Ladies and gentlemen, good day, and welcome to Central Depository Services (India) Limited conference call hosted by Nirmal Bang Institutional Equities. Participants, please note this call is only for buy side as a part of Nirmal Bang Institutional Equities annual investor conference. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Sonal Gandhi from Nirmal Bang Institutional Equities. Thank you, and over to you, ma'am. Good morning to everyone. On behalf of Nirmal Bang Institutional Equities, I welcome you all to this session with CDSL. The management is represented by Mr. Sunil Alvares, MD and CEO, CDSL Ventures Limited, Mr. Ramkumar K, Chief of Business Development, Operations and User Tech, CDSL, Mr. Girish Amesara, CFO, CDSL, Mr. Swaroop Gothi, Vice President, and Mr. Nilesh Kittur. As part of our annual investor conference, I would request the management to commence this session with some opening remarks on the business environment as it stands today. Further to which we can open the floor to Q&A. Thank you, and over to you, sir. Hello. Good morning to everyone. I am Girish Amesara, CFO of CDSL. With me, Mr. Ramkumar has also joined the call, who is Chief of Business and Operation at CDSL. Mr. Sunil Alvares has also joined the call. He's MD and CEO of our subsidiary, CDSL Ventures Limited. Apart from that, Nilesh Kittur and Mr. Swaroop Kumar Gothi from finance team has joined the call. CDSL welcomes you all for this call. I hope all of us are aware of the operation of the CDSL. CDSL is the first listed depository, and it's into the business of depository services. With this, we can start the question- and- answer sessions if everyone is okay with that. Thank you very much. We now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Sonal Gandhi. Please go ahead. Sure. Thanks. Sir, you know, I mean, in brief, if you could just run us through your business model, what could be the key revenue drivers from here on? Especially when, I mean, sir, if your annual charges, you know, that you charge or transaction basis. Any kind of outlook, you know, if you could just help us with that, sir, if I can, please. Okay. I will briefly explain about the revenue that we earn as a CDSL, as a depository. Our, you know, revenue largely consists of income from issuers, income from transaction charges, income from our subsidiary that is online data charges. Basically, they have KRA charges and corporate and IPO related income. These are the four main income that we earn. Apart from that, we also have income earned from CAS statements, e-Voting and other miscellaneous area of our operation. The income stream which I said are four major stream is contributing to almost 85%-90% of our total revenue. Apart from that, you know, as I explained, the other income constitute to, roughly around, 12%-15% of the overall total income. I wanted to say one thing, that we will not be making any futuristic statement while on the call. Hence we should restrict our question only to, you know, with respect to financials and other business strategies with respect to the year which has gone by. With respect to any futuristic statements on the predictability of income or predictability of business, we will not be able to make any comments as of now. I hope I have answered your question. Sure, sir. I was looking at more, you know, sir, I mean, just in case of transaction charges, even when basically we would be charging only on the cash delivery and nothing else. How do we, I mean, expect, I mean, probably not futuristic, but just to understand the business, probably even when the markets are not doing well, you know, when we see some selling happening, shouldn't that income remain intact or not go down much, you know, in line with the broader indexes? Just wanted to understand that more. The depository charges in terms of transaction charge is based on every debit that happens to a Demat account irrespective of the volume. Okay? If you are doing a transaction of, say, one share, then the same amount of charges that you will pay to depository for transacting one share or more than one share. That is the, you know, charge module implemented as of now. The competition also does the same module of charge. Our charges ranges from starts from INR 5.50 and goes down to around INR 0.045 based on the No, sir. INR 4.25, sir. Sorry. INR 4.25 based on the volume of transaction generated by that particular depository participant. This is how the structure of our transaction charges income processing is carried out. Now, to answer your question on the volatility of market, again, it is based on the debit in the Demat account. If there are delivery-based volumes happening, okay, then there would be an income accrued to depository. I hope I have answered the question. Yes, sir. Thank you. Participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Raghav Garg from Nirmal Bang. Please go ahead. Yes. Hi. Thanks, sir. Just wanted to, you know, get some sense on how exactly do you charge on the insurance repository business and the warehouse receipt business. Just wanted to understand how exactly do you monetize, you know, in this business, if you can just throw some light there. Ramkumar, can you take this