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Central Depository Services (India) Ltd
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Ladies and gentlemen, thank you for standing by, and welcome to CDSL's Q3 FY '20 Earnings Conference Call. My name is Nirav. [Operator Instructions] Please note that this conference is being recorded. Please note that CDSL does not provide specific revenue or earning guidance. Anything said on this call which reflects CDSL's outlook for the future or which could be construed as forward-looking statement must be reviewed in conjunction with the risks that the company faces. I now hand the conference over to Mr. Aditya Bagul from Axis Capital. Thank you, and over to you, sir.
Thank you, Nirav. Good evening, everyone, and a warm welcome to the 3Q FY '20 earnings call of CDSL India Limited. From the management, we have Mr. Nehal Vora, Managing Director and CEO; Mr. Girish Amesara, CFO; Mr. Sunil Alvares, COO, CDSL Ventures; and Mr. Nilesh Kittur, AVP. I shall now hand over the floor to Mr. Vora for the opening remarks, post which, we'll open the floor for Q&A. Thank you, and over to you, sir.
So first of all, I'd like to thank all the investors for joining the call. I wish you all a very good afternoon. I welcome you all to the quarterly conference call for the quarter ended December 12, 2019. We have -- we at CDSL have had an exceptional first month in this new year. From launching the first depository branch in the -- in basically the IFSC GIFT City in the first week of the new year to reaching a new milestone on being the first depository to cross INR 2 crore demat accounts last week, it's been really an amazing start to the calendar year, and we hope to continue the success streak through the year. In terms of the business highlights, the last calendar year, the number of beneficial owners at CDSL has increased from -- has increased to 1.97 crore as on December 31, 2019 from 1.67 crore as on December 31, 2018, which indicates a growth of 17.96%. As on December 31, 2019, CDSL has 600 depository participants offering depository participant services from over 19,000 locations across the country. These depository participants comprise our clearing members, banks, custodians and nonbanking finance companies. The securities of almost all listed companies have been admitted with CDSL for demat. Further, a large number of private limited and unlisted companies are also admitted with CDSL. As on December 31, 2019, the securities of 14,709 companies have been admitted for demat with CDSL. During the last 12 months, the volumes of securities and the custody has increased by 28%, and the value of security has increased by 7%. In terms of the new updates, as -- basically as was stated briefly earlier by me, CDSL has set up a branch at GIFT City as per the provisions of the extended regulations. CDSL is the first and only depository to have received the approval from SEBI to commence operations at the GIFT City. CDSL has inaugurated the branch on 6th of Jan 2020. The branch will contribute to the development of the market with the introduction of delivery-based trading to the existing suite of products traded on the exchanges at the center. It would also enable basically the issuers to list the issuances like bonds and to -- I'm sorry, it would basically also enable issuers to list all the kinds of issuances of that, enhancing the value proposition for the center. CDSL has been awarded the Internet Data Center Insights Award. The award is in recognition for sustainable and measurable improvement in key business performance metrics via the innovation and/or transformation, which results in the operation efficiency and enhancement as well as a benefit in time to market by the ecosystem of partners and suppliers. CDSL has received an award of excellence in basically the operations category also by the IDC Insight Award of 2019. SEBI has prescribed a webcast of annual general meetings, which would be compulsory for the top 100 listed companies on market capitalization with effect from financial year 2018/'19. CDSL introduced a live webcast facility last year, which enabled shareholders to gain access to the live proceedings of the AGM of companies through their secure e-Voting login credentials. This facility facilitates wider participation of shareholders from -- direct from different locations who are unable to travel to the AGM venue. Shareholders are able to gain knowledge about the company's future and also pose questions to the management. CDSL's e-Voting system enables investors to cast their votes pertaining to company resolutions throughout the Internet till the closure of an e-Voting event. At present, more than 4,600 companies have signed agreements with CDSL for its e-Voting facility, of which over 4,500 companies have used CDSL's e-Voting platform. In terms of the financial performance, the total income on a consolidated basis
Participants, please stay connected, the line for the management dropped [Technical Difficulty]
