43 crores in Q1 FY '26, an increase of INR 7.6 crores or 18%. On the expenditure side, the total expenditure increased to INR 34.67 crores from INR 26.43 crores. That was up by INR 8.23 crores or 31%. As a result, the profit before tax stood at INR 15.68 crores compared to INR 16.61 crores, a decline of 4% or INR 62 lakh. Profit after tax was at INR 12.11 crores as against INR 12.71 crores in the corresponding quarter of the previous year, which was a decline of INR 59 lakh or 5%. With this, I open the floor for the questions and answers.

[Operator Instructions] The first question comes from the line of Amit Chandra with HDFC Securities.

So my first question is on the annual issuer charges growth. So obviously, we have shown Y-o-Y growth of 12.3%. But seeing the IPOs that we have received, the IPOs that had come last year, the expectation of growth here was much better versus what we did last year in terms of Y-o-Y growth for the first quarter. So any reasons why this growth is lower? And also, if you can give the number of folios in this year versus last year, that would be helpful.

So basically, Amit, it's a formula-driven charges or issuer charges. And it's based on the folios which are actually there. And so it is what it is in terms of what the numbers are in terms of the folios have been. I'll ask the CFO, Girish, to give us the numbers on the folios.

So Amit, the folio is INR 38.73 crores.

Okay. And sir, secondly on the KYC income. So we had the pricing reset in this quarter. So based on the basic the -- reset maths, the impact would have been in the range of 20% only on pricing, but the impact here is lower than that. So is it offset by volumes? Or there is some other things to read into it in terms of the pricing impact that you had in the KYC?

I'll ask Sunil to answer this.

Yes. So Amit, there are 2 things which really offset that. One was the higher fetch volumes. And so the actual impact came was lower to about 9%. And we also -- when the charges were reduced by SEBI, they had allowed us to charge on the Search API, which again gave us some revenue, which reduced the overall effect. So I hope that answers your question.

Okay. And sir, the last question from my side. In terms of technology expenses, obviously, we have seen the technology expenses going up every quarter. But in this quarter, we have seen some kind of stability there. So is it fair to assume that most of the heavy lifting in terms of the technology spend is behind. And from here, we can see a steady-state increase in technology expenses.

So firstly, we don't give future statements, which look into the future, forward-looking statements. But as I have said in various investor calls, we are an infrastructure company. So technology and human resource are the 2 key components, which is, in a way, the raw material work in progress and finished goods. Important thing is to ensure the value proposition continues to remain. And rather than seeing it as a quarter-on-quarter, you have to see in terms of the stakeholder interest growing, number of accounts growing and that value proposition should remain intact. And whatever it takes to ensure that the value proposition would continue is really our effort and our intent in taking this forward. So it will be difficult to comment whether the technology spend will grow or not grow in future. One is we don't give forward-looking statements. But overall, in the overall scheme of things, it is what is required to be done to ensure that the infrastructure continues to remain contextual and value proposition driven, you have to do whatever it takes for that.

But just wanted to understand that whatever we had in terms of our plan for technology spend, is it already done? Or I'm not asking for a future guidance, but as of now, like most of the advancements have been done as per the regulatory requirement?

So see, the regulatory requirements keep on changing as per the needs of the market and what needs is there. Also, technology is also changing rapidly. The intent is that we have to be nimble as well as very, very active in ensuring that the best-in-class technology continues to remain active on the CDSL platform. And that's been our intent. So it's difficult to answer this question whether it has reached or not reached because the environment itself is changing so much. So based on that, we'll have to wait and observe how that will impact in the quarters to come.

The next question comes from the line of Hiral Parekh with Dolat Capital.

Sir, my first question is that competition has mentioned that they have seen more traction with fintech brokers after they have made some tech changes, which have sort of reduced onboarding friction. Also, I was looking at some data. So while we have maintained our market share in terms of total demat accounts. However, for our incremental demat market share, we have lost about 420 bps since close of March. So we're standing at 81.4% in June '26. So how are we viewing this in the light of how fintechs are interacting with depositories? That's my first question. For my second question, if you could just help us understand the movement in other income in this quarter. If possible, could you just provide a broad split across eCAS, e-voting, income from unlisted companies and pledge income and also any one-off? Also, how much of this was driven by MTM gains?

Okay. So on your first question, Hiral, I think, again, I'll repeat what I said in the first question -- the reply to the first question, we are an infrastructure company. And our intent at least CDSL is not a quarter-on-quarter growth. It is a long-term sustainable growth, which creates value proposition for the market. Growth in demat accounts is a function of various functions on how the market perceives, what is the total growth. The important thing is that the intermediaries and the investors should continue to believe and feel the value proposition of the CDSL platform. So I would see this as more of continuous work in progress quarter-on-quarter that how do you make our systems better in terms of value proposition. For me, the numbers is one thing which we observe, but it's more important is how are we able to ensure that the people who are accessing the CDSL platform continues to feel the value proposition as and when they do it. And for the second question, I'll ask Girish to answer.

