5 Things to Know about the NSDL IPO

The uncertainty and all the fog around NSDL's upcoming IPO have finally cleared.

There were a lot of speculations last year about the IPO timeline, its size and the valuation of unlisted shares of the largest Indian depository.

All speculations have been put to rest as NSDL filed its draft red herring prospectus (DRHP) with the market regulator.

Here are five things you should know.

#1 About NSDL

National Securities Depository (NSDL) is an Indian central securities depository, based in Mumbai. It was established in August 1996 as the first electronic securities depository in India with national coverage.

It was established based on a suggestion by a national institution responsible for the economic development of India.

NSDL has over 31.46 million (m) active demat accounts and services 99.99% of the value of equity, debt, and other securities held by foreign portfolio investors (FPIs) in dematerialized form in India.

NSDL's contributions to the Indian financial landscape extend beyond depository services. Over the past couple of years, it has diversified offerings, including PAN card services, online tax accounting systems, and mobile-based share delivery facilities.

#2 IPO details

• Face value: Rs 2 per equity share
• Type of issue: Offer for sale of Rs 57,260,001
• Offer structure: The company has reserved not less than 50% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 35% of shares are available for retail individual investors.
  Not more than 5% of the share will be reserved for eligible employees.
• Listing: The shares will be listed on the BSE.
• Lead managers: ICICI Securities, Axis Capital, HSBC Securities and Capital Markets (India), IDBI Capital Markets and Securities, Motilal Oswal Investment Advisors, and SBI Capital Markets Ltd are the book-running lead managers to the issue. Link Intime India Private Limited is the IPO registrar.

According to the DRHP, six leading shareholders will sell their stake in the public offer.

Shareholders Participating in NSDL's OFS

Name of the shareholder	Total stake sold (%)	Number of shares sold
IDBI Bank	11.1	22,220,000
National Stock Exchange of India	9.0	18,000,001
Union Bank of India	2.8	5,625,000
State Bank of India	2.0	4,000,000
HDFC Bank	2.0	4,000,000
Administrator of the specified undertaking of the Unit Trust of India	1.7	3,415,000

Data Source: Company's DRHP

According to reports, the total IPO size will be more than Rs 30 billion (bn), which means that the company's total valuation will be bigger than Rs 100 bn.

#3 A look at NSDL's financials

NSDL has doubled revenue in the past two years while net profit has also been on a constant rise.

In FY23, the company's revenue grew by 33.9% to Rs 10,998.1 m driven by growing number of demat accounts.

For the same year, net profit grew by 10% to Rs 2,348.1 m compared to Rs 2,215.9 reported a year ago.

NSDL Financial Snapshot (2021-23)

Particulars	31-Mar-23	31-Mar-22	31-Mar-21
Revenues (Rs in m)	10,998.1	8,212.9	5,261.2
Revenue Growth (%)	33.9%	56.1%
Expenditure Before Tax (Rs in m)	7,899.4	5,416.4	2,795.4
% of Total Income	71.8	65.9	53.1
Net Profit (Rs in m)	2,348.1	2,125.9	1,885.7
Net Profit Margin (%)	21.3	25.9	35.8
Net Worth (Rs in m)	14,288.6	12,116.2	10,192.9
Return on Net Worth (%)	16.4	17.6	18.5
Basic Earnings per share (Rs)	11.7	10.6	9.4

Data Source: Company's Red Herring Prospectus (RHP)

#4 Peer comparison

There are only two depositories in India viz. NSDL and CDSL. These two compete with each other to grab market share from investors and companies.

Let us compare the performance of these two depositories to see which company is winning the race.

• Number of demat accounts: As on 31 March 2023, NSDL had 31.5 m active demat accounts, while CDSL had more than 83 m active demat accounts.
• Number of companies registered: In FY23, 40,987 companies registered with NSDL whereas 20,323 companies registered their securities on CDSL.

  NSDL has a greater number of unlisted companies registered with it as compared to CDSL.

• Demat custody value: In FY23, demat custody value for NSDL was Rs 302.2 trillion (tn). On the other hand, demat custody value for CDSL was Rs 39.7 tn.
• FPI services: As on 31 March 2023, NSDL serviced 99.99% of the value of equity, debt and other securities held by foreign portfolio investors in dematerialized form in India.
• Financial performance: In FY23, NSDL reported a total revenue was Rs 11 bn, registering a growth of nearly 34% on a YoY basis. Its net profit for the same year rose 11% to Rs 2.3 bn.
  CDSL's revenue in FY23 was at Rs 6.2 bn, while its net profit was higher than NSDL at Rs 2.8 bn during FY23.
• Operational performance: The operational performance of CDSL was better than that of NDSL during FY23. While NDSL's operating profit was Rs 2.6 bn and profit margin was 25%, CDSL's operating profit stood at Rs 3.2 bn with margin of 57.5% during the same year.

#5 Conclusion

NSDL holds a dominant market share and it also handles most of the FPI investments. There are high entry barriers hence virtually, it does not face any threat of competition.

With growing financial literacy around the country, more and more people are moving towards securities investment. This indicates that the company operates in an industry with high growth opportunities.

However, the company suffers from operational deficiencies. Its profit margin is lower than its competitor despite earning higher revenues.

As and when more details come out about its price band, IPO size, grey market premium, etc. we'll get to know more details and how to go about this IPO. You could expect strong participation from retail investors as the primary market has finally started to churn out some multibaggers on listing day.

Until then, stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

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