Ladies and gentlemen, thank you for standing by, and welcome to CDSL's Q3 FY 2020 Earnings Conference Call. My name is Neera. As a reminder, all participants' lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. 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 risk that the company faces. I now hand the conference over to Mr. Abhay Bhagwan from Axis Capital. Thank you, and over to you, sir.
Thank you, Neera. Good evening, everyone, and a warm welcome to the 3Q FY 2020 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 phone to Mr. Vora for the opening remarks, post which we'll open the floor for Q&A. Thank you, and over to you, sir.
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 ending December 12, 2019. We at CDSL have had an exceptional first month in this new year. From launching the first depository branch in the IFSC Gift City in the first week of the new year to reaching a new milestone of being the first depository to cross 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 to INR 1.97 crore as on December 31st, 2019, from INR 1.67 crore as on December 31st, 2018, which indicates a growth of 17.96%. As on December 31st, 2019, CDSL has 600 depository participants offering depository participant services from over 19,000 locations across the country. These depository participants comprise of clearing members, bank custodians, and non-banking finance companies. The securities of almost all listed companies have been admitted with CDSL for demat. A large number of private, limited, and unlisted companies are also admitted with CDSL. As on 31st December 2019, the securities of 14,709 companies have been admitted for demat with CDSL.
During the last 12 months, the volumes of securities under custody has increased by 28%, and the value of security has increased by 7%. In terms of the new updates, 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 January 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 the issuers to list their issuances like bonds and to I'm sorry.
It would basically also enable issuers to list all their kinds of thing issuances out there, thereby enhancing the value proposition for the center. CDSL has been awarded the IDC 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 the benefit in time to market via the ecosystem of partners and suppliers. CDSL has received an award of excellence in basically the operations category also by the IDC Insights Award of 2019. SEBI has prescribed a webcast of annual general meetings, which will be compulsory for the top 100 listed companies by market capitalization with effect from financial year 2018-2019.
CDSL introduced the live webcast facility last year, which enabled shareholders to gain access to the live proceedings at the AGM of companies through their secure e-voting login credentials. This facility facilitates wider participation of shareholders 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 role.
Participants, thank you for your patience. We have been lined for the management connected back. Please go ahead.
In terms of financial performance, total income on a consolidated basis for the nine months ended December 31st, 2019, the total income has increased by INR 34.51 crore, which tantamount 20%, to INR 211.27 crore from INR 176.76 crore. The net profit after tax on a consolidated basis for the nine months ending December 31st, 2019 is INR 78.58 crore compared to INR 80.64 crore for the nine months ended December 31st, 2018. Total income on a standalone basis for the nine months ended December 31st, 2019 increased by INR 19.11 crore, which is 14%, to INR 156.59 crore from INR 137.48 crore. The net profit after tax on a consolidated basis for the nine months ending December 31st, 2019 is INR 56.35 crore compared to INR 59.95 crore for the nine months ended December 31st, 2018.
It may be noted that the consolidated and standalone profits have decreased mainly on account of a provision of a non-recurring 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 profit is a result of non-recurring expense arising out of the past issues. We want to send out a clear message that we are 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 Mr. 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 two major businesses. One is the KRA business and other is the SEBI project which we are having. 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 lakhs 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 on this project was INR 9.40 crores in the first nine months of financial year 2019/20 as compared to INR 2.85 crores, which was an increase of INR 6.5 crores. We have budgeted an expense of about INR 6.3 lakhs in this particular project. Far as the project is concerned, processing is underway and we have completed one slab of deep processing. We have also reopened the site for investors to rectify their applications and for all the 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 2.5 crore awards into the system. As of 31st December, we have 8.5 lakh students who have registered.
Far as the charges are concerned, MHRD 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, there's no progress on that front. With regard to the other project, e-KYC, we have applied to UIDAI and we are in an advanced stage of receiving our approval. Second project is the e-Sign where we have received the approval from the CCA to start e-Sign services. 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.
The total income, including the other income, was INR 49.77 crore for the first three quarters as against INR 36.14 crore compared to the last year.
With this, I now would like to take any questions if you'd like.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your 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 will wait for a moment while the question queue assembles. A reminder, you may press star and one to ask a question. The first question is on the line of Anshuman Dal from ICICI Securities. Please go ahead. Anshuman, your line is on talk mode. Please go ahead with your question. Due to no response, we move to the next participant. Next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead.