So breakup of other income consists of consolidated account statement-related fee, which is around INR 14.80 crores, e-voting income of INR 6.32 crores. investment mark-to-market related gain and other income accrued on investment is INR 43.8 crores. We have other operating revenue of INR 6 crores, which largely includes user facility accounts, maintenance charges, document storage charges, foreign investment limit monitoring charges. And then we have plus other income, INR 3.94 crores. This totals INR 75 crores on a consolidated basis.

Just one more question. For employee costs, they were up around 30% Q-o-Q. So in case this consists of some bonus provisions, if you could just give us a broad split between the underlying increase and the bonus increase?

So we don't give these numbers out in the public domain. But typically, it's the year-end appraisal process, which constitutes this number.

The next question comes from the line of Swarnabha Mukherjee with 360 ONE Capital.

Sir, first just wanted to understand the KYC revenue in a little bit more detail. So as you mentioned that there was a dispensation by SEBI, if you could explain what exactly this was? And till what time was this allowed so that we can get a sense for a normalized run rate. So if you could give us like till what time you got the extra revenue and what is the amount of that? And in terms of you mentioned higher volumes? Or was this more on the fetch side? And if you could maybe give us some color on the blended realization on new and fetch, maybe towards the end of the quarter, that would be very helpful. So that's on the KYC side, sir. Secondly, on our treasury book, if you could share what proportion of the asset is in equity or equity oriented mutual fund. And lastly, some data keeping question. So in the annual issuer charges, if you could give us the amount of unlisted related revenue and if you could break it up between processing and recurring fee and also the pledge income, if you could provide, sir?

So we don't give some part of that information. The first question I'll ask Sunil to answer the second and third, the CFO, Girish, to answer.

So the question you asked was what was SEBI's directive. So the charges was earlier INR 35 on fetch. It was reduced to INR 28. There was a dip of 20%. So far as the charges on creation was concerned, it was around INR 20. It was reduced to INR 5, and that was down by about 75%. But overall, during the quarter, the volumes were good. And I mean that's how we more or less we could maintain our performance as compared to Q1 of last year. In terms of the other charges, what SEBI allowed us to charge was on a Search API so that every time somebody searches a particular PAN, there is a small charge of INR 0.25 every time. So that resulted in some income. And overall, the numbers are what we've already indicated to you. I hope that answers your question.

Sir, just a followup on this.

Just 1 minute. Can we finish all the questions? Otherwise, it will be...

Sure, sir.

So we do not make any direct investment in the equity schemes of mutual fund. We generally invest in debt schemes. We have a small portion of ETF investment, which ranges from 5% to 7% of our investable portfolio. Pledge income in this quarter, we have achieved that margin pledge of INR 6.19 crores. With respect to your question on unlisted revenue, we have achieved unlisted revenue of INR 0.30 crores, and application processing fees of INR 2.32 crores in this quarter. So majority income, if you look at ACF, annual custody fees, is all listed companies.

Right, sir. That's very helpful. Just on the KYC as a follow-up, the Search API-led revenue, this will continue henceforth? And can you share maybe a proportion or a quantum of that?

No, it will continue, but right now, I will not be able to give you the overall details. It's included in the overall income of KRA.

Okay. And just sir, compared like the rack rate has gone down in KYC as we know. The actual eventual chargeable, what you are charging, has it gone down at by a similar quantum?

Obviously, we have to follow SEBI's directive, right?

And that has to be followed by all the KRAs. It's not only us, it's an industry-wide...

It's industry-wide circular. So everybody has reduced their charges accordingly.

Yes. I mean I meant that, sir, eventually what you are realizing in terms of [indiscernible] gives some volume discount or anything to any customer, then even the realizable rate has also gone down at the same level?

We actually don't discuss this in our investor call.

The next question comes from the line of Sanketh Godha with Avendus Spark.

Sir, my first question is on annual charges again because the way you said the INR 38.73 crores account, actually, the folio count seems to be growing at 17% year-on-year compared to the last year, but the overall growth is just 12%. So the relatively lower growth is largely because of unlisted piece. That's a fair way to understand?

If you compare on quarter-on-quarter basis, yes.

Understood. Understood. And in unlisted, that opportunity what we had in last year and maybe changing some threshold levels, the numbers what you mentioned in the current call are likely to remain going ahead. Maybe not the exact number, but that's the new normal we need to -- is it fair to understand, sir?

See, again, it's difficult to give a forward-looking statement, but it is all driven by overall regulatory intent of ensuring that more and more companies come into the fold of depositories. So we'll see how and in which manner, in a phase-wise manner, this will increase. So we're not able to give any specifics, but the overall regulatory...