Yes, so in terms of the financial performance, total income on a consolidated basis for the 9 months ended December 31, 2019. The total income has increased by INR 34.51 crores, which tantamounts 20% to INR 211.27 crores from INR 176.76 crores. The net profit after tax on a consolidated basis for the 9 months ended December 31, 2019 is INR 78.58 crores compared to INR 80.64 crores for the 9 months ended December 31, 2018. Total income on a stand-alone basis for the 9 months ended December 31, 2019, increased by INR 19.11 crores, which is 14%, to INR 156.59 crores from INR 137.48 crores. The net profit after tax on a consolidated basis for the 9 months ended December 31, 2019, is INR 56.35 crores compared to INR 59.95 crores for the 9 months ended December 31, 2018. It may be noted that the consolidated and stand-alone profits have decreased mainly on account of a provision of a nonrecurring previous year's anticipated statutory liability of INR 10.56 crores. The consistent income growth is a reward for the core values that the company believes in of being convenient, secure and dependable. The dip in the net profits is a result of nonrecurring expense arising out of the past issues. We want to send out a clear message that we're strongly committed to the core principles of transparency and good governance as per the framework prescribed by the government and the SEBI and the other regulators. Now I request Shri Sunil Alvares to give an update about the operations of our wholly owned subsidiary, CDSL Ventures Limited. With this overview, let me welcome you all once again and invite all of you for the questions and answers. Thank you. Over to you, Sunil.
Good evening. So far as CDSL Ventures is concerned, there are 2 major businesses. One is the KRA business and other is the SEBI project, which we are handling. So far as the KRA business is concerned, the revenue is generated from new KYCs, which come in as well as the KYCs which are fetched. During the period October to December 2019, we had 7.5 lakh KYCs generated as compared to 4.88 lakh in the same period last year, which was an increase of 2.97 lakhs or 21% as compared to the same period last year. With regard to the KYCs, which were fetched during the period October to December 2019, it was 24.48 lakh as compared to 18.36 lakh in the same period last year, which is an increase of 6.12 lakh or 33%. Coming to the next project that is the SEBI project, the revenue in this project was INR 9,40,00,000 in the first 9 months of financial year 2019/'20 as compared to INR 2,85,00,000, which was an increase of INR 6.5 crores. We have budgeted an expense of about INR 6.3 lakhs in this particular project. So far as the project is concerned, processing is underway, and we have completed one slab of the processing. We have also reopened the site for investors to rectify the applications. And for all these new applications, there will be a new charge applicable on these applications. Next project is the NAD project. As of 31st December 2019, we have 519 academic institutions who have registered with us, out of which 261 have gone live and have uploaded INR 2.5 crore awards into the system. As of 31st December, we have 8.5 lakh students who have registered. So far as the charges are concerned, MHRD had -- a NAD project was free for all users up to 30th September 2019 post that MHRD had appointed a committee and was to decide on the charges. They are yet to decide on the charges, so there's no progress on that front. With regard to the other projects, eKYC, we have applied to UIDAI, and we are in an advanced stage of receiving our approval. And the second project is the eSign, where we have received the approval from the CCA to start eSign services. So far as the operational income for the period April to December 2019 is concerned, the total operational income was INR 41.36 crores as against INR 30.57 crores in the same period last year, which was a jump of INR 10.85 crores. And the total income, including the other income, was INR 49.77 crores for the first 3 quarters as against INR 36.14 crores compared to the last year. With this, I now would like to take any questions, if you'd like.
[Operator Instructions] The first question is from the line of Ansuman Deb from ICICI Securities. The next question is from the line of Pritesh Chheda from Lucky Investment Managers.
Sir, I just wanted to clarify on these costs which have flown through in the 9 month. So just want to tally that the one-off costs which would have flown in the 9 month in order to arrive at more regular cost, should I adjust the INR 10.6 crore for statutory liability, the INR 8 crore for bad debts, which was done until the first half, these 2 costs? Are there are any other costs which also needs to be adjusted?
No, that's about it.
So -- and the other cost, which is the INR 6 crore, which is the SEBI project-related cost. When does the project gets completed? Will it reoccur in FY '21? Or it was only meant to be executed until FY '20?
