RailTel Corp IPO: All you need to know

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RailTel Corporation – a Mini Ratna company under Ministry of Railways – is the next PSU IPO to head to the primary market. The company was conferred the coveted title in 2012. While the company is yet to file its red herring prospectus with more details about the upcoming IPO, it is understood that the offer will hit the markets in late November or early December. Here are important details you should know about RailTel Corporation IPO.

#1 RailTel Corp IPO Structure: All OFS

RailTel is being brought to the markets under the government’s divestment agenda and thus, no fresh shares will be issued in the offer. Since RailTel is currently fully-owned by the government of India, all the shares will be offered by the central government through the Offer For Sale (OFS) route.

In total, 86,653,369 shares will be offered in the IPO, tentatively priced in the range of INR80-85 per share.

#2 RailTel Corp IPO: Business Background

The company provides Information and Communications Technology (ICT) infrastructure to Indian Railways. It was set up with the aim of modernizing telecom systems for train control and operations, and is now one of the largest neutral telecom infrastructure providers in India.

As of 30 June 2020, it has optic fiber network of 55,000 route km covering 5,677 railway stations across India. In addition to strategic and critical network infrastructure services, the company also undertakes various ICT projects for the Indian Railways, central government and state governments, including various train control system projects for Indian Railways. One such project where RailTel is one of the implementing partners is the National Knowledge Network (NKN), aimed at connecting higher education and research institutions on a single high speed broadband network.

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Another project where RailTel is playing an important role is the Bharat Net project under which optical fiber cable across 36,000 gram panchayats is being laid down. As of 30 June 2020, the company had completed laying 24,037 km of optical fiber cables and had connected over 6,500 gram panchayats.

Fun fact: The company is also an Internet Service Provider (ISP) to enterprise and retail customers and offers broadband services.

#3 RailTel Corp IPO: Financial Performance

Despite being an ICT infrastructure player for Indian railways, RailTel has diversified into other areas and has signed up other customers. As a result, its financial performance has been steady without major volatility. It has registered growth in its principal areas of operations – telecom services and project implementation. While the former has been lackluster in recent years, RailTel has done well in getting new business in project implementation.

A similar trend is witnessed in profits while its net margins are stable in the range of 12-13%.

RailTel’s financial performance (in INR crore)

  FY2018 FY2019 FY2020
Revenue 1,021.2 1,038.3 1,166.0
Expenses 835.1 820.6 931.9
Net income 134.0 135.4 141.1
Net margin (%) 13.1 13.0 12.1

#4 RailTel Corporation IPO: Strong balance sheet & dividend

While the company may not have shown fireworks in business growth, one of its highlight is the strong balance sheet and no interest-bearing debt on its books. RailTel has been profitable since FY2007 and one of the several factors behind this consistent profitability has been its debt-free status.

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On the contrary, it had Cash and Cash Equivalents of INR134.5 crore as of 31 March 2020 while Other Current Financial Assets of INR213.5 crore also bolster its financial stability.

Another highlight is that RailTel has been paying dividend consistently since FY2008. Being a PSU, the direct beneficiary of its dividend is the central government. As the government has effective control in management of the company, the dividend policy is unlikely to change anytime soon.

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#5 RailTel IPO: Valuations

RailTel has not revealed the IPO’s pricing yet but the price band is expected to be in the range of INR80 – 85 per share, according to market sources. This price band means that the company will be asking for a Price/Earnings (PE) ratio range of 18.2 – 19.3. Its Return on Net Worth (RONW) stood at 10.3% while book value was at INR42.67 per share as of 31 March 2020.

The company claims there are no listed peers with similar line of business. While this is true, the name that first comes up in mind after hearing telecom is Bharti Airtel. Since Airtel isn’t profitable in the last 12 months, comparison based on profitability isn’t helpful. However, its Enterprise Value/Sales ratio of 1.89 – 2.02 appears rather good when compared with Bharti Airtel (4.27) and Vodafone Idea (2.89).

Please note that these figures and ratios are based on expected price range of INR80 – 85 per share and thus, subject to change if the actual price is different.

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