NSDL likely to launch its IPO in year 2023

The much awaited IPO of the National Securities Depository Limited (NSDL) is likely to finally happen in 2023. This also marks the 25th anniversary of the setting up of NSDL in India. In a sense, NSDL was the pioneer and it led the way as far as growth of demat in India is concerned. CDSL came about later in 1999 more to prevent a monopoly in demat services in India. NSDL not only pioneered paperless holding of securities, but also facilitated the paperless clearing and settlement of transactions on the stock exchange, which actually made T+2 and rolling settlements actually possible in the Indian context.

NSDL had been embroiled about 15 years ago in the infamous demat scam. At that point of time, the NSDL chairperson, CB Bhave had also moved on to SEBI as its chairman. To Bhave goes the credit of making NSDL what it is today and making demat a reality in the Indian context. It must be noted that IDBI Bank and NSE are among the largest shareholders in NSDL and both would look to partially exiting their stake in NSDL. The issue will be managed by ICICI Securities, Axis Capital, HSBC Securities, Motilal Oswal Investment Advisors, SBI Capital, HDFC Bank and IDBI Capital.

The issue size is yet to be firmed up but the initial indications are that it would be a pure offer for sale (OFS), and both the key shareholders viz. IDBI Bank and NSE will look to monetize some of their holdings in NSDL. The issue size is estimated to be Rs. 2,500 crore on the conservative side and Rs. 3,000 crore on the upper side. If you look at the holding break-up of NSDL, IDBI Bank holds 26.1% and NSE holds 24%; account for more than half of the shareholding of NSDL. Additionally, HDFC Bank owns 9.95%, SBI 5%, Deutsche Bank 5%; among others. The government of India also indirectly holds 6.83% in NSDL through the Specified Undertaking Of The Unit Trust Of India (SUUTI).

The NSDL IPO filing is likely to happen around February next year and that would mean another month or so to approve the IPO and going ahead. Once NSDL gets listed on the bourses, it will be the second depository to list. CDSL had listed back in 2017 itself and has been among the top performer post listing as it was the biggest beneficiary of the surge in the equity cult and demat accounts in India. It may be recollected that the Rs. 524 crore issue of CDSL had been oversubscribed nearly 170 times. CDSL currently has a market cap of Rs. 12,800 crore. The stock has been among the top performers in the last few years.

How is the reach of NSDL?

Out of the 10.50 crore demat accounts in India, NSDL has about 2.96 crore accounts while the remaining 7.50 crore accounts are with CDSL. However, while CDSL has an edge in terms of number of accounts, it is NSDL that has an edge in terms of the assets under custody. CDSL has AUC (assets under custody) of around $500 billion while the AUC of NSDL is more than 8 times that figure at $4 trillion. In valuations drivers, it is AUC value that would matter more than the number of accounts, so NSDL should command a substantial premium over CDSL. After all, NSDL has a 90% market share of demat custody value in India.

However, NSDL offers a plethora of services, even outside the core business of demat custody. It started offering PAN card services and an online tax accounting system in 2004. NSDL has also launched online uploading of central excise challan data in 2005. NSDL had also pioneered the delivery of shares using mobile phones in the year 2007. NSDL is incidentally also the registrar for the Unique Identification System (UIDAI) leading to the Aadhaar card system in India. NSDL has also acquired a payment banking license from the RBI and its latest foray is into digital market places through its stake in ONDC.

To sum it up, the IPO will not result in any fresh infusion of funds into the company as it would be an offer for sale. However, being an OFS, the issue will not led to dilution of EPS or equity as the OFS is purely a transfer of ownership. It remains to be seen if NSDL can also recreate the magic of CDSL on the bourses.