Surprisingly, the premium that unlisted shares of the company were enjoying in the grey market has plunged over the past few days. Analysts have largely been positive on the issue, as the Mini Ratna firm is debt-free and has been a consistent dividend payer. The IPO is seeking a fair valuation of 21.4 times PE on a FY20 trailing basis at the upper limit of Rs 93-94 price band, they said.
Abhay Doshi, a Gujarat-based dealer of unlisted shares who also tracks the grey market, said the stock was commanding a premium of Rs 12-14 on Wednesday, which was far below the Rs 47 premium it was enjoying a few days ago.
“The prospects of the company are very good, but it looks like sentiment has changed due to dull participation of QIB and HNI categories till now,” he said.
Till the end of Day 2 of the IPO, the issue was subscribed 6.55 times with the retail quota getting bids for 10.55 times the limit. The qualified institutional buyers’ quota was subscribed 2.97 times and the non-institutional investor category 2.63 times the limit. The portion reserved for employees was subscribed 1.85 times.
The grey market premium still suggests 13-15 per cent upside over the upper limit of the IPO price band.
Fundamental analysts are positive on the company’s growth prospects, though reported sales and profit growth over the recent years have been in single digits. Geojit has a ‘subscribe’ rating on the issue, and cites increasing data usage, the government’s digital India initiatives and further diversification plans.
RailTel is one of the largest neutral telecom infrastructure providers in India. As of January 31, the company had exclusive right of way along 67,415 route km connecting 7,321 railway stations for laying optical fibre cable. RailTel offers leased line and VPN facilities and provide IP-1 services too.
The company offers strategic and critical network infrastructure to the government and certain states. The company is also an implementing partner for the Bharat Net project to create an optical fibre cable-based broadband infrastructure.
During FY18-20, RailTel’s revenues grew at a compounded annual growth rate of 7.5 per cent at Rs 1,128 crore in FY20. Over the same period, Ebitda grew at a CAGR of 12.4 per cent to Rs 334 crore in FY20. Net profit rose 2.6 per cent CAGR during the period to Rs 141 cr in FY20. Operating margin was above 28 per cent while the dividend payout ratio was 46-49 per cent during the period.
Among the key negatives, the company has a high dependence on government entities and, thus, a concentration risk given that 23.8 per cent of its revenues comes from top three customers. It is present in a highly regulated industry, which is a cause of concern.
“Considering the futuristic service & growth plans of the Indian Railways and RailTel’s ability to monetise its existing assets through subscription plans and co-sharing with private operators, we feel that fundamentals are positive for the company. Thus, we assign a ‘subscribe’ rating for the issue,” said Choice Broking.
Niral Shah of Samco Securities finds the issue fairly priced. “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,” he said.
Indus Towers (formerly Bharti Infratel), a listed company in the mobile communications infrastructure sector, has a P/E multiple of around 15 and an EV/Ebitda of three. Other railway infrastructure stocks such as Ircon International, RITES and RVNL are trading at an average PE of 9.5 times and the recent The railway IPO, IRFC, had a weak market debut.
Astha Jain of Hem Securities finds the demanding valuations as ‘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 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 & long term,” she said.
Prospective Investors can subscribe to the IPO by buying a minimum of one lot of 155 shares or in multiples thereof. Retail investors can thus bid for a maximum of 13 lots at the lower band limit.
RailTel had on Monday raised Rs 243.99 crore from 14 anchor investors. Foreign portfolio investors who participated were UK based Aurigin Capital via its Aurigin Master Fund and Utilico Emerging Markets Trust, Reliance Capital managed Cohesion MK Best Ideas Sub-Trust, Singapore based, Integrated Core Strategies Asia and Goldman Sachs India.
