CDSL‘s share price has soared over 60% since the start of the year. However, analysts at ICICI Securities advise caution on the stock going forward.

The CDSL Analyst: Analysts at ICICI Securities downgraded the stock’s rating from “hold” to “reduce” but raised that price target to ₹1,320 from ₹1,128. The revised target reflects an around 14% downside from the stock’s last closing price of ₹1,539.10.

The CDSL Thesis: The brokerage firm noted that CDSL is currently trading at 59 times its one-year forward core earnings per share and 53 times its one-year forward earnings per share for FY26 — almost double the historical averages. The analysts said that the downgrade is on the basis of peak cycle multiples and the risk of lower earnings growth seen in FY18-20 and FY23.

See Also: What’s Going On With Tata Motors Share Price Today?

Historically, the market infrastructure firm’s overall revenue growth has experienced periods of flat or declining trends, as observed between FY18-20 and FY23, the analysts pointed out. Additionally, the EBITDA margin has shown declines in the past due to higher costs and lower revenue growth, particularly in FY19 and FY20.

Recent price cuts in the June quarter suggest that the company might be passing the benefits of operating leverage to consumers, potentially limiting future margin expansion. The brokerage house also highlighted that if the market is expecting a significant increase in cash volumes due to restrictions in options trading, this increase is more likely to occur in the intraday segment rather than delivery.

Since CDSL benefits primarily from higher volumes in the delivery segment, the overall impact might be limited. Notably, delivery as a percentage of total cash trades has decreased from 26% in FY18 to 21% in FY24.

Price Action: CDSL’s share price was down 2.46% to trade at ₹1,501.25 in early trade on Tuesday.

Read Next: Mazagon Dock Shipbuilders Extends Sanjeev Singhal's Tenure As CMD

Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.