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The second state-run company under the Indian Railways to go public now. RailTel Corporation of India, a Miniratna fully owned by the central government, aims to sell a 27.1% stake through a three-day initial public offering starting. Let's talk about 10 things you must know before subscribing.
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Incorporated in 2000, RailTel Corporation is a public sector business unit, wholly owned by the Government of India (GOI) and administrated by the Ministry of Railways. It is an Information and Communication Technology (ICT) infrastructure provider company. The company was established with the key objective to modernize telecom infrastructure and today, it is one of the largest telecom infrastructure providers.
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2) IPO Details:
The Rs 819-crore IPO is an offer-for-sale by the President of India acting through the Ministry of Railways at Rs 93-94 apiece. Of the net offer of 8.7 crore shares, the portion allocated for qualified institutional buyers is 50%, while it’s not less than 15% and 35% for non-institutional and retail investors, respectively. The portion reserved for anchor investors is up to 60% of QIBs’.
IPO Date: Feb 16, 2021 - Feb 18, 2021
Face Value: ₹10 per equity share
IPO Price: ₹93 to ₹94 per equity share
Market Lot: 155 Shares
Listing At: BSE, NSE
Finalisation of Basis of Allotment: Feb 23, 2021
Initiation of Refunds: Feb 24, 2021
Credit of Shares to Demat Acct: Feb 24, 2021
IPO Shares Listing Date: Feb 26, 2021
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Incorporated on Sept. 26, 2000, with a bid to modernise existing telecom infrastructure for train control, operation and safety. It also aimed to create a nationwide broadband and multimedia network by laying optical fibre cable by using the right of way along railway tracks. It undertakes various information and communication technology projects for Indian Railways, the central and state governments.
Few important highlights:
- Diversified Range of services i.e. Telecom Network, Telecom Infrastructure, Data Center and Hosting, and Projects.
- The company operates an optical fibre network covering 59,098 route kilometers and 5,929 railway stations across towns and cities in India as of Jan. 31, 2021.
- It has the exclusive right of way along 67,415 kilometers connecting 7,321 railway stations.
- RailTel has acted as a key partner to Indian Railways in digital transformation by implementing networks for integrated payroll and accounting system, unreserved ticketing system, freight operations information system, and coaching operations information systems.
- It has 305,746 retail customers and 5,023 Access network providers (ANPs) to deliver the last mile connectivity.
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4) Financials & Key Ratios:
The company derives 66% of its revenues from the telecom segment while the remaining portion is from railways and other projects.
RailTel has maintained a profitability record since 2007 and is a consistent dividend payer. The company is funding its operations entirely through internal accruals since 2013. The company has paid a dividend of Rs 46.2 crore in 2019-20. Its revenue from operation recorded a compounded annual growth rate of 7.47% from 2017-18 to 2019-20.
At the higher price band of Rs 94 per share, RailTel’s share is valued at a FY20 P/E multiple of 15.8x (to its restated EPS of Rs 5.9). Other railway infrastructure companies (IRCON, RITES and RVNL) are trading at an average P/E of 9.5x. However, considering the futuristic service and growth plans of the IR and RailTel’s ability to monetize its existing assets through subscription plans and co-sharing with private operators, the fundamentals are positive for the company.
6) Grey Market premium:
(As of Feb 15, 2021) The grey market premium (GMP) of RailTel was trading at Rs 141 in the grey market, at a premium of Rs 47-50% over the price band of Rs 94.
7) Peer comparison:
As per offer documents, RailTel has no listed peers to compare with, few of them which can be closely related are listed below.
The net proceed from the IPO will be used towards following purposes:
- To carry out the disinvestment plan.
- To achieve the benefits of equity share listing on the stock exchanges.
- Covid-19 has had a minimal impact on the telecom industry and has infact triggered growth for certain players due to increased data usage and VPN services for people working from home.
- The company is Debt free.
- High Dividend : The company has paid a dividend of Rs 46.2 crore in 2019-20.
- One of the largest neutral telecom infrastructure providers in India with PAN India optic fiber network.
- Regulatory risks: changes in laws, licence terms, and government policies can potentially affect the business.
- High dependency on PSU customers: any change in investment plans of such PSUs can affect the company’s ability to participate in competitive bidding or negotiations for future projects.
- Technological changes: if the company failed to keep pace with changing technology, it may lose customers and subscribers.
- Internet security concerns: computer viruses, piracy, cyberattacks, break-ins, and other inappropriate or unauthorised uses of the company’s network may impact the operations.
- 23.8% of its revenues comes from top three customers.
Suggestion: Apply for 'one lot' for big listing gains as well as for the long term investment.
Research Analyst (SEBI Regd.)
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