The last railway IPO that hit the Street — of IRFC — had a weak market debut. But grey market trends suggest investors are betting big on the forthcoming offering.
A wholly-owned government subsidiary under the administrative control of the Ministry of Railways, RailTel offers a diversified portfolio of services and solutions. As of January 31, it had exclusive rights over 67,415 route kilometers, connecting 7,321 railway stations, for laying optical fiber cable. The company offers a high capacity bandwidth of up to 800G at 87 locations in India.
On the block is the offer for sale for 87,153,369 equity shares in the price band of Rs 93-94. At the upper limit of this price band, the issue is valued at 21.4 times PE on an FY20 trailing basis. Its enterprise value (EV) is four times the earnings before interest, tax, depreciation, and amortisation (Ebitda). Brokerages are largely positive on the issue.
Keshav Lahoti of Angel Broking company’s margins and return ratios are better compared with other telecom players in India. The company is debt-free and has been consistently paying dividends since 2008.
“The issue is priced at 21.4 times PE on a FY20 trailing basis, which is quite reasonable by looking at the strong future growth rates of the company. We expect a good listing for the company. We are positive on the long term prospects of the industry as well,” he said.
Indus Towers (formerly Bharti Infratel), a listed company in the mobile communications infrastructure sector, has a PE multiple of around 15 and an EV/Ebitda of three.
Astha Jain of Hem Securities finds the demanding valuations “fully priced”, but said that the industry dynamics of telecom and telecom data services — where the broadband market is gaining pace — with enterprise data services offers huge potential.
“The edge which the company holds over its peers in terms of financial performance makes this issue attractive to deploy funds in . Hence we recommend investors to subscribe to the issue for the short and long term,” she said.
On Friday, the premium on the unlisted shares of RailTel had surged to Rs 44-47 in the grey market, the unofficial market for trading in unlisted shares. This translates into a 50 per cent bump up on the IPO price of Rs 93-94 per share.
During FY18-20, RailTel’s revenue grew at a compounded annual growth rate of 7.5 per cent at Rs 1,128 crore in FY20. Over the same period, its Ebitda grew at a CAGR of 12.4 per cent at Rs 334 crore in FY20. Net profit rose 2.6 per cent CAGR during the period to Rs 141 crore in FY20. The operating margin was above 28 per cent while the dividend payout ratio was 46-49 per cent during the period.
Prospective Investors can subscribe to the IPO by buying a minimum of one lot of 155 shares, and in multiples thereof. Retail investors can thus bid for a maximum of 13 lots at the lower band limit.
The quota for retail investors for the RailTel IPO is fixed at 35 per cent, and that for qualified institutional buyers (QIBs) at 50 per cent. A quota of 15 per cent is reserved for non-institutional investors (NII).