Thank you for the opportunity. Sir, I just wanted to clarify on these costs which have flown through in the nine month. Just want to tally that the one-off costs which would have flown in the nine month in order to arrive at a 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 two costs? Or there are any other costs which also needs to be adjusted?
No, that's about it.
The other cost, which is the INR 6 crore, which is the SEBI project-related cost. When does the project get completed, or will it reoccur in FY 2021, or it was only meant to be executed until FY 2020?
See, this cost is for the phase 1 of the project where we have made provisions. Okay. Even the income is against phase 1. In case SEBI decides to have phase 2 of the project, there will be both income and expenses against that particular phase as well.
Phase one stands executed in FY 2020 itself. That's how it is?
No, it's an ongoing thing.
Okay
The expenses have been provisioned for.
Okay. Just on the cost side, if you adjust that INR 10.6 and 8 crore, it becomes INR 15 crore type operating cost and another INR 12 crore type employee cost, 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 nine month.
Total cost reported by us for nine months is around INR 110 crore, INR 111 crore. Of that you can adjust INR 10 crore for the statutory liability.
The rest cost may continue.
INR eight crore of bad debt continues?
No, that also you can adjust.
Sorry.
Bad debt is a function of the debtors. If there were last year certain bad debts, this year also there might be certain bad debts. That would be decided at the year-end.
Was it something exceptional this year in nine months versus last year?
No, it is not an exception.
No, I'm saying if INR 8 crore was there in nine month of FY 2020, what was it in nine month FY 2019 then?
INR 6 crore in FY 2019. It was around INR 6 crore in FY.
It's more regular, sort of then.
Yes.
Okay. Just last one more question. We gave out two 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. If you could help us understand your revenue line items, to just help us figure out the growth in transaction and issuer and corporate action.
In terms of the demat accounts, when you open account, it's only you charge when there is debit transaction. The credit transactions are free. For the corporate account, there's an annual charge. For the individual retail, most of it is free. In terms of the KYC, Suneet, you want to take that?
I guess the revenue break-up also of that transaction. The entire first quarter three and for nine months.
For the revenue break-up, mainly our operating income consists of annual issuer fees, which is around 35% of total operating income. Transaction charge from depository participants is around 18%.
This is for quarter three, sir?
I'm talking about nine months.
Okay. Issuer charges is 35%.
Transaction from depository participants is around 18%. Online data charges from KYC is around 15%. IPO corporate issuance is around 9%-10%. The SEBI project is around 6%.
Rest?
Rest are all other income which you can consider around 13%.
That is your straight-
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.
Okay. Okay, sir.
Thank you. The next question is from the line of Yash Nirulkar from PPFAS Mutual Fund. Please go ahead.
Hi. Good afternoon.
Good afternoon.
Am I audible?
Yes.
Yeah. My first question is on the branch which you have opened in the GIFT City. 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?
Basically, in the GIFT City, you already have an exchange and clearing corporation. You have two exchanges and two clearing corporation. There was no depository.
Right.
That we kind of completed the loop. The honorable parliament has passed the bill for creating a separate Gift City authority, which should get now done in the next few months. With this, obviously, the bond kind of issuances which companies have or delivery-based futures and options, which can be taken up. Various products which are delivery oriented.
Right
would now be possible with basically a depository being there. This is basically early stages. It has a volume of around two and a half to three million dollars a day. As and when now there are newer hybrid products, et cetera, which are coming into play, which can have a play. We'll have to see how this spans out as per the new regulator once it comes in.
Right.
Building blocks to be there that then depository services are now readily available out there.
Have we started charging for any of these services yet or any sort of model already out there?
Yeah. We are in close coordination with SEBI because all our charges have to be approved by SEBI. We are in discussion with them. The depository participants also we've received around three, four people who have sought their interest of creating a branch out there in Gift City.
Right.
Early days yet, I think we should see some progress going forward.
Okay. My second question is, 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?
See, basically, cybersecurity is one of the critical aspects. Technology investments will be critical going forward.
Right.
Our main line of business is obviously technology-driven.
Right.
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. Obviously, till we reach a kind of sufficient level is something which we would like to basically invest more into our financial strength of the company.
Right.
Third is obviously newer products are going to be involved. The finance minister has announced previously in the two financial speeches about a single demat account, so where all the financial assets come under one demat account. All this would require investment into technology.
All right. The last question. Right now, we fall under which bracket of taxation? Is it 25%?