See this cost of -- is for the Phase I of the project, where we have made provisions, okay? And even the income is against Phase I. In case SEBI decides to have Phase II of the project, there will be both income and expenses against that particular phase as well.
So Phase I stands executed in FY '20 itself? That's how it is?
No, it's an ongoing thing, but the expenses have been provisioned for.
Okay, okay, okay. So just on the cost side, if you adjust that INR 10.6 crore and INR 8 crore, it becomes INR 15 crore type operating cost, another INR 12 crore type employee cost, so about INR 27 crore type quarterly number on the regular or, let's say, ongoing costs. Is it correct if I do it for the 9 month?
So total cost reported by us for 9 months is around INR 110 crore, INR 111 crore. So of that, you can adjust INR 10 crore for the statutory liability and the rest cost may continue.
So INR 8 crore of bad debt continues?
No. That also you can adjust. See, bad debts is a function of the debtors. So if there were last year certain bad debts, this year also there might be certain bad debts. So that could be decided at the year-end.
But was it something exceptional this year in 9 month versus last year?
No, it is not an exceptional.
No. I'm saying if INR 8 crore was there in 9 month of FY '20, what was it in 9 month FY '20 -- FY '19 then?
It was around INR 6 crore in FY.
So it's more regular, sir, there.
Yes, yes.
Okay. My -- just last one more question. We gave out 2 data points. One was on KYC growth, and one was on the demat account growth rate. When I see the corresponding revenue growth rate, it doesn't come to that number. So if you could help us understand your revenue line items to just tell us -- to just help us figure out the growth in transaction in issuer and [ corporate action ].
So in terms of the demat accounts, when you open account, it's only you charge when there is a debit transaction. The credit transactions are free. And for the corporate accounts, there's an annual charge, but for the individual retail, this is -- most of it is free. In terms of the Know Your Client, Sunil, do you want to take that?
Sir, you give the revenue breakup also of the transaction volume for the quarter 3 and for 9 months?
So for the revenue breakup -- mainly, our operating income consists of annual issuer fees, which is around 35% of total operating costs. Transaction charge from some depository participants is around 18%.
This is for quarter 3, sir?
I'm talking about 9 months.
Okay. So issuer charges is 35%.
Transaction from depository participants is around 18%. Online data charges from KYC is around 15%. IPO corporate actions is around 9% to 10%, and the SEBI project is around 6%. Rest are all other income, which you can consider around 13%. In total, the holding company's revenue is around 79%, and subsidiary CVL main revenue is around 21%. This consists of our total operating revenue.
The next question is from the line of Yash Nerurkar from PPFAS Mutual Fund.
Am I audible?
Yes, yes.
So my first question is on the branch which we have opened in the GIFT City. So could you just elaborate on what sort of prospects do we see? How scalable is this business? And what sort of business do we hope to generate from this?
So basically, the GIFT City, you already have an exchange and clearing corporation. You have 2 exchanges and 2 clearing corporations. There is no depository. For that, we kind of completed the loop. The parliament, the honorable parliament has passed the bill for creating a separate GIFT City authority, which should get now done in the next few months. So with this, obviously, the bond -- bond kind of issuances which companies have or delivery-based futures and options which can be taken up. The various products which are delivery-oriented right now would now be possible with basically a depository being there. This is basically early stages. It has a volume of around $2.5 million to $3 million a day. But as and when now there are newer hybrid products, et cetera, which are coming into play, which can have a play. So we'll have to see how this pans out as per the new regulator once it comes in. Building blocks are there, and the depository services are now already available out there.
So have we started charging for any of the services yet or any sort of model already out there?
Yes. So we are in close coordination with SEBI because all our charges have to be approved by SEBI. So we are in discussion with them. And the depository participants, also we've received around 3, 4 people who have sought -- having interest of creating a branch out there in GIFT City. Early days yet, but I think we should see some progress going forward.
Okay. And my second question is, so keeping aside the regulatory capital required for each and every business vertical, do we have any plans for any other sort of capital allocation anywhere?
