Nuvama Institutional Equities has recently adjusted its target price for Central Depository Services Limited (CDSL), increasing it to ₹1,400 from the previous ₹1,170 while retaining a ‘Hold’ rating. This adjustment comes in light of the company’s margin decline during the fourth quarter of FY25, attributed primarily to rising technology-related expenses amidst a slowdown in retail activities.

Decline in Revenue Due to Market Conditions

CDSL experienced a significant 20% drop in revenue on a sequential basis, reflecting the sluggish retail activity in both primary and secondary markets. Year-on-year, revenue decreased by 7%, totaling ₹224 crore. The downturn in equity markets, both globally and domestically, has been influenced by various internal and external uncertainties affecting investor confidence.

• Primary Market Activity: Only 10 mainboard IPOs took place in Q4FY25, generating ₹16,000 crore.
• Impact on Fees: Charges from IPOs and corporate actions fell by 7.4% YoY and a staggering 56.9% QoQ, amounting to ₹25 crore.

Nuvama highlighted in their research that the lack of momentum in the secondary market has directly resulted in a slowdown in primary market issuances, suggesting that this trend could continue to adversely affect corporate action and IPO revenues in FY26.

Rising Expenses Impacting Margins

The increase in operational costs has significantly impacted CDSL’s EBIT margins, which contracted by 1,573 basis points YoY and 1,073 basis points sequentially to settle at 42.4%. This resulted in an EBIT of ₹95.1 crore. The company’s technology expenses surged by 66.9% YoY as management focuses on enhancing infrastructure and streamlining operations. Additionally, employee and other operational costs rose by 14.1% and 10.7% YoY, respectively.

Despite these challenges, CDSL managed to report a net profit of ₹100 crore, although this reflects a 22.4% decline YoY and 22.9% QoQ. The profit was buoyed by unexpected other income of ₹31.3 crore, which saw a 17.8% increase YoY and a 56.6% increase QoQ, along with a favorable tax rate of 21.2%.

Positive Outlook Amidst Challenges

Looking ahead, Nuvama anticipates a rebound in cash market average daily trading volumes (ADTV), which increased by 7.7% month-on-month in March 2025 and by 1.7% in April 2025. This potential uptick may provide some relief to CDSL’s revenue streams.

CDSL Stock Performance Overview

In recent trading sessions, CDSL’s stock has seen a 4.3% decline over the last five days. However, the share price has shown a 15% increase over the past month. Despite this recent recovery, the stock has experienced a 17% drop in the last six months, though it has yielded a 22% return over the past year.

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