question? Sorry, I couldn't hear it properly, sir. If you can repeat the question. Sure. Sir, I was asking, in the insurance depository business as well as in the warehouse receipt business, what exactly, you know, how should we understand the monetization of the business? Or how do you make revenues there? You know, how should we understand about the charges? Okay. That you increment? Fine. Basically your question is related to how we charge for holding policies in the electronic form in CIRL and for holding commodities in the electronic warehouse receipt form in the CCRL system. Just like your previous system CDSL, right? That's right. That's right. Okay, fine. Your- First I will explain about CIRL, then I will go into CCRL. CIRL is the insurance repository. Here we charge the, there is no charge on the investor or the policyholder, as we call them, in the life insurance or general insurance partner. The policyholder doesn't pay anything for the service use. Who pays for this is the insurance company. We use the word insurer. Insurance company makes a payment. There are two types of payment that they make. One is a one-time payment, which is for creating or setting up a policy. Creating means it could be a fresh policy that is credited directly in the electronic form in the CIRL system. That is called e-policy. Second type is where you already hold the policy and you want to get it converted to electronic form from the physical. This is equivalent to our Demat as we have it in CDSL or in the securities market. These are the two types by which the policies are credited into the system. As far as charges are concerned, again, there are two types of charges. First charge is for the setup or conversion. Second charge is for the AMC. Setup charge is ranging from INR 5-INR 12, depending on the volume given by a particular insurance company. AMC charge is typically about INR 5 per annum for a policy. Typically, the AMC will be triggered only for a life insurance policy and maybe for some health policies and motor policies, which are few and far between. Those are multi-year policies. Otherwise by definition, a general insurance policy we get only one time fees for the creation of the policy. This answers the question about your charges for insurance repository. In the case of CCRL, that is commodity repository also, the logic is more or less same. The logic is that the payment is made here by the concerned entity. It could be a farmer. Entity means the client. It could be a farmer or a trader or anybody else who holds the stock in the physical form with the warehouse. This person makes a payment, based on the tonnage stored by him in a warehouse. This is one part of the charge. Second part of the charge is the warehouse storage charges also gets built into this person's holding because it depends on where the location of the warehouse is, what is the rate charged by that particular warehouse, and what is the frequency of the service. Based on which the charges are made by the warehouse on him through the depository. Through the repository, sorry. The third type of charge is the charge that we charge to the, in case of a pledge case to the pledgee. Here there will be the. What I explained earlier was the deposit charge, followed by the storage charge. This is also kind of deposit charge. For a transaction, there are two types of transaction. One is the pledge transaction, where we charge the pledger and as well as the pledgee, just like in the securities repository. Again, this is based on the tonnage. The second type of transaction is a debit type of transaction, which could be because of off-market transaction or it could be because of a market transaction resulting from a delivery that is initiated because of some transaction that is carried out in the derivatives market, that is NCDEX or MCX or BSE or NSE as the case may be. Here also it is based on the transaction. This I hope answers the question. Yeah. Hello. Yeah. Raghav, we are unable to hear you. Do you have any follow-up question? No. My question has been answered. Thanks. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Pritesh from Lucky Investment Managers. Please go ahead. Sir, I had not attended the quarterly call. If you could give us the INR 51 crore FY 2022 revenue breakup in our key line items of transaction charges, issuer, corporate action, KYC, e-Voting. Sure, I will give that. You want quarterly numbers or you want yearly numbers? No annual. I just want the annual number. Okay. Transaction charge, we had closed at INR 198, 199.48 crores. If I could give alongside FY 2022 also. You know, I'll just note down. If you have it handy. I will start with transaction charges. In FY 2022, in March 2022, we closed at INR 199 crore as against previous year of INR 119 crore. Mm-hmm. Online data charges, we had closed at roughly INR 120 crore, as against INR 56 crore of previous year. IPO corporate action charges, we had closed at INR 60.53 crores as against INR 33 crores in the previous year. Annual issuer income, we had closed at INR 115.40 crores as against INR 86 crore again the previous year. Apart from that, CAS statement income, we had closed at INR 16.25 crore as against twelve and a half crore in the previous year. Mm-hmm. In case of e-Voting income, we had closed at roughly INR 9 crore as against INR 6.61 crore in the previous year. These are the major income items that I have described and rest are all contributing around 2%-3% to overall revenue. KYC will be your data charges? The online data charges is the KYC, KRA income. INR 120 crore as against INR 56 crore. 