Yes.
All right. That's it from my side.
Okay.
Done.
Thank you.
Thank you. A reminder to all the participants, you may press star and one to ask the question. Next question is from the line of Utkarsh Solapurwala from Damose Capital. Please go ahead.
Good afternoon, sir.
Good afternoon.
Yeah, good afternoon.
Sir, can you lay out strategy for the insurance repository?
Yeah. 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. A lot of the private insurers as of now are keen to move from a physical mode to an electronic mode. This as we move forward with really the central government's push in moving things from a physical mode to an electronic mode. We are going to see all the financial assets finally coming into an electronic mode. 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. I think once the critical mass is reached, then probably the regulators will make it mandatory.
Would LICs go for its own thing or 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. 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. Current market share in this segment? It's not very significant. I think it's very early days yet. I think what would be the %?
Of the total physical policies, it is 0.01%.
Yeah. The total is nothing to talk about because it's not made mandatory. Physical policies, the percentage is 0.01% of all the insurance deposits. Thank you, sir.
Thank you. Next question is from the line of Srivathsan Ramachandran from Spark Capital. Please go ahead.
I just wanted to get a sense on the warehouse depository receipt initiative, and then also on the academic depository.
Sir, sorry to cut you off. You're not audible clearly.
Hello?
Yes, sir. Go ahead.
I was asking one on the warehouse depositories that started out as a JV between MCX-BSE and CDSL. Just wanted to get what's the status on that. The second question was on, while on the economic depository, the committee said 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?
Yeah, 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. The verifications are happening, but it's nothing much to talk about really.
The warehouse depository receipt?
Yeah. On the warehouse, Ram would like to answer.
Sir. On the warehouse depository, I will just come.
Come that side.
On the warehouse depository 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. We are talking about a very small population of the total commodity that is in the market. To that extent, it is in the initial stages of formation.
Okay. My last question was on the e-voting bit with some changes in the competitive dynamics. It's an area where the alternative is materially more expensive than what we offer. Any thoughts on taking price hikes? What are clients telling on that front?
E-voting, the way the business is, it's very competitive right now. I don't really see. The only way we see it, maybe the prices could come down. Doesn't seem any chance for the prices to really go up, actually. I think any business there are two data points. One is the number of companies, and second is the margin you charge. While margins may come down, but the number of companies which is expected to go up. I think it's a function of both these aspects.
Sure. Thank you.
Thank you. A reminder to all the participants, you may press star and one. Next question is from the line of Pawan Kumar from Ratnatraya Capital. Please go ahead.
Sir, what is the investment income component of this particular quarter's revenue, and are there any mark-to-market gains or losses? Secondly, if you could give the breakup of all the revenue heads for the quarter, please.
Look, the investment income is around INR 14 crore in the quarter compared to last year December quarter of INR 16 crore. The mark-to-market component is not significant compared to last year.
Yeah.
The component of income for the quarter-over-quarter comparison last year is annual 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 minuscule contribution.
Rest are all, what, sir?
They are one or two %. Miniscule compared to these all major headings of income.
Okay. The CDSL venture, that will be separate?
I spoke about that.
Just say it comes.
I said the KYC business is around 17% compared to last quarter.
Okay. Fine, sir. Thank you.
Thank you.
Thank you. Next question is from the line of Abhishek Vigneshwar from Trustline. Please go ahead.
Hi, sir. First you explained about.
Sir, sorry to cut you. I request you to speak little louder.
Yeah. Okay. Am I audible now?
Yeah.
Yeah. Actually, at first you have explained about the CDSL Ventures breakup, the SEBI project breakup and the KYC breakup. Can you repeat it again, sir, please?
The project on SEBI work is around 6% in the contribution of total operating income, and KYC is around 15% from the total operating income contribution on a nine months to nine months comparison basis.
Sir, I want to know about the index that you spoke about the 7.5 lakh KYC and all. Sir, I just want to know about that. Volumes.
As compared to the last quarter, the KYCs generated were about 2.97 lakh up, and the KYCs which were fetched were about six lakh higher.
Okay. Okay, sir. Thank you.
Thank you. Next question is from the line of Neeraj Kamtekar from Prosperity. Please go ahead.
Hello.
Yes.
Thanks for the opportunity. Sir, why data entry and storage charges are lower in Q3 compared to Q2, EBIT is also lower. Has it ever come into discussion with SEBI that they may pose 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 the period of time, SEBI has decreased the rate across all categories like mutual funds, brokerage and
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. Please go ahead.