So see, basically, cybersecurity is one of the critical aspects. Technology investments will be critical going forward. Our main line of business is obviously technology-driven. Obviously, there has to be constant investment as well as innovation, which has to be done in technology. Secondly, also the financial strength of the company because, when we have to take up larger projects, like the one which SEBI has given, they look at financial strength of the balance sheet as one of the key attributes. So obviously, till we reach kind of a sufficient level is something which we would like to bring -- basically invest more into our financial strength of the company. And third is, obviously, newer products are going to be involved. The finance minister has announced previously in the 2 finance bill speeches about a single demat account, so -- where all the financial assets come under one demat account. So all this would require an investment into technology.
Okay. And the last question. Right now, we fall under which bracket of taxation. Is it 25%?
Yes.
[Operator Instructions] Next question is from the line of Utkarsh Solapurwala from DAMOS Capital.
Sir, can you lay out strategy for the insurance repository?
Yes. So basically, the insurance repository is basically kind of a new product where all the insurance policies which are getting issued would move from a physical mode to an electronic mode. However, basically, IRDA has not made it mandatory. So a lot of the private insurers as of now are keen to move from a physical mode to an electronic mode. And this as we move forward with really the central government's push in moving things from a physical mode to an electronic mode, we're going to see all the financial assets finally coming into electronic mode. And therefore, there is value in terms of the subsidiary of retaining that license of being able to convert the physical insurance policies into an electronic mode. But I think once the critical mass is reached, then probably the regulators will make it mandatory.
And would LIC go for its own thing or for -- opt for either NSDL or CDSL's services for the insurance repository?
That will be difficult for me to answer as to what LIC wants to do. But obviously, there will be basically efficiency seen in terms of moving from physical mode to an electronic mode, both in terms of retrieval of policies and also saving of costs for the insurance company. Which service provider they choose would be as per their own internal decision.
And current market share in this segment?
It's not very significant. I think it's very early days yet. So I think what would be the percent?
After the total physical policies, it is 0.015%.
Yes. So the total is, it is nothing to talk of because it's not yet mandatory. Physical policy as a percentage is 0.01% of the entire -- of all the insurance repositories.
Next question is from the line of Srivathsan Ramachandran from Spark Capital.
Just wanted to get a sense on the warehouse depository receipt initiative. And then also, on the economic depository while...
Sir, you're not audible, clearly.
Yes. So I was asking one on the warehouse depository, is that -- we started out as a JV between MCX, BSE and CDSL. I just wanted to get what's the status on that? And then the second question was on -- while on the economic depository, the committee's yet to come with numbers, but on the verification side, the depositors are free to go ahead and have their own charges. Any transactions that have started happening on the verification side?
Yes. On the verification side, transactions are happening, but the numbers are very small because the numbers of verifiers who are registered are about 150 so far. So the verifications are happening, but it's not as much -- nothing much to talk about yet.
So and then the warehouse depositories?
Yes. On the warehouse, Ram, would you like to add?
So on the warehouse depository, I will just come with...
Come within.
So on the warehouse deposit receipt, as of now, it is new initiative. To that extent, there is not much volumes here. Again, it is mandated by the exchanges that all the deliveries that happen in the exchanges or the clearing corporations in terms of warehouse receipts will be in the electronic form. So we're talking about a very small population of the total commodities that are in the market. So to that extent, it's in the initial stages of formation.
Okay. My last question was on the e-Voting bid with some changes in the competitive dynamics, which is an area where the alternative is materially more expensive than what we offer. Do you have any thoughts on taking price hikes? What are clients selling on that front?
e-Voting, the way the business is, it's very competitive right now. So I don't really see -- the only way we see it maybe the prices could come down. There doesn't seem any chance for the prices to really go up, actually.
So I think any business, there are 2 data points. One is the number of companies, and second is the margin impact. While margins may come down, but the number of companies this year is expected to go up. So I think it's a function of both these aspects.
[Operator Instructions] Next question is from the line of Pavan Kumar from Ratna Traya Capital.
Sir, what is the investment income component of this particular quarter's revenue? And are there any mark-to-market gains or losses? And secondly, if you could give us here the breakup of all the heads -- revenue heads for the quarter, please?
