Things to know about NSDL IPO

For those investors closely involved in the capital markets, NSDL needs no introduction. It was the company that ushered in the demat or depository system in India in 1996 under the leadership of the legendary C B Bhave. Till then, India was still using physical certificates and on physical settlements. People would own shares in the form of unwieldy share certificates and each time they bought shares, they would send the share certificates with the transfer form to the registrar for issuing new certificate. In one stroke, NSDL changed all that. It ushered in demat and in a very short period of time, Indian markets were substantially into the demat mode. That pioneer of demat in India, NSDL, is planning to hit the IPO market through an offer for sale (OFS).

NSDL is a SEBI- registered market infrastructure institution (MII) and currently offers a wide range of products and services to the financial and securities markets in India. Being a pure offer for sale (OFS), there will be no fresh funds coming into the company. The only other depository in India, CDSL, had come out with an IPO in 2017 and has been a major outperform in the stock markets since then. While the CDSL issue was worth Rs524 crore, the issue had been oversubscribed about 170 times. CDSL and NSDL are the two central depositories in India and all the depository participants in India are either affiliated to one of these depositories. While these Market Infrastructure Institutions like NSDL are regulated by SEBI, they also act as first level regulators for brokers and depository participants.

How is the NSDL offer for sale structured 

The offer for sale entails the sale of 572.60 lakh shares with the price to be decided. However, it is estimated that NSDL may be targeting a valuation of Rs15,000 to Rs17,000 crore with about 25% of the shares being offered via the OFS. NSDL has 20 crore issues shares prior to the IPO and that will not change since this is only an OFS. The key shareholders offering their shares in the OFS are as under.

IDBI Bank and NSE are the two biggest offering shareholders. Post the IPO, the public shareholding will go up to 28.63% with the balance being still held by the promoters and early shareholders.

 Key Financials of NSDL

The table below captures some of the key financials pertaining to the proposed NSDL IPO

If this is projected to Rs13.50 for the next year then if we assume the P/E of CDSL at 45.2 times earnings, we can look at a base pricing of around Rs610. That would make it an issue size of about Rs3,500 crore with an indicative valuation of about Rs12,200 crore. But this is just considering the base price, without considering the fact that the assets under custody held by NSDL is nearly 80% of the overall market. Also, the NSDL franchise among issuers, institutions and for debt is much higher, so combing all these a valuation of around Rs15,000 crore may not be totally out of the mark. But we have to wait and see how the pricing pans out in the minds of the investment bankers.

The offer includes a reservation of equity shares for subscription by eligible employees (the employee reservation portion). The company and the selling shareholders, in consultation with the BRLMs, are likely to offer a discount of the offer price to the eligible employees bidding in the employee reservation portion. The balance number of shares will be available as net offer for sale. The issue of NSDL will be lead managed by ICICI Securities Ltd, Axis Capital Ltd, HSBC Securities and Capital Markets (India) Private Ltd, IDBI Capital Markets & Securities Ltd, Motilal Oswal Investment Advisors Ltd and SBI Capital Markets Ltd.

Some numbers about NSDL

Here are some interesting statistics about the NSDL story.
    • NSDL has 3.23 crore active client accounts as of June 30, 2023. Of these, 8 lakh accounts also have debt instruments in custody. Till date, a total of 6,657 crore certificates have been dematerialized. NSDL has presence in 99.3% of the pin codes in the country while since 1996, NSDL has opened an average of 5,005 accounts per day.

    • NSDL has a total of 284 affiliated DPs with a geographical coverage across over 2,039 towns and cities. Its total demat custody value at $4,133 billion is more than 80% market share in India, although it CDSL that leads on number of demat accounts.

    • Out of the total custody value of $4,133 billion, nearly 81% is accounted for by equity holdings, 13% is accounted for by debt, 2% by commercial paper (CP) and 1% by sovereign gold bonds (SGBs), while other instruments account for the other 3%.

More to NSDL than just a national depository

There is a lot more to NSDL than just being the central depository. It also launched a slew of other services. It has started PAN card services and an online tax accounting system (OLTAS) in 2004 and also launched online uploading of central excise challan data in 2005. In the year 2007, NSDL also started a facility for delivery of shares using mobile phones. In the year 2011, NSDL was appointed as registrar for the Unique Identification System which led to the Aadhaar card. In 2015, the NSDL diversified into banking services and was awarded a licence by the RBI to open a payment bank along with 10 other players. Its database unit is also slated for an IPO shortly.