RailTel Corporation will open its public issue today for subscription by investors. Here's all the details you should know if you are considering subscribing to the issue:
The company aims to aggregate a total of Rs. 819.24 crore through the issue and the proceeds shall go to the centre. The issue will close on February 18.
About the company:
RailTel is the information and communications technology (ICT) infrastructure provider. This is the country's leading telecom infrastructure provider with optic fiber network throughout the country.
In FY20, the company reported the highest net profit margin among telecom companies and key IT/ICT companies in India, with a net profit margin of 12.50 percent while its net profit margin was 8.48 percent in the six months ended September 2020. . It reported a 7.5 percent CAGR rise in topline. EBITDA margin expanded from 27 percent in FY18 to 29.6 percent in FY20. Adjusted PAT increased by 8.9 percent CAGR over FY18-20.
The company has been consistently paying dividend since FY2008.
All of the brokerages have given a 'Subscribe' to the issue as it is a 100% debt free company, state run Mini Rata CPSE, consistent dividend record, better margins as well as return rations in comparison to peers. The company derives most of its revenue from the telecom division and the rest from the railways'.
"RailTel, if it performs efficiently can benefit from the 5G growth in India from a fiberisation needs' perspective. It could also play a key role in digital transformation of the railways," said Nirali Shah, Head of Equity Research at Samco Securities.
Besides, "COVID-19 has had a minimal impact on the telecom industry and has in fact triggered growth for certain players due to increased data usage and VPN services for people working from home. Since RailTel is a debt-free company and pays consistent dividends it could witness some traction," she added.
But for long-term investors, there are a few red flags, she feels. "Firstly, the company has delivered single digit revenue and PAT CAGR of 7.5 percent and 2.5 percent, respectively, from FY18 to FY20. There is high dependence on the government entities and concentration risk given that 23.8 percent of its revenues come from top 3 customers. Its presence in a highly regulated industry is another cause for concern," she explained.
Overall, "the company is fairly priced at its FY20 P/E of 21.3 times. It has been commanding a good grey market premium indicating the offer will sail through but keeping the risks in mind, we recommend investors to subscribe for listing gains only," Nirali Shah advised.
Angel Broking also feels RailTel is going to play a key role in digital transformation of Indian Railways. "The company's margins & return ratios are better compared to other telecom players in India. There are no listed peers for the company. The issue has been priced at 21.4x PE on a FY20 trailing basis, which is quite reasonable by looking at the strong future growth rates of the company," said the brokerage which expects a good listing for the company.
"We are positive on the long-term prospects of the industry as well as the company, we recommend subscribing to the RailTel IPO for long term as well as for listing gains," the brokerage said.
Grey market premium:
Ahead of its IPO, the shares of RailTel were trading at a premium of 48 percent. And amid such a momentum when markets are scaling new highs there is seen to be a decent listing for the scrip of RailTel. Also, the issue is being deemed from the long term perspective.