The investment income is around INR 14 crore in the quarter compared to December last year, December quarter of INR 16 crores. The mark-to-market component is not significant compared to last year. The component of income for the quarter-to-quarter comparison last year, and NAD income is around 36%. Transaction charges from DP is around 21%. Our KYC business contribution is around 17%. IPO and corporate contribution is around 9%. Rest are all miniscule contributions.
Rest are on, what, sir?
They are 1 or 2 percentage...
Miniscule.
Miniscule compared to major contributors of income.
Okay, okay. And the CDSL Ventures, that will be separate?
I spoke about that. It is around 17 -- I said, the KYC business is around 17% compared to last quarter.
Next question is from the line of [ Abhishek Vigneshwar from First Line. ]
At the first you have explained about the rate...
Sir, sorry to cut you. May I request you to speak a little louder?
Yes. Okay. Am I audible now?
Yes.
Yes. Actually, at the first, you have explained about the CDSL Ventures' breakup, the SEBI project breakup and the KYC breakup. Can you repeat that again, sir, please?
So the project on SEBI work is around 6% from -- in the contribution of total operating income. And KYC is around 15% from the total operating income contribution on a 9-months to 9-months comparison basis.
So I want to know about the in-depth that you spoke about the 7.5 lakh KYC and all. I just want to know about the volumes.
Yes. As compared to the last quarter, the KYCs generated were about 2.97 lakh up. And the KYCs we fetched were about 6 lakhs higher.
Next question is from the line of [ Niraj Kamtekar from Prosperity. ]
Sir, why the changes to storage charges are lower in Q3 compared to Q2 and so EBIT is also lower? And has it ever come in the discussion with SEBI that they may pose an increasing transaction charges that are allowed to be charged by the depository like you and NSDL? The reason for asking about this is that, over a period of time, SEBI has decreased the rate across all categories like mutual fund, brokerage and... [Technical Difficulty]
The line for the participant got disconnected. We move on to the next participant. Next question is from the line of Pritesh Chheda from Lucky Investment Managers.
Yes, sir, instead of giving a percentage, can you just give the absolute number so that it helps us do the Y-o-Y growth rate numbers for 9 month only on transaction, issuer and corporation?
So annual issuer income is INR 58 crores compared to INR 49 crores, 9 months. Transaction charge income is around INR 30 crores compared to INR 29 crores. KYC business is around INR 25 crore compared to INR 24 crore last year.
INR 25 crores versus INR 24 crores?
Yes. IPO corporate action is around INR 15 crore compared to similar amount during last 9 months. The SEBI project is around INR 9.4 crore in this 9 months compared to 0 during last year. So this covers all major heads of income.
Perfect. Now I have 1 or 2 observations here. We somewhere gave the transaction value growth up, and we gave the number for KYC annual number, which is 33% higher. So then, is there a rate reduction wherein the KYC growth rate in revenue terms is not visible? And in transaction also, the growth rate is not visible, where you said that the value up is about 8%. So just wanted to...
So the transaction charges are only on the debit that happens. It's not on the credit.
It is not on value.
We said that volume of securities is up 27%. That's how some data points we gave. So I'm just trying to correlate the 2.
So the reason for that is that we only charge on the debit that happens in the transaction. Otherwise, yes, irrespective of the value and volume of the transactions.
Okay. And how -- what about the KYC where your KYC volume number is up 33%, but your KYC revenue is flat.
Yes, there could be some large players who have been charged a slightly lower rate. So that could be a possibility.
Okay, okay. And lastly, there's an issuer charge which is subject to review for a rate hike next year. So any status there?
No, as of now, the status quo remains.
Next question is from the line of Harit Shah from IndiaNivesh.
My question has been answered.
Next question is from the line of [ Azam Shah ], an individual investor.
Can you just please tell about the SEBI project, what was -- which was done, and going ahead, what's your plans ahead like, as I might have missed the opening remarks, sir?
Yes. The SEBI project was to send out a refund to investors in a particular company. And we processed about 1.5 crore application, of which we have already started sending out refunds. And there are 2 phases of the project. The first phase, we have done the processing, but the payments will be made as and when funds are made available to us. The Phase 2 of the project calls for getting the certificates, et cetera, from the investor. But that SEBI has to take a call. If they take a call, then there could be additional revenue for us at that point in time.