Yeah, sir. Sir, instead of giving the percentage, can you just give the absolute numbers so that it helps us do the YOY growth rate numbers for nine months only on transaction issuer and corporate action?
Annual issuer income is INR 58 crores compared to INR 49 crores.
Okay.
Nine months.
Yeah.
Transaction charge income is around INR 30 crore compared to INR 29 crore. KYC business is around INR 25 crore compared to INR 24 crore last year.
25 versus 24.
Yes.
Okay.
IPO corporate action is around INR 15 crore compared to similar amount during last nine months.
Okay.
The SEBI project is around INR 9.4 crore in this nine months compared to zero during last year.
Perfect.
This covers all major heads of income.
Perfect. I have one or two observations here. We somewhere gave the transaction value growth up, and we gave the number for KYC annual number, which is 33% higher. Is there a rate reduction wherein the KYC growth rate in revenue terms is not visible? In transaction also, the growth rate is not visible where you said that the value up is about 8%.
The transaction charges are only on the debit that happens. It's not on the credit.
It is not on value.
Precisely. It is
We said that volume of securities is up 27%, and that's how some data points we gave. I'm just trying to correlate the two.
The reason for that is that we only charge on the debits that happens in the transaction.
Yeah, irrespective of the value.
Irrespective of the value and volume of the transactions.
Okay. What about the KYC, where your KYC volume number is up 33%, but your KYC revenue is-?
Yeah, there could be some large players who have been charged a slightly lower rate, so that could be a possibility.
Okay. Lastly, there's a issuer charge, which is subject to review for a rate hike next year. Any status there?
No. As of now, the status quo remains.
Status quo. Okay. Thank you very much, sir. All the best.
Thank you. Thank you. Next question is from the line of Harit Shah from India Invest. Please go ahead.
Yes, sir. My question has been answered. Thank you.
Okay. Thank you. Next question is from the line of Agam Shah, an individual investor.
Hi, sir. Can you just briefly tell about the SEBI project which was done, and going ahead, what is the plan ahead like? Sir, I might have missed the opening remarks.
Yeah, the SEBI project was to send out a refund to investors in a particular company. We processed about 1.5 crore applications, of which we have already started sending out refunds. There were two 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. 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.
What we have done, we have provided the data to SEBI, right?
That's right. We have created a website, collected data, processed that data, and given that to SEBI to make refunds.
On any idea, can you just brief on the privatization of the unlisted securities and demat form? What's happening in that space or anything?
Can you just throw light on that?
Yeah, we are adding around 200-250 unlisted companies every month. If you see that has been the run rate across.
Okay. Thank you and all the best.
Thank you.
Thank you. Next question is from the line of Amit Chandra from HDFC Securities. Please go ahead.
Hello, sir. Thanks for the opportunity. Sir, my question is a follow-up on the unlisted opportunity that you just mentioned. As you said that you have been adding 150, 200 companies per month. 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. If I see the rate in terms of monthly addition is 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 YOY basis.
What's been there, and as you have mentioned earlier also that you have been working on some schemes where you are tying up with RTA and trying to increase the number of companies added there.
No, I think, Amit, you got some figures wrong. Last quarter, we added 588 companies or rather, one second. Is this up to?
Could you write nine?
Yeah. Last quarter we added 588 companies, and for the last three quarters we've added 1,694 companies. I think somewhere you got the numbers wrong.
Okay. The total companies were 14,321 in this quarter versus 14,225 last quarter.
No. See, somewhere it is we also publish the ISINs which are listed. Just I think there could be some confusion in that space out there.
Okay. Okay, sir. I will just reconfirm the offer.
Yeah.
In terms of the branch that you opened in the Gift City. As of now, there is no revenue. If you can just provide the expense that you're doing there in terms of the annual rate that you have planned or what is the monthly expense there. Are we expensing it out?
As of now, the charges have to be approved by SEBI. We've already given the proposal. It's not yet out in the public domain.
In terms of expenses, how has been the expenses there? how many employees are there and-
Today we have around three, four 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. As of now, the costs are not really significant. This property had been taken on a long-term lease around two or three years ago. It was just that we've got it.
Refurbished
Basically refurbished and the SEBI approval has been got. In terms of starting the branch.
Okay.
Sir, sorry to cut you. I'll have to ask you to come back in the question queue for a follow-up question.
