Synopsis: India’s dominant demat house posted a 9% revenue jump in Q3 FY26 but soaring tech costs and a troubled subsidiary are eating into profits. Now, all eyes are on Q4. Let’s Breakdown how it will look like.
India’s largest depository, CDSL, handles the demat accounts of crores of retail investors. And yet, behind its steady top-line growth, a quiet cost problem is building. Technology bills are piling up. A key subsidiary is bleeding revenue. And a fee hike that the company badly needs has not arrived in over a decade.
Q3 FY26 numbers told two very different stories. The standalone business looked healthy. Consolidated profits, however, told a far gloomier tale. As CDSL heads into Q4 historically its strongest quarter the question on every analyst’s mind is: can the company clean up its cost structure before the financial year ends?
A Strong Quarter But Only Half the Picture
On the surface, CDSL’s Q3 FY26 performance looked solid. Revenue rose 9% to ₹304 crore, compared to ₹278 crore a year ago. Net profit climbed 2.3% to ₹133 crore. Demat account additions stayed robust, with CDSL adding 75 lakh new accounts in the quarter alone. The company now holds a commanding 80% market share with 17.27 crore demat accounts.
However, zoom out to the full nine-month consolidated picture, and the story changes sharply. Consolidated profit for the first nine months of FY26 dropped to ₹375 crore down ₹51 crore from ₹426 crore in the same period last year. That is a 12% fall despite revenues growing. Something is clearly eating into the bottom line. “The standalone business is growing. But consolidated profits have fallen 12% year-on-year. That gap tells you exactly where the problem sits.”
Technology Costs: The Elephant in the Room
The most glaring concern analysts flagged is CDSL’s technology spend. Since FY23, technology costs have grown roughly 4 times over. On the other hand, volumes measured by demat account growth expanded only 1.82 times in the same period. In other words, costs grew more than twice as fast as the business.
As a share of revenue, tech spend has doubled. It now sits at approximately 14% of revenue, up from just 7% in FY23. Furthermore, these costs keep rising sequentially, even during quarters when market volumes are soft. Analysts pressed management repeatedly asking for a fixed versus variable cost breakdown, for subsidiary-level data, and for forward guidance. They got none of it.
Management defended the spending with a simple analogy: you build the full road before the cars arrive. AI upgrades, cybersecurity investments, application overhauls, and SEBI compliance mandates are all driving the spend, they said. The road must be ready for when traffic surges again just as it did in 2020-21.
Analysts, however, pushed back hard. The road has been under construction for three straight years. There is no end date in sight and no cost ceiling disclosed. That uncertainty is making investors nervous.
CVL: The Subsidiary Dragging Profits Down
CDSL Ventures Limited, or CVL, is the company’s KYC Registration Agency (KRA) subsidiary. And right now, it is a serious problem. Over the first nine months of FY26, CVL’s revenue from operations fell from ₹189 crore to ₹132 crore a drop of nearly ₹57 crore. At the same time, its expenses actually rose, climbing from ₹83 crore to ₹90 crore.
The result: CVL’s profit after tax collapsed by more than half, from ₹91 crore to just ₹42 crore year-on-year. This subsidiary drag is, in large part, what explains the gap between CDSL’s decent standalone numbers and its weaker consolidated performance.
Moreover, regulatory clouds are gathering over the KRA business. Multiple analysts asked about CKYC 2.0 a central government KYC database that could, theoretically, reduce the need for separate KRA validations. If regulators allow one intermediary’s KYC check to count across the system, CVL’s revenue model could face structural disruption.
Management pushed back firmly. They argued that existing regulations require each intermediary to independently fetch KYC data. They also pointed to a Ministry of Finance circular asking KRAs to connect with CKYC as an upload channel a sign, they said, of the KRA system’s continued relevance. Still, they gave no timeline for CVL’s revenue recovery.
Other Costs Aren’t Falling as Expected
There is a predictable seasonal pattern in CDSL’s cost structure. E-voting income peaks in Q2, and historically, other operating expenses would fall noticeably in Q3 as that activity dried up. This quarter, that expected drop did not materialise.
Other expenses held stubbornly at ₹60.6 crore in Q3, barely lower than the ₹62 crore recorded in Q2. Management said there were no one-off items driving this. Nevertheless, analysts flagged the pattern as unusual and concerning.
Additionally, employee costs are also rising. However, management declined to disclose quarterly headcount data. When analysts pressed for numbers, the CFO deflected with an analogy: focus on eating the fruit, not counting the trees. The annual report, he said, would carry the full headcount disclosure. “Costs grew faster than revenues. The issuer fee hasn’t changed in over a decade. And management won’t say when that changes.”