1, 2, 3, 4, 5, 6. 1, 2, 3, 4, 5. Okay. The expense line, which I see at about, let's say INR 45 crore, INR 46 crore per quarter now. Okay. Sorry, INR 47 crore per quarter, roughly. This expense line, how do you see it panning out? See, if you look at our expense, largely our expenses are on four fronts. Technology cost, employee cost, regulatory cost, and other business ancillary cost. Okay? Now, we being into some kind of a service provider related activity, which is largely depending on technology, we will have these two costs, employee cost and technology cost, contributing to a major chunk of the total expenditure. Apart from that, regulatory cost is something, you know, which will increase based on our increase in the overall operating profitability because there is a SEBI stipulation that 5% of our operating profit has to be contributed to the Investor Protection Fund. That is a variable portion as and when there is a higher operating income, this cost will increase. Roughly last year, our overall cost was around 10% of our total cost. Mm-hmm. Apart from that, the other administrative expenditure in terms of audit fees, insurance, director sitting fees, incurred expenses and, you know, routine administrative related expenditure will comprise the last portion. Your variable expense will be regulatory, whereas employee and tech cost will move at a certain rate. Yes, yes. Employee and technology would be kind of a fixed cost that we have to incur irrespective of whether, you know, there is a business opportunity or not. Technology and other expenses are some kind of variability in that. Higher the business, higher will be that cost. On your income side, what will vary with market volumes will be basically transaction charge, corporate action and issuer charge. Yeah. Issuer is more or less it will not be impacted by the volatility of the business because once issuer is admitted and unless there are withdrawals in terms of decrease in folios or withdrawals by listed entities from the overall market sphere, otherwise issuer income is going to remain constant. The market volatility related income would be largely transaction charge and KRA income. Issuer charge will be linked with the number of corporates basically, right? It is based on the issuer, listed company admitted with the depository. Yes. Sir, here there was some price increase taken and this SME related dematting. What is the progress there in issuer charges? In issuer charges, generally what happens in the past, what had happened, that every five years, both depositories used to approach SEBI, and SEBI used to decide on the charges that the depository may levy on the issuer companies. Now, this activity last happened and was approved in 2015. Based on the historical trend, it was supposed to be due in 2020. You know, due to COVID-related situations, we had not decided to go to SEBI, considering there could be you know, undue pressure on the depository to reduce charges. This was a possibility that we had thought that we should wait till you know, this COVID-related restrictions are lifted. There was a general perception that, you know, costs should reduce due to the lockdown. Accordingly, we had not approached SEBI, and we are still thinking as to what should be the right time to approach SEBI. For a hike or for reduction? Generally, all these years there was a hike given by SEBI. Oh. That's what. You know, it's a joint activity by both the depositories, wherein we have to give various, you know, scenarios to SEBI. Based on that, they decide. Last year when in 2015 when both the depositories had approached, SEBI had increased the charges, but at the same time, they had also introduced one incentive to the depositories that 20% of your issuer income that you collect, differential amount of differential that you have to pay to the DPs as an incentive. There could be such incentives introduced by SEBI. That's the reason we are still thinking as to what should be our future strategy. Time will let us know as to when we decide and when we go to SEBI. As of now, this is the status. Incentive of 20% should be given to the issuers? Yes. It is differential of rate which was prevailing prior to 2015, and rate approved in 2015. The difference of differential income that gets generated. Mm-hmm. 20% of that has to be set aside to be provided as an incentive to DPs. This is to the issuers? Not to the issuers. For opening Demat account. Yes, yes. Yeah. Sir, one more point, sir. Sir, if I may add to what he said. Please go ahead. Sir was asking a question about SME. There is no separate tariff for SME. SME means I assume that you're talking about the companies which are listed. SME sector companies which are listed in the stock exchange, separate platform, the stock exchange. If you're talking about those companies, there is no separate tariff. No. No, sir. I