So what we have done, we have provided the data to the SEBI, right? That's what we have been...
That's right. We have created a website, collected data, processed the data and given that to SEBI to make any changes.
And on any annual earnings, can you just brief on the privatization of the unlisted securities in demat form? So what's happening in that space, if anything? Can you just throw light on that?
Yes. We are adding around 200 to 250 unlisted companies every month. So if you see, that has been the run rate across.
Next question is from the line of Amit Chandra from HDFC Securities.
Sir, my question is a follow-up on the unlisted opportunity that you just mentioned. So as you said that you have been adding 150 to 200 companies per month. But if I see the data that has been published in terms of the number of companies available for demat, and if I do the math there, then in this quarter, we have added only 96 unlisted companies. And if I see the rate in terms of the monthly additions, only around 30 companies that have been added versus NSDL which has added around 360 companies. I know that the rate has come down if I compare it on a Y-o-Y basis. So what's been there? And as you have mentioned earlier also that we are doing some schemes where you are tying up with RTAs and trying to increase the number of companies added. So...
No, I think, Amit, you got some figures wrong. Last quarter, we added 588 companies or rather -- one second. Is this upfront?
[indiscernible]?
Yes. Last quarter, we added 588 companies. And in -- for the last 3 quarters, we've added 1,694 companies. So I think somewhere, you got the numbers wrong.
Okay. Because the total companies were 14,321 in this quarter versus 14,225 last quarter. So I thought that...
No, these are -- see somewhere it is we also publish the ISINs, which are listed. So just I think there could be some confusion in that space out there.
Okay. Okay, sir. I'll just continue this off-line. And in terms of the branch that we opened in the GIFT City, as of now, there is no revenue. But if you like just provide the expense that we're doing there in terms of the annual rate that we've planned, or what is the monthly expense there? And is that expense in the -- are we expensing it out?
As of now, charges have to be approved by SEBI. And so we've already given the proposal. It's not yet out in the public domain.
But in terms of expenses, so how high have been the expenses there? So how many employees are there and...
Today, we have around 3, 4 employees out there. It's finally a branch. It's not a separate legal entity. It's an international branch. And we have the possibility of transferring people as and when the demand for that really increases. So as of now, the costs are not really significant. This property had been taken on a long-term lease 3 -- around 2 or 3 years ago. So it was just that we've got it basically refurbished, and the SEBI approval has been got, so -- in terms of starting the branch.
[Operator Instructions] The next question is from the line of Manish Bhandari from Vallum Capital.
My question is regarding this bad debt. If you could explain if there's any possibility of reducing this number, which has been consistently INR 6 crores to INR 8 crores and maybe slightly higher? So going forward, can we change -- if that number can change?
See, basically, the bad debts are those numbers for which customers generally don't end up paying us. And as per the accounting -- normal accounting practice, we have to consider them in books of accounts. And having said that, there is already an internal policy to follow up after the bad debts are recorded. And in some cases, the people -- customers do pay in after recording this bad debt. So this trend is going to continue like this. Roughly, our bad debts would be in this bandwidth.
Sure. Sir, my other question is regarding the interesting point made during the conversation was related to the cash, which we want to hold on the books and the various streams of things, regulatory and IT, so I mean that looks like an unending process, where the cash will keep on accumulating and which will depress the return on capital employed and return on equity for the shareholders. So is there any -- this is a listed entity and this is all obligations to the minority shareholders, so is there any line which you are putting up there that is the cash what we require, and above that, we'll distribute back to the shareholders -- to the rightful owners?
Yes. We do have a certain number. But obviously, that's a forward-looking statement. So I would rather not divulge as to what that number is. But we do have some numbers in our mind as to what we would look at. But having said that, there is going to be newer business opportunity. So I think the way we have really addressed this issue is that we have a dividend policy in terms of which we have been adhering as a percentage of the stand-alone profits in that we have been adhering on a year-on-year basis to ensure that there's fairness which is being granted to the shareholders also whilst we are doing this particular objective.
Yes, but then this still doesn't answer, and it's a very weak answer. If you can...
No, it cannot be specific because it's about -- doing about the future, and I would not be able to commit right now about the future. So the way we -- the Board has taken this up is that created a policy of the dividend payout which has to happen. And that has been really adhered to.