The Fee Hike That Never Came
Perhaps the single most important near-term revenue lever for CDSL is an issuer fee hike. Listed and unlisted companies pay CDSL an annual fee based on the number of folios (shareholder accounts) they have registered. This fee has not been revised in over ten years.
Total operating expenditure growth is now outpacing revenue growth. Without a fee hike, that gap will continue to widen. Management confirmed privately that a hike request is already with SEBI. They believe the regulator is aware of the situation and expects the increase to come through at the appropriate time. No timeline was provided.
For context, the March 31 folio count is critical. Every year on that date, CDSL counts the total folios and uses that number to invoice every listed and unlisted company for the entire next financial year. It functions like a once-a-year pricing event that locks in a significant chunk of forward revenue. With a heavy IPO season this year, management expects the March 31 count to come in well above 33.76 crore which could meaningfully boost FY27 billing.
Volumes Are Soft But Management Calls It Cyclical
Market conditions are not helping. Average daily turnover across BSE and NSE fell roughly 8.3% year-on-year in December 2025. Separately, a hike in securities transaction charges was announced just before CDSL’s earnings call. Management said there is no direct depository impact since F&O instruments are not held in demat accounts. However, softer trading volumes could still dampen ancillary revenue streams such as account maintenance charges and pledge transactions.
Commodities are also drawing investor attention away from equities this year. Management, though, views this as a cyclical rather than structural shift. India’s fundamental growth story remains intact, they argued. Infrastructure must be built ahead of demand and when the next growth cycle arrives, CDSL intends to be ready.
On the other hand, incremental demat account additions have been edging lower. CDSL’s overall 80% market share remains intact, but its monthly share of new account additions has softened. Management attributed this to seasonal patterns at specific depository participants and said no significant structural shift has occurred.
What Management Is Betting On for Q4
Management is optimistic about Q4 FY26. January to March is historically CDSL’s strongest quarter, and several factors could drive outperformance. First, the seasonal strength in standalone revenue is widely expected to continue. Issuance activity picks up, markets tend to be more active, and e-voting cycles reset.
Second, the folio reset on March 31 is a major variable. A larger-than-expected folio count fuelled by heavy IPO activity across FY26 could lock in stronger billing for the entire next financial year.
Third, CDSL’s insurance repository business, Centrico, is also entering its seasonally stronger window. Growth there, however, is tightly linked to overall policy count growth in the insurance sector, which has been sluggish as per IRDA data. Management said the focus is on gaining market share within the existing framework.
Fourth, a large IPO pipeline remains in play. CDSL says its infrastructure is ready to handle high-volume IPO processing, and a surge in new company listings would directly add folios and account activity.
The Unresolved Tension
The fundamental problem CDSL faces is straightforward. Costs are structurally higher than they were two years ago. Volumes are soft. A critical fee hike has been pending for over a decade. And a subsidiary that was once a steady profit contributor is now a drag.
Management’s response is consistent: they are an infrastructure company. Roads must be built before the traffic comes. When the market cycle turns and management believes it will the investment will vindicate itself.
In addition, there is logic to that argument. CDSL benefited enormously from being infrastructure-ready when retail investor participation exploded in 2020-21. Building for the next wave makes strategic sense.
But analysts want more transparency. They want to know how much of the technology spend is fixed and how much is variable. They want quarterly headcount data. They want a timeline or at least a range for when the CVL business stabilises. And above all, they want a date for the issuer fee hike.
None of those answers arrived in Q3.
“CDSL is building the road. The question analysts keep asking is: when does construction end and what does the toll booth look like?”
The Q4 Verdict Is Still Being Written
CDSL enters Q4 FY26 with genuine momentum. Account growth remains strong. The standalone business is delivering. And seasonal tailwinds could push this quarter to be the best of the financial year.
But the cost problem is real and unresolved. Technology spending has doubled as a share of revenue with no ceiling disclosed. CVL is structurally challenged and dragging down consolidated profits. And the fee hike that could fix the cost-revenue mismatch in one clean move remains stuck in regulatory limbo.
Whether Q4 turns out to be CDSL’s best quarter of FY26 may depend less on market volumes and more on whether management can show even marginally that cost growth is beginning to flatten. Until then, the gap between a solid standalone story and a weakening consolidated picture will remain the defining tension of this company’s current chapter.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
The post Can CDSL Cut Costs and Close FY26 With Its Best Quarter Yet? appeared first on Trade Brains.