Buy This Miniratna PSU Stock, Shares Can jump Upto 16%, Stock Grew 11.69% In 1 Week

ICICI Securities in its recent report, released on October 25, 2022, maintained its buy call on Railtel Corporation of India Limited with a target price of Rs 160 per share. The brokerage claims the stock could give up to 16% returns if the stock is purchased at the current market price.

Railtelis a "Mini Ratna (Category-I)" PSU is one of the largest neutral telecom infrastructure providers in the country owning a Pan-India optic fiber network on exclusive Right of Way (ROW) along the Railway track. With a market capitalization of Rs. 4,446.60 crore, RailTel Corporation is a small-cap Miniratna company.

Stock Outlook & Returns

The current market price (CMP) of RailTel stood at Rs 138.55 per share on NSE, 0.65% down compared to its previous close.

The stock recently, on 16 November 2022 recorded its fresh 52 week high at Rs 145.25. Its 52 week low was recorded on 31 March 2022 at Rs 84.

The stock in 1 week moved up by 11.69%. In 3 months, it moved up by 29.61%. In 1 year, it moved up by 40.95%. In 3 years, it moved up by 12.325. Since its listing on 26 February 2021, the stock has given 14.17% positive returns. 

EBITDA fell 8.6% YoY (rose 50% QoQ)

Railtel revenue rose 19.6% YoY (14% QoQ) to Rs4.3bn. Telecom services revenue grew 11% YoY to Rs3bn. Project revenue rose 45% YoY to Rs1.3bn. Employee costs increased 28% YoY (fell 15% QoQ) to Rs440mn. EBITDA dipped 8.6% YoY (+50% QoQ) to Rs1bn on high base. Net profit declined by 18% YoY (>2.1x QoQ) to Rs552mn (it was also impacted by lower other income, down 50% to Rs114mn). Company has guided for revenue and EBITDA growth of 20% each for FY23, and sustaining it. Railtel will likely benefit from continued growth in telecom and project services (in addition, consultancy and monetisation are large upside opportunities). 

EBITDA fell 8.6% YoY (rose 50% QoQ)

Railtel revenue rose 19.6% YoY (14% QoQ) to Rs4.3bn. Telecom services revenue grew 11% YoY to Rs3bn. Project revenue rose 45% YoY to Rs1.3bn. Employee costs increased 28% YoY (fell 15% QoQ) to Rs440mn. EBITDA dipped 8.6% YoY (+50% QoQ) to Rs1bn on high base. Net profit declined by 18% YoY (>2.1x QoQ) to Rs552mn (it was also impacted by lower other income, down 50% to Rs114mn). Company has guided for revenue and EBITDA growth of 20% each for FY23, and sustaining it. Railtel will likely benefit from continued growth in telecom and project services (in addition, consultancy and monetisation are large upside opportunities). 

Project orderbook at Rs45bn

The project orderbook stood at Rs58bn in Q1FY23, and the company has reassessed and adjusted it to Rs45bn. The orderbook has Rs20bn worth of orders from the Railways and Rs25bn from non-railway segment (largely PSUs). Railtel has added >Rs8bn worth of orders in FY23-TD. Project services revenue increased 45% YoY to Rs1.3bn and the company anticipates FY23 to end with a revenue base of Rs10bn. In H2FY23, project revenue will benefit from recognition of majority of revenue from the VSS project. In FY24, project services revenue is likely to touch Rs15bn. EBIT margin was low at 3.4% for Q2FY23 and EBIT dipped 14% YoY to Rs46mn. Company has guided for segmental EBIT margin at 7-8%. RDN project is in final stage of tender closing and will be awarded by Dec'22; however, company is reassessing COD project scope. Tower and Edge-DC tendering process should begin from Q3FY23.

Strong outlook for H2FY23, Buy for a target price of Rs 160 per share

Railtel Corporation of India's (Railtel) Q2FY23 EBITDA was down 8.6% YoY (up 50% QoQ on normalisation of its telecom services) to Rs1bn as project services margin continued to be depressed (EBIT margin: 3.4%). 

However, Railtel shared strong guidance: 1) revenue / EBITDA growth of 20% in FY23 and beyond; 2) project business revenue of Rs10bn in FY23 (Rs15bn possible in FY24 with pick-up in execution); order book is healthy at Rs45bn (reassessment has led to a decline from Rs58bn from Q1FY23); 3) addition of new services especially consultancy, as well as monetisation of certain assets, will provide an upside; and 4) Kavach and allied services will likely lend significant delta to EPS. 

"We increase our EPS estimates by 3-11% over FY23E-FY24E, and target price to Rs160 (from Rs120), as we raise the P/E multiple to 18x FY24E EPS (earlier: 17x). Maintain BUY," the brokerage has said. 

According to the brokerage, the key risks are Slower revenue growth, particularly in project services, and lower margins in telecom services. 

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.