Okay. Thank you.
Thank you. A request to all the participants, please restrict to one question per participant. If time permits, you can come back in the question queue for a follow-up question. The next question is from the line of Manish Bhandari from Vallum c apital. Please go ahead.
Hi, good evening. My question is regarding this bad debt. If you could explain that is there any possibility of reducing this number, which has been consistently INR 6 crore-INR 8 crore and maybe slightly higher. Going forward if that number can change.
See, basically the bad debts are those numbers for which customers generally don't end up paying us. As per the normal accounting practice, we have to consider them in books of accounts. Having said that, there is already an internal policy to follow up after the bad debts are recorded. In some cases, the customers do pay after recording as bad debts. This trend is going to continue like this. Roughly our bad debts would be in this bandwidth.
Sure, sir. My another 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, the regulatory and IT. I mean, that looks 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. This is a listed entity and with its all obligations to the minority shareholders. Is there any line which you are putting up that this is the cash what we require, and above that we will distribute back to the shareholders, to the rightful owners?
Yeah, we do have a certain number, but obviously that's a forward-looking statement. I would rather not go as to what that number is. We do have some numbers in our mind as to what we would look at. Having said that, there is going to be newer business opportunities. 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 standalone profits. That we have been adhering on a year-on-year basis to ensure that there is fairness, which is being granted to the shareholders also whilst we are doing this particular objective.
Yeah. It still doesn't answer and it's very vague 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. 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.
Okay. Thank you.
Thank you.
Thank you. Next question is from the line of Ashish Asood from Vishuti Capital. Please go ahead.
Hello, sir. Thanks for taking my question. I was looking at the annual report. In annual report, there was a contingent liability of around INR 40 CR relating to service tax matter. This time you have taken a charge of INR 10 CR for the settlement of this service tax matters. 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, yes, you can take that certainty.
Okay, this is all is removed. Just related to the previous point regarding the SEBI project. Again, when the phase 2 will come, it will again depress your margin because it's a low margin product. Are you planning to charge higher fees in the phase 2 or it will be like this? It's very difficult for us to estimate when the project will start and then again the margin dips. What is the overall strategy in that?
It will be compliance.
Okay. Sure. Okay. Thank you.
Thank you. Next question is from the line of Anish Jobalia from Banyan Capital. Please go ahead.
Yeah. Hi. Good evening. I wanted to get a sense around your total expenses. In this nine months, if I were to adjust for the government and one-off, initially you mentioned like MTM, I mean, employee-related expenses, which happened in the past quarters. Despite of that, our adjusted expenses have grown by around 28%. Of course, one of the reasons was the hike in the salary of the employees, but the other line items have also been a bit much higher than the revenue growth. How do you see this panning out in the next year? Is this going to grow at inflation or still one should continue expecting this to grow at a higher range?
Apart from cost that you have mentioned, there is one cost which is pertaining to SEBI project, for which there is a separate income. This cost is around INR 6.5 crore in this total cost. About the other cost, there will be inflationary pressure for incurring similar costs. That might continue.
What is the inflationary expectation here, because the long-term growth in your cost, like over a five, 10-year period is, I think more than 10%. 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, maybe, I mean, next two, three years.
See, it will be difficult to predict next year, but, yeah, this inflationary cost would be increasing.
Okay.
I will not be able to put up a percentage right now because that we will be able to do it in next quarter.
Okay. Our annual issuer charges have grown in the nine months at around 19%. Because the markets were a bit, like in the last few years, they were a bit down. Can we expect that in the next year, this kind of growth won't continue or we can expect similar growth in the next year also in the annual issuer charges?
Yeah, I think, again, this is about the future, so we'll have to really restrict it to what data points we have now. Annual issuer charges, SEBI kind of approves this over a periodic times. Whether they increase it, decrease it, ensure it remains constant, is something which will be difficult to predict at this point of time.
When do we expect to take the price hike with the SEBI? It also takes a year to get kind of an approval from them. I think we are already ripe in terms of going for the price hike. I think it's already three, four years. Is there any real plan to do this?
Normally it's happened in the past at every four to five years, and it's done in coordination with both the depositories. 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 and basically in what form it will specify.
Okay. Thank you so much for answering the questions.
Thank you. Next question is from the line of Ravin Kurva from ICICI Securities. Please go ahead.
Hello.
Yes.
