NSDL banking services surge lifts revenue as margins disappoint across segments

Investment View and Valuation

Motilal Oswal Financial Services Limited (MOFSL) retained a Neutral rating on NSDL in its August 1, 2026 results update, with a one-year target price of Rs 930 versus a CMP of Rs 816. Strong revenue growth in 1QFY27 was offset by margin disappointment across every segment, as operating costs rose materially above MOFSL’s expectations.

1QFY27 Financial Performance

Revenue from operations increased 66% year-on-year and 13% quarter-on-quarter to Rs 5,166 million, 22% above MOFSL’s estimate. The beat was driven principally by banking services, while profitability was weaker than expected because of elevated operating expenses.

Banking-services revenue rose 136% year-on-year and 18% quarter-on-quarter to Rs 3,120 million, accounting for 61% of revenue versus 43% in 1QFY26 and 58% in 4QFY26. Depository revenue increased 13% year-on-year and 7% quarter-on-quarter to Rs 1,800 million, representing 35% of revenue.

Operating expenses increased to Rs 4,157 million. Employee costs rose 41% year-on-year to Rs 540 million, reflecting the full-year impact of 98 net hires during FY26. Management indicated that hiring has largely reached the desired level, although prior hires will continue to affect employee costs over the next few quarters. Other expenses climbed 103% year-on-year to Rs 3,617 million.

As a result, EBITDA increased only 6% year-on-year and declined 3% quarter-on-quarter to Rs 1,010 million, 11% below estimate. EBITDA margin declined to 19.5% from 30.5% in 1QFY26 and 22.7% in 4QFY26, while the cost-to-income ratio rose to 80.5%. PAT increased 10% year-on-year and 9% quarter-on-quarter to Rs 983 million, 3% below estimate, with a PAT margin of 19.0%.

Depository Revenue Trends

Within depository income, recurring revenue rose 30% year-on-year and 4% quarter-on-quarter to Rs 1,000 million, taking its share of depository revenue to 55.5% from 36.7% in 1QFY26.

• Corporate-action fees increased 20% year-on-year and 17% quarter-on-quarter.
• E-voting charges increased 31% year-on-year and 65% quarter-on-quarter.
• Pledge fees grew 29% year-on-year and 18% quarter-on-quarter, aided by margin-trading funding activity and participation from traditional and fintech brokers.
• Other transaction charges declined 35% year-on-year and 11% quarter-on-quarter.

Custody income grew approximately 30% year-on-year to Rs 1,000 million, supported by the onboarding of about 3,600 unlisted companies during 1QFY27.

Distribution and Account Acquisition

Management commentary highlighted improving distribution and account acquisition. Total demat accounts reached 45.6 million, with net additions of 1.2 million and incremental market share of 17.6%. Youth and Women’s Demat Plans contributed about 18–20% of incremental additions, while fintechs contributed about 20% of new accounts versus approximately 2% previously.

NSDL had 317 depository participants, more than 57,000 service centres and branches across over 2,000 cities and towns, and an issuer base exceeding 115,000. Its issuer-company market share remained above 70%, while e-voting market share improved to 64%.

Banking Services and Subsidiary Commentary

NSDL Payments Bank revenue benefited from a one-time card-onboarding project and joining fee, much of which was shared with the implementation partner. Management expects revenue to normalise from 2QFY27 towards 4QFY26 levels as transaction-led revenue scales, with profitability gradually improving.

NDML revenue grew 13% year-on-year to Rs 206 million. Its Insurance Repository business is being transferred to a separate subsidiary under IRDAI guidance.

Outlook and Key Monitorables

MOFSL views the rising recurring-fee mix and increased banking-services contribution as supportive of eventual operating leverage. However, the report identifies the following as key monitorables:

• Sustained demat-account additions.
• Onboarding of fintech partners.
• Expense control.
• Normalisation of banking-services margins.

Earnings Estimates and Target Price

MOFSL reduced its FY27E and FY28E earnings estimates by 1% and 2%, respectively, to reflect higher operating expenses. It forecasts FY26–FY28E revenue, EBITDA and PAT compound annual growth of 30%, 11% and 11%, respectively.

The Rs 930 target price is based on 40 times FY28E earnings.