Next question is from the line of Ashish Sood from Vishuddha Capital.
Sir, I was looking at the annual report. So in annual report, there was a contingent liability of around INR 40 cr relating to service tax matter. At this time, you have taken a charge of INR 10 cr for the settlement of these service tax matters. So can I assume that this INR 40 cr is fully set off against the payment of INR 10 cr that you have taken the charge? Or it is still...
No, no, yes, you can take that certainty.
Okay. So this is already removed. And just related to the previous point regarding the SEBI project, so again, when the Phase II will come, it will again depress your margins because it's a low-margin product. So are you planning to charge higher fees in the Phase II, or it will be like this because it's very difficult for us to estimate when the project will start and then again the margin dips. So what is your overall strategy in that? How...
We'll take off-line.
Next question is from the line of Anish Jobalia from Banyan Capital.
I wanted to get a sense around your total expenses. So like in this 9 months, if I were to adjust for the government and one-offs, like initially, you've mentioned like MTM, I mean employee-related expenses which happened in the past quarters, but despite of that, our adjusted expenses have grown by around 28%. So of course, one of the reasons was slightly hiking the salary of the employees. But the other line items have also been a bit -- much higher than the revenue growth. So how do you see this panning out in the next year? Is this going to like kind of grow at inflation? Or still one should continue expecting this to grow at a higher rate?
Yes. Apart from cost that you have mentioned, it is one cost which is pertaining to SEBI project for which there is a separate income. So this cost is around INR 6.5 crores in this total cost. About the other costs, there will be inflationary pressure for incurring similar costs, so that might continue.
Sir, what is the inflationary expectation here because the long-term growth in your cost, like over a 5-, 10-year period is like, I think, more than 10%. So is that the kind of inflation that we could expect in our expenses also, like historical growth rate, or it could come down to 5%, 6%, 7%, 8% kind of range, like in the next year, I mean next 2, 3 years?
See, it will be difficult to predict next year. But yes, this inflationary cost would be increasing. I will not be able to put up a percentage right now, but that we'll be able to do it in next quarter.
Okay. And our annual issuer charges have grown in the 9 months at around 19%. So -- because the market share is a bit -- like in the last 2 years, they were a bit down. So can we expect that in the next year, this kind of growth will continue? Or we can expect similar growth in the next year or so in the annual issuer charges?
The annual, yes, I think, again, this is again about the future. So we'll have to kind of re-restrict it to what data points we have now. The annual issuer charges SEBI kind of approves this over a periodic time. Whether they increase it, decrease it, if charge remains constant is something which would be difficult to predict at this point in time. I think...
But when do we expect to take the price hike with the SEBI? Because it also takes a year to get kind of an approval from them. And I think we already -- and I already think in terms of going for the price hike. So because I think it's already 3, 4 years. So is there any real plan to do this?
Normally, it's happened in the past every 4 to 5 years, and it's done in coordination with the depositories. So I think it will be due from the next financial year. But when SEBI will really take it up for a hike is something which will be difficult to predict in terms of when it -- at -- when and basically in what form it will classify.
Next question is from the line of Ravin Kurwa from ICICI Securities.
Sir, I just wanted to confirm the annual issuer charges, transaction revenue, IPO and online and others. So annual issuer charges stands at INR 58 crores, right, for 9 month FY '20?
Yes, yes.
That's right, yes.
Transaction revenue, INR 30 crores?
Yes.
IPO INR 15 crores?
Yes.
Online INR 25 crores, and others will be INR 37 crores, right?
Yes.
Next question is from the line of Hiten Jain from Invesco.
Yes. So I had -- just one minute. So I wanted to understand, this quarter, we are seeing a sequential increase in employee expense by 9%, whereas, in first -- since we've already taken a 30% hike, I was just curious to understand what is leading to the sequential jump in employee expense? And at the same time, our other expense is down sequentially. So could you just help me understand what happened in this quarter, which led to these kind of outcomes on both employee expense and other expense?
See, basically, in case of employee expense, recently, in this third quarter, 3 KMPs were hired, and 2 KMPs had retired as on 31st December. So this had led to an incremental cost of around 9%.