Sir, I just wanted to confirm the annual issuer charges, transaction revenue, IPO, and online, and others. Annual issuer charges stand at INR 58 crores, right? For nine-month FY 2020.
Yes. That's right.
Transaction revenue, INR 30 crores?
Yes.
IPO, INR 15 crores?
Yes.
Online INR 25 crores and others will be INR 37 crores, right?
Yes.
Okay, sir. Thank you.
Thank you. Next question is from the line of Hiten Jain from Invesco. Please go ahead.
Hello.
Yes.
Just one minute. Hello.
Yes.
I wanted to understand, this quarter we are seeing a sequential increase in employee expense by 9%. Since we already took a 30% hike, I was just curious to understand what is leading to this sequential jump in employee expense. At the same time, our other expense is down sequentially. 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?
In case of employee expense, recently in this third quarter, three KMPs were hired and two KMPs had retired as on 31st December. This had led an incremental cost of around 9%.
If I can answer that, there were two senior KMPs who were due to retire. To ensure that there is no issue in terms of day-to-day operation, the board, as well as the NRC, had approved one and a half months of overlap to ensure there's a smooth transitioning. The three KMPs which are no longer with us have been replaced by three more. There has been a substitute.
On the other expense side?
On the other expense side, in last quarter, the SEBI project related costs were recorded, which are not there in this quarter. All the costs and income related to SEBI project were recorded up to the second quarter.
No. you're saying the SEBI?
Yes
Project related costs did not occur this quarter.
Yes.
We only had the revenues, right?
Revenues also were recorded up to last quarter.
When you say the SEBI project of INR 9.4 crores, are you giving this nine-month data?
Yes, that's right.
Okay. One question was, what was the revenue contribution from unlisted companies this quarter with an annual issuer? What is our market share in that?
Just a minute. We have a 35% revenue.
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 nine months, I already said it is around INR 58 crores and compared to last year's income of INR 50 crores roughly.
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 3Q20?
Processing fees of around INR 1.4 crore in the last quarter, and in nine months it was around INR 4.62 crore.
This is the, you're saying, revenue from the unlisted companies who are coming onto CDSL?
Yes.
Processing.
Okay. Last quarter you gave a number of INR 57 lakhs, and in 1Q 2020 you gave us number of INR 75 lakhs. I'm not sure if it's like to like. In 3Q 2019, it was INR 1.5 crore. I'm not sure what is the number in this quarter, 3Q 2020.
7 lakhs, but doesn't include processing charges, which is paid one time. It is INR 15,000 per company.
Okay.
INR 1.4 crore includes processing charges, which amounts to around INR 88 lakhs.
Okay. What is that number? INR 1.4 crores in 3Q20.
Yes.
What was that in 2Q 2020, like to like?
Around 460 companies were added. Accordingly 15,000 into that amount will give you the processing.
Okay. You add INR 57 lakhs to it?
Yes.
Yes.
Okay. Understood.
Sir, sorry to cut you off. I'll have to ask you to come back in the question queue.
Sure. Thanks.
Thank you. Next question is from the line of Ronak Ramesh from Phantom Hand Fund. Please go ahead.
Hi, sir. I just wanted to know the last time when you took a hike in your annual issuer charges and your transaction charges?
It was in 2015.
Issuer was in 2015. 2015 was the issuer charges. Transaction charges was about 2000 was revised, 2000, 2005.
2000? 2015?
2005.
Oh, okay. What was the quantum in percentage?
Issuer charges was almost 50%. Around 45%.
Okay.
Transaction charges, we had moved from an ad valorem to a flat fee basis.
Got it. Okay, that's all. Thank you, sir.
Thank you very much.
Next question is from the line of Neeraj Kamtekar from Prosperity. Please go ahead. Neeraj, your line is in talk mode. Please go ahead with the question.
Actually, my phone was disconnected. I have one question, sir. Has it ever come into discussion with SEBI that they may pose a decrease in transaction charges that are allowed to be charged by the depository like CDSL and NSDL? The reason for asking the same is that over a period of time, SEBI has decreased the rate across all categories like mutual funds, brokerages, and now proposal on upper capping advisory fees and so on. What is your long-term view on the same?
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, something which we will have to see as and when it happens in future.
Okay. Thank you.
Sir, do you have any follow-up question? Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to the management for closing comments.
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. Hoping that this will continue to translate into increased revenue and profits for the company.
Thank you.
Thank you. 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.