RailTel is an information and communications technology (“ICT”) infrastructure provider and is one of the largest neutral telecom infrastructure providers in India. They were incorporated on September 26, 2000, with the aim of modernizing 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 by using the right of way along railway tracks.
As of January 31, 2021, its optical fiber network covers 59,098 route kilometres and covers 5,929 railway stations across towns and cities in India. They operate data centers in Gurugram, Haryana and Secunderabad, Telangana to host and collocate critical applications for customers including the Indian Railways. In addition to strategic and critical network infrastructure services, they also undertake various ICT projects for the Indian Railways, central government, and state governments, including various train control system projects for Indian Railways.
Portfolio of services are as below:
Dates – February 16 to February 18, 2021
Price – Rs 93 to Rs 94
Issue Size – 819.24 Cr (Complete Offer for Sale)
Issue Objectives – (i) To achieve the benefits of equity share listing on the stock exchanges.
Lot – 155 shares
Lot Value – Rs 14570
Market cap post listing – Rs 3017 Cr (32.094 Cr shares paid multiplied by Rs 94)
The telecommunications industry in India is highly regulated and changes in laws, regulations or governmental policy could potentially adversely affect them
A substantial portion of its revenues is derived from three key customers, namely, the National Informatics Centre Services Inc., the Indian Railways, and the Employees’ State Insurance Corporation of India. Revenue generated from these three customers represented 42.13%, 23.41%, 25.09%, and 23.82% of total revenue from operations, as restated, in Fiscal 2018, 2019, and 2020 and in the six months ended September 30, 2020, respectively.
They may incur higher levels of capital expenditure than currently anticipated in order to maintain and expand network coverage, including establishing fiber optic cables both underground and overhead.
They rely on third parties for certain services, including empaneled partners and OEMs for ICT hardware implementation, software delivery, and digital transformation.
Most of their rights of way permits for underground infrastructure has been obtained from the Indian Railways for a period of 30 years or till we remain a public sector undertaking, whichever is earlier. The remaining rights of way are granted to us for one-year periods, to be renewed annually. If we are unable to obtain or renew these rights in a timely manner, this could delay or disrupt services and their ability to implement its business strategies.
As of March 31, 2018, 2019, and 2020, and as of September 30, 2020, its ratio of total liabilities plus contingent liabilities to net worth was 112.84%, 97.71%, 90.73%, and 88.85%, respectively.
Litigation involving the Company
Balance Sheet Metrics – Balance sheet has been constant, trade receivables high which is given as they are dealing with government entities
P&L Metrics – No meaningful growth, margins hit
Cash Flow Metrics – The CFO and the FCF aren’t really great, but as seen in all other PSU companies, the company struggles to get the receivables from the government.
Valuation & Conclusion
At the upper price band of Rs 94, the issue is priced at a 33.1x P/E ratio and 2.2x P.BV which is very expensive for a government company.
The expensive valuations and the market froth make us wary of this IPO. For the long term, we have no view on the IPO.
For the short term, it seems that the company will list at a good premium given its grey market premium of Rs 43 (45.7% GMP). For the short term, we request readers to form their own view.
On the JST IPO scorecard system, we rate this IPO a 4 out of 10.
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