Central Depository Services (India) Ltd (CDSL) saw its shares decline by 3.87 percent, closing at Rs 1,307.30 on Tuesday. This recent dip contributes to a 9.60 percent year-to-date fall for the stock in the calendar year 2026.
Despite the recent share performance, HDFC Securities has upgraded CDSL from an 'Add' rating to a 'Buy' rating. The brokerage firm also increased its 12-month target price for CDSL shares to Rs 1,620, up from Rs 1,450. This new target implies a potential upside of 23.92 percent from Tuesday's closing price.
Anticipated Growth Recovery
HDFC Securities believes that CDSL is on the verge of a volume-led growth recovery following a challenging fiscal year 2026. During FY26, the company experienced a slowdown in revenue growth to 5.8 percent year-over-year, significantly lower than its three-year Compound Annual Growth Rate (CAGR) of 27 percent. Additionally, its EBITDA margin contracted by approximately 651 basis points to 51.2 percent.
The brokerage points to two primary headwinds now being largely behind the company. Firstly, pricing cuts in transaction charges and Know Your Customer (KYC) services, which impacted KYC blended realisations by 8-10 percent, are now fully incorporated into the base. Secondly, the intensive phase of technology and regulatory-led spending has substantially concluded.
Strong Primary Market Activity Fuels Optimism
A key factor in HDFC Securities' optimistic outlook is the robust activity in the primary market during the September quarter (Q2 FY27). The quarter witnessed around 50 mainboard IPOs, a significant jump compared to just nine in Q1 FY27. This surge has led to a recovery in beneficiary owner (BO) account additions, which have rebounded to approximately 1 lakh per day from a low of about 70,000 per day in March 2026.
Analysts project around 10 million new accounts in Q2 FY27, marking the best quarterly addition in eight quarters. This is expected to revitalise transaction revenue, KYC revenue, and IPO/corporate action income. Transaction revenue has been largely flat for five quarters, while IPO/corporate action income is forecast to grow by 18 percent year-over-year in FY27E, a stark contrast to the -1.9 percent recorded in FY26.
Margin Expansion and Earnings Growth
With cost intensity normalising, HDFC Securities anticipates an expansion in CDSL's EBITDA margin. They forecast an increase of 117 basis points to 52.3 percent in FY27 and a further 246 basis points to 54.8 percent in FY28. This margin expansion is expected to drive a strong EBITDA and Profit After Tax (PAT) CAGR of 21 percent and 22 percent, respectively, over FY26-29E, surpassing the historical average of approximately 18 percent.
The brokerage has also revised its revenue estimates upwards by 3-5 percent and PAT estimates by 5-9 percent. Despite underperforming over the past year with a 15 percent decline, CDSL shares are currently trading at around 42 times FY28E earnings, which represents about a 7 percent discount to its historical five-year average one-year forward P/E multiple of 45x. This valuation, according to HDFC Securities, factors in the FY26 slowdown but not the anticipated recovery.