was referring to some unlisted companies where- Unlisted. Again, the tariff is only to the extent of one extra tariff slab created for companies which are between up to INR 2.5 crore, as against the earlier minimum of INR 5 crore. To that extent, there is one slab additional created for small unlisted companies, sir. Otherwise, the tariff remains the same. Unlisted company having INR 25 crore capital will pay the same amount as a listed company having INR 25 crore capital, sir. Sir, this rate incentive will come as an expense, right? If suppose you pass through this, so then the rate approved and the rate charged, the difference will be passed on as an incentive, as an expense back to the corporate who are listed, or that's how I should read it? No, no. The differential rate which was approved by SEBI and rate prevailing before the approval of SEBI, 20% of that has to be parked as an incentive to be paid to the depository participants. Mm-hmm. Based on further criteria, you know, prescribed by SEBI. They have given a detailed criteria as to who is eligible depository participant, how he is to get those incentives. You know, the detailed circular has been issued in 2015 when this rate was approved, and this circular is available in public domain. Sir, if you are charging, if the rate approved was 1%, and if you are charging 1.15%, then point 0.15% has to be parked as an incentive, so it's an expense, or you are charging 0.85% where the rate approved was 1? The rate, in the example, the rate difference is 0.5%. 20% of that has to be parked separately to be paid as an incentive to DP. Were you charging one as approved or you were charging less than 1%? Suppose the rate approved was 1.5%. Mm-hmm. The previous rate before this approval was INR 1. Okay? Mm-hmm. The differential of 0.50%, 20% has to be set aside as incentive to DP. Issuer company gets charged the rate of 1.5%. Okay. It's already there in your expense line. Yes, it is already. The income has already increased based on the SEBI approval. Okay. There is an introduction of another expense line which was not prevailing prior to this approval. I'm trying to draw your attention that the moment we go to SEBI, there is a possibility of prescribing similar kind of expenditure line by regulator. I'm just trying to draw the attention on that point. The last revision did not happen in FY 2020 in terms of the rate approved itself. That revision can also come through, right? A higher rate can come through, right? Yes, there is a possibility. Okay. Understood, sir. Thank you very much. Thank you. Thank you. Participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Sonal Gandhi. Please go ahead. Thanks. Just harping on the previous question a bit. You know, despite introducing a new line item, you know, we still had a net-net benefit in terms of revenue. Why is there this delay? Because our expenses are going up. Obviously the markets are kind of supported, the volume supported. I'm not sure if that's gonna happen in the future. Why is there this hesitance to go back, you know, to the regulator and, you know, try and at least get the inflation rate, you know, aligned to the numbers? You are talking about the rate revision? Yeah, yeah. I had told that we are still thinking of what to do and we'll decide. Basically, this activity has to be jointly done by both the depositories. We'll decide the future course of action and it will come as and when it gets discussed and approved by SEBI. Currently we are still thinking on that, and we have not yet decided as to when we'll approach SEBI. Okay. Another question I had was on the issuer charges. If you could just explain that a bit more. What I understand is you also charge based on the folios. Basically some you know probably the companies where the retail clients are very high, they will be paying more than the you know a minimum limit that you have. If you could just explain a bit on the issuer charges and you know just talk a little bit about it. Sure. The model approved by SEBI, or if you read the circular issued in 2015, the process is in such a manner that the fee is calculated based on the slab prescribed in the circular. It is starting from INR 20 crore or it is ending at INR 20 crore. The fee model for listed entity is starting from INR 9,000 and up to INR 75,000, depending upon the bracket in which their share capital falls. This value is compared with folio-based revenue, which is prescribed at INR 11 per folio. Whichever amount is higher is charged to the issuer. I hope I have answered your question. Right, sir. Understood. Sonal, do you have any follow-up question? No, no. I think that is all, sir. Thank you. You can go ahead. Participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Sapna Laha from Bajaj Holdings. Please go ahead. Hello. Hello. Yes. I just want to understand, if you compare your margins with your peers, your margins are comparatively better. Can you explain what is leading to better margins compared to peers? If you compare the profitability or compare the P&L statement of CDSL with the competition, you know, you will see that the you know, operating revenue has increased compared to competition and our costs are much more