So if I can answer that, there were 2 senior KMPs who are due to retire and to ensure that there is no issue in terms of the day-to-day operation. There were -- the Board had approved -- the Board as well as the NRC had approved the 1, 1.5 month of an overlap to ensure there's a smoother transitioning. So the 3 KMPs which are no longer with us have been replaced by 3 more. So there has been a substitute.
And on the other expense side?
And on the other expense side, in last quarter, the SEBI project-related costs were recorded, which are not there in this quarter. So all the cost and income related to SEBI project were recorded up to the second quarter.
No, no. So the costs -- okay, so you're saying the SEBI project-related cost did not occur this quarter, and we only had the revenues, right?
Revenue has also been recorded in -- up through last quarter.
Last quarter.
So when you say the SEBI project of INR 9.4 crores, you've given us 9-month data?
Yes, that's right.
That's right.
Okay. And one question was, what was the revenue contribution from unlisted companies this quarter with an annual issuer? And what is our market share in that? Last quarter, it was INR 57 lakhs, which you gave. What is the number this quarter?
Market share is around 32%, which is growing every quarter. The revenue...
See, annual issuer income for 9 months, I've already said, it is around INR 58 crores compared to last year's income of INR 50 crores, roughly.
No, no, my question is within the annual issuer, how much is the contribution from unlisted companies? You gave that number last quarter, which was INR 57 lakhs of revenue. What is that number in 3Q '20?
Processing fees of around INR 1.4 crores in quarter -- in the last quarter. And in 9 months, it was around INR 4.62 crores.
So this is -- you're seeing revenue from the unlisted companies, sir, who are coming on to CDSL?
Yes.
Okay. But last quarter, you gave a number of INR 57 lakhs, and in 1Q '20, you gave us a number of INR 75 lakhs. So I'm not sure if it's like-to-like. In 3Q '19, it was INR 1.5 crore. And in -- so I'm not sure what is the number in this quarter, 3Q '20.
INR 57 lakhs, but it doesn't include processing charges, which is paid onetime. That's INR 15,000 per company. So INR 1.4 crore includes processing charges, which amounts to around INR 88 lakhs.
Okay. So then, what is that number? So INR 1.4 crores in 3Q '20?
Yes.
Yes.
And what was that in 2Q '20 like-to-like in the previous quarter?
Around 460 companies were added. So accordingly, INR 15,000 into that amount will give you the processing charges.
Okay. And plus -- and then there is -- okay, and you add INR 57 lakhs to it?
Yes.
Yes.
Next question is from the line of [ Ronak Ramesh from Phantom Hedge Fund ].
I just wanted to know the last time when you put hike in your annual issuer charges and your transaction charges?
It was in 2015.
Issuer was in '15.
2015 was the issuer charges. And transaction was about 2,000...
2,000?
[ 2,005 ].
Okay. And what was the quantum in percentage?
Issuer charges was almost 50%, around 45%. And transaction charges, we had moved from an ad valorem to a flat fee basis.
Next question is from the line of [ Niraj Kamtekar from Prosperity ].
I have one question, sir. Has it ever come into discussion with SEBI that they may propose a decrease in transaction charges that are allowed to be charged by the depository like you and NSDL? The reason for asking the same is, that over a period of time, SEBI has decreased the rates across all categories like mutual funds, brokerage and now proposal on upper capping advisory fees and so on. So what is your long-term view on this end?
So in terms of, again, what SEBI will do in future is very difficult to predict right now. The important thing is that we are going to have our services which are going to be up to speed and, really, the sophistication of technology. Whether that will translate into lower fees or higher fees or same fees is something which we'll have to see as and when it happens in the future.
Ladies and gentlemen, due to time constraints, that was the last question for today. I will now hand the conference over to management for closing comments.
So I would really like to thank all of you for joining the investor call. We will continue to invest into our technology to ensure that we have the sophistication of our products and services and also the innovation in our services. So hoping that this will continue to translate into increased revenue and profits for the company.
Thank you very much. On behalf of Axis Capital Limited, this concludes this conference. Thank you for joining us. You may now disconnect your lines.
Thank you.