The upcoming Initial Public Offering (IPO) of NSDL (National Securities Depository Limited) is one of the most anticipated listings in India’s capital market infrastructure sector. As India’s first depository, NSDL has a pivotal role in the country’s stock market ecosystem, but its business, industry position, financial health, risks, and valuation nuances deserve detailed analysis before investing.
What is NSDL and What Does It Do?
NSDL, established in 1996, was the first depository to operate in India. Its main function is to hold securities like stocks in electronic form instead of physical certificates, akin to a huge cupboard storing electronic shares safely. Investors access their holdings through Demat (dematerialized) accounts linked to NSDL.
NSDL operates in a duopoly market with only one major competitor: CDSL (Central Depository Services Limited). Both control the depository business space, which carries high entry barriers and acts as a vital backbone for India’s capital markets.
NSDL’s business has three core segments:
- Depository Services: This includes Demat account opening and maintenance, transaction processing (transfer of securities between buyer and seller during trade settlement), and handling corporate actions such as dividends or bonuses by maintaining shareholder records.
- Subsidiary Services: NSDL owns NSDL Payments Bank Limited (NPBL), a payments bank that offers savings accounts, funds transfers, virtual debit cards, bill payments, and other banking services. However, regulatory constraints prevent it from issuing loans or credit cards.
- NSDL Database Management Limited (NDML): This arm provides e-governance services such as online registrations, KYC (Know Your Customer) agency operations, insurance repository services (holding insurance policies in electronic format), and value-added services like e-voting platforms and API-based digital products.
Revenue and Profitability Breakdown
A surprising insight from the NSDL financials is the disproportionate contribution of different segments to revenue and profit:
| Segment | % of Revenue | % of Profit Contribution |
|---|---|---|
| Banking Services | 50.69% | ~1% |
| Depository Services | 43.56% | 91.32% |
| Database Management | 5.75% | Minimal |
Despite banking services generating the majority of revenue, they yield very little profit, while depository services, though almost half the revenue, contribute over 90% of profits. Thus, from an investment perspective, the profitability driver remains NSDL’s core depository business.
Industry Analysis: A High-Barrier Duopoly
The depository business in India is a classic duopoly with NSDL and CDSL as the only players. NSDL historically held a dominant market share of around 81.6% until 2020, but CDSL captured gains during the pandemic years due to a surge in discount brokerage account openings (brokers like Zerodha, Groww, Angel One, and others primarily associate with CDSL rather than NSDL). By 2021, NSDL’s market share dropped to approximately 69%, and CDSL’s rose significantly.
This shift was driven by increased retail investor participation, especially via discount brokers, encouraged by rising interest in stock markets during and after COVID-19. However, NSDL continues to hold a leading position among traditional full-service brokers and institutions.
Going forward, total client account growth is estimated at around 11-12% CAGR over 2025-27, supported by India’s favorable demographics — a young, growing working population with increasing savings and investment awareness, which structurally favors the growth of depositories.
Financial Performance Highlights
NSDL’s financial trajectory has been stable and positive:
- Steady revenue growth from approximately ₹10,000 million to ₹15,351 million over recent years.
- Profit after tax (PAT) rising consistently from ₹2,300 million to above ₹3,400 million.
- Earnings per share (EPS) growth from around ₹11.74 to ₹17.16.
- Net worth expansion from ₹14,000 million to ₹20,000 million.
- Remarkably, NSDL operates with zero debt throughout.
- Revenue CAGR around 18%, with profit CAGR near 21%.
- Operating profit margin stands steady near 23-24%, with the depository segment delivering over 50% operating margin.
Return on Equity (ROE) is healthy at approximately 17.78%, demonstrating efficient capital usage.
Key Risks to Consider
While NSDL appears robust, some risks prevail:
- Regulatory Risks: NSDL operates under the supervision of SEBI and is susceptible to regulatory changes. It has received focus notices from SEBI and is linked to an Enforcement Directorate money laundering case, which introduces compliance and reputation risks.
- Profit Dependency: The bulk of profitability depends on the depository business, which is influenced by market cycles. In bearish or dull market phases, transaction volumes and revenues may shrink, impacting profit.
- Litigations: There are some normal direct tax litigations pending, which do not seem serious but must be monitored.
- Subsidiary Challenges: Payment bank operations face profit issues and regulatory challenges, contributing negligible profit currently.
NSDL vs CDSL Peer Comparison and Valuation
- NSDL’s total revenue is higher (~₹15,351 million) compared to CDSL (~₹12,000 million).
- However, looking purely at depository revenue, CDSL earns approximately ₹9,000 million (75% of total revenue), whereas NSDL earns about ₹7,500 million (46% of total revenue), indicating CDSL’s stronger focus on core depository business.
- CDSL reports better PAT and EPS figures than NSDL.
- NSDL benefits from a higher net worth and assets base.
- Price-to-Earnings (PE) ratio for NSDL stands around 46.63, which is lower than CDSL’s, implying a relative discount in valuation compared to its peer.
IPO Details
The NSDL IPO details warrant careful attention:
- The IPO is a 100% Offer For Sale (OFS), meaning no fresh capital will flow to the company. The entire ₹4,000+ crore proceeds will go to existing shareholders selling their shares.
- This raises concerns as the company itself will not receive funds for growth initiatives.
- The IPO price band is ₹760 to ₹800 per share, which is about a 22% discount to the gray market premium noted previously.
- This discount reflects caution after seeing unlisted shares trading at higher prices but IPO pricing correcting to a conservative band.
- No lock-in period applies if you apply through the IPO, unlike in the unlisted share market where lock-in is six months.
Final Thoughts
NSDL stands as a foundational pillar of India’s securities market infrastructure, entrenched in a duopoly with CDSL and underpinned by high entry barriers and scalable technology-driven operations. Its core depository services deliver the bulk of profit and remain crucial to its valuation.
The growth prospects look promising due to rising retail participation and favorable demographics, though risks remain from regulatory scrutiny and market cyclicality.
Investors should note that the IPO is a pure seller’s offer without fresh capital infusion. Valuation appears reasonable compared to peers, with a conservative price band offering a margin of safety versus grey market levels.
For those keen on India’s capital market infrastructure theme, NSDL offers exposure to the backbone of equity markets and financial transactions, albeit with associated regulatory and market risks.