controlled than the cost of competition. I think that explains the you know, reasoning for better margin. Second thing, sir, in last few years, you have gained market share from your competitor. What is your outlook on that? In the initial statement, I had said that we won't make any futuristic statements, so I will not be able to answer that. Sir, I just want to have on a quant, qualitative statement. I don't want any Ma'am, I will not be able to make any futuristic statements. Sir, what is the dividend policy? Generally, all these years we have been paying dividend at the rate of dividend payout ratio of 60%. That's what we have you know adhered to in this year also. Out of profit that we earn in any particular year, 60% is paid out. Is paid out. Okay, sir. Thank you, sir. Thank you. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Sapna Laha from Bajaj Holdings. Please go ahead. Sir, one question I want to ask you is on the KRA income part. If you see the CKYC has also come up and which is having less charges compared to your charges. What is the benefit the customer will have to do a KRA with your end rather than going for CKYC? Can you hear me? Are me? Are you there or should I answer, sir? Girish, sir. Sunil is there or should I answer? Please, Ramkumar speak. So far as KRA is concerned, we have been in operation since 2016. We started off with the mutual fund industry and the KRA regulation scripted in 2011. Post that, you know, I mean, to put it in short is that, the KYC concept was conceptualized, designed and implemented by CDSL. The CKYC came in somewhere around 2017 or so. The only difference is that while we do a thorough verification, you know, of all the records we gather, in the case of CKYC it is more a repository of information. That is, the records are just uploaded by the intermediary because CKYC does not verify the records. To that extent, you know. Secondly, right from the inception for us PAN has been the KYC identifier, whereas in the case of CKYC they have a separate TIN number. To that effect, you know, the capital markets have continued to use the KRA. Okay? We are confident that it will continue to happen that way. I hope that answers your question. Sapna, may I request you unmute your line, please. Sapna, do you have any follow-up questions? No. Thank you. Participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. The next follow-up is from the line of Sonal. Please go ahead. Yeah. Sir, just a last question from my end. Probably in just two points over here. One is, if I look at some large brokers, you know, they have only CDSL as their depository. It's I mean, I'm just thinking, you know, we have this base system for the transaction charges wherein NSDL would charge a flat rate, and they would charge on a monthly basis whether the transaction happens or not. Could that be the only reason why the discount brokers have chosen us as their main depository? Ma'am, which flat charges you are talking about, ma'am? Ramkumar here. Sir, I was talking about transaction charges that we have. I mean, I'm just trying to understand why someone like Zerodha would have only us as their depository and not both the players. No, that might be their division of the firm, ma'am. We may not be able to comment on whether it is because of the flat charges or because of something else, but definitely technology plays an important role in deciding and also the cost of setting up operations decide or the major factor in deciding the choice of depository as far as the DP entity is concerned. That I hope answers the question, ma'am. Right. Sir, any glitches? I mean, we had a certain glitch on the technology side, so what have we done over there? Ma'am, your voice is breaking in between. Not able to hear it properly, ma'am. Is it better now, sir? Yeah, in between it's breaking, ma'am. If you can keep the sentence short now, then maybe I'll be able to understand better. Sure. We had some technology glitch some time back. Just wanted to understand a bit on that. I mean, what have we done and, you know, how good are technologies as compared to the competitor? No, which technology glitch you are talking about, ma'am? Uh, since we have- Because there are. In the sense of CDL. There are some which may not be applicable to CDSL, so I don't know which one you are talking about, ma'am. I think somewhere in the beginning of 2021, we had some tech-related glitch. That was not in CDSL, ma'am. That I can say for sure. Which was? Okay. February 2021 you're talking about, right? Yes, sir. Yeah, that is not related to CDSL, ma'am. It's related to some other firm maybe. Okay, sir. Yeah, that was the last question from myself. Thanks. Thanks. Thank you. Ladies and gentlemen, you may press star and one to ask a question. A reminder to all the participants, you may press star and one to ask a question. As there are no further questions, I now hand the conference over to Ms. Sonal Gandhi for closing comments. Yeah. Thanks for the opportunity, sir, for letting us to host you. Looking forward to host you again in the future. Thank you. Thank you. Thank you very much. Done. Thank you very much. Thank you. On behalf of Nirmal Bang Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.