Government-owned information and communications technology infrastructure provider RailTel Corporation of India has decided to launch its maiden public offer. The IPO will open for subscription on February 16 and close on February 18. The IPO allotment will happen on February 23 and the listing of shares on exchanges will occur on February 26. Here are the key details of the company and the IPO issue.
What is RailTel
RailTel is a Mini Ratna (Category-I) central public sector enterprise. It is basically an information and communications technology (ICT) infrastructure provider. It is one of the largest neutral telecom infrastructure providers in India. RailTel serves as a key partner to the Indian Railways in digital transformation. It pays a revenue share to Railways and also pays licence fee to DoT (Department of Telecommunications).
The company was incorporated in September 2000. RailTel works towards modernising the existing telecom system for train control, operation and safety and to generate additional revenues by creating nationwide broadband and multimedia network by laying optical fiber cable (OFC) by using the right of way along railway tracks. As on March 2020, its OFC networks spanned 58,000+ RKMs along the Railway track and 13,000 KMs of access networks.
The company operates data centers in Gurugram, Haryana and Secunderabad, Telangana to host and collocate critical applications for customers including the Indian Railways.
How much profit does RailTel make
For FY2019-20, RailTel achieved Rs 1,112 crore turnover, with an operating margin of Rs 199 crore. The net profit was Rs 138 crore, a jump fp 27 per cent year on year. On consolidated basis, RailTel reported turnover of Rs 1,166 crore , an increase of 12.3 per cent over 2018-19. Consoldiated gross margin was at Rs 361 crore in FY20, a 10 per cent jump compared to Rs 327 crore in FY19. Consolidated profit after tax was Rs 141 crore, a jump of 27 per cent over FY19 number.
How much debt does RailTel have
Currently, the company does not have any long-term debt. It has a few short-term loans and credit advances. One of the primary reasons for a near debt free status is that the company has been consistently profitable since 2007 and has a positive net worth since incorporation.
What is the competitive landscape
RailTel relies on the Indian Railways (14% revenue in FY20), Government of India, and PSUs for most of its business. There is no listed competitor for the company.
However, the ICT infrastructure industry has many players. As and when Railways gets more privatised (just as PSUs are being slowly privatised), it remains to be seen how the relationships between RailTel and its Government-owned companies will evolve.
What are the IPO details
The price band for the public issue has been fixed at Rs 93-94 per share.
The initial public offer is a complete offer for sale of 8.71 crore equity shares by the government. Of which, 5 lakh equity shares may be reserved for the company’s employees. This means the IPO proceeds will not be used by RailTel. The offer will give Rs 819.24 crore to the government.
Investors can bid for a minimum 155 equity shares and in multiples of 155 equity shares thereafter. So, minimum application for RailTel IPO will be Rs 14,570.
ICICI Securities, IDBI Capital Markets & Securities and SBI Capital Markets are book running lead managers to the issue.
What is RailTel IPO valuation
At a consolidated FY20 EPS of Rs 4.4, the Railtel IPO is being offered at a price to earnings ratio of 21.4 times. This appears to be a decent offering.
We can also estimate the intrinsic value of RailTel if we take into account its estimated annual growth rate of 7.5 per cent. Using Graham model, the instrinsic value of RailTel comes to Rs 3,234 crore, compared to the IPO targetted market cap of Rs 2,906 crore.
We also need to remember that RailTel being a CPSE has a good dividend policy. It paid dividend worth Rs 68 crore in FY20 i.e. close to half of profit as dividend. But it’s only roughly 2.33 per cent in dividend yield based on IPO price, while many other PSUs like Power Finance Corp offers in high single digits.
| IPO factbox | |
| Company | RailTel Corporation of India |
| Open date | Feb. 16 |
| Close date | Feb. 18 |
| Allotment date | Feb. 23 |
| Listing date | Feb. 26 |
| IPO size | Rs 819 crore (OFS) |
| IPO band | Rs 93 to 94 |
| Applications | Compulsorily in ASBA mode |
| Bid lot | 155 shares |
| Listing | NSE/BSE |
