RailTel IPO

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(i) Incorporated in 2006, they are an information and communications technology (“ICT”) infrastructure provider and are one of the largest neutral telecom infrastructure providers in India (Source: CRISIL Report). They are a Mini Ratna (Category-I) Central Public Sector Enterprise, wholly-owned by the Government of India and under the administrative control of the Ministry of Railways.

(ii) Railtel is formed with the intention 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.

(iii) As of June 30, 2020, the optic fiber network covers over 55,000 route kilometers and covers 5,677 railway stations across towns and cities in India. The transport network is built on high capacity dense wavelength division multiplexing (“DWDM”) technology and an Internet protocol/ multi-protocol label switching (“MPLS”) network over it to support the mission-critical communication requirements of Indian Railways and other customers.

(iv) 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.

Railtel Services:

1. National Long Distance (“NLD”) Services:

They provide the digital capacity to carry long-distance telecommunication services and include various teleservices including voice, data, fax, text, video, and multimedia. As part of the NLD services, they offer enterprise customers with (i) leased line services; and (ii) MPLS based virtual private network (“VPN”) facilities.

2. Internet Service Provider (“ISP”) Services:

As part of the ISP services, they offer enterprise customers Internet leased line services with multiple bandwidth options ranging from 2 MBPS and above across India. They also offer retail broadband services through its ‘RailWire’ platform.

3. Passive Infrastructure (“IP-1”) Services:

They provide storage, power, cooling, and physical security for servers and networking equipment of the customers and connect them with a variety of telecommunications and network service providers. In addition, they provide space on microwave towers for collocating base transceiver stations (“BTS”) for telecom operators, small cell sites for extending their mobile coverage, and space for collocating mobile switching centers. They also provide single-core dark fiber for transmission of digital video signals to multiple system operators (“MSOs”) for cable distribution.

4. Data Centre and Managed Hosting Services:

They offer a variety of data center services including Infrastructure as a Service or IaaS, dedicated hosting, managed services, cloud computing, managed e-Office services, disaster recovery services, Aadhar authentication services, and other IT related services such as load balancing services, application hosting, bandwidth services, and advanced firewall services.

5. ICT Hardware, Software, and Service System Integration Projects:

They collaborate with partners and OEMs to undertake ICT hardware implementation, software delivery, and digital transformation projects including the creation of statewide area network (“WAN”) and its maintenance, data center, and facility management services, Wi-Fi projects, city surveillance projects, laying off the statewide fiber-optic network and its maintenance, implementation, and maintenance of end-to-end IT applications of enterprises.

Revenue Breakup

Particulars (Cr) 2020 2019 2018
NLD Services 415 371 389
ISP Services 166 166 148
IP – 1 Service 135 115 120
Data Centre and Managed Hosting 13 7 7
TPaaS 15 14 19
Projects 383 331 291
Total 1127 1004 974

Objects of the RailTel IPO:

It is a pure-OFS and the net proceed from the IPO will go to the government of India. The main objective of the IPO is to carry out the disinvestment plan.

RailTel IPO Details:

Open Date: Feb 16 2021
Close Date: Feb 18 2021
Total Shares: 86595744
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 814 Cr.
Lot Size: 155 Shares
Issue Price: ₹ 93-94 Per Equity Share
Listing At: NSE,BSE
Listing Date: Mar 01 2021

Promoters And Management:

Government of India.

Financials of RailTel IPO:

Particulars (Cr) 2020 2019 2018
Revenue 1128 1000 976
a) Access charges 250 263 250
b) License fee and spectrum charges 47 45 47
c) Expenses on Projects 340 249 253
d) Other Expenses 155 142 150
Operating Profit 336 301 276
OPM % 30% 30% 28%
Other Income 37 35 42
Interest 6 7 3
Depreciation 130 111 118
Profit before tax 237 218 197
Tax 96 83 63
Net Profit 141 135 134
Shares 32 32 32
EPS 4.41 4.22 4.19
IZ Review: 1. There is hardly any growth in the last 3 years in the Railtel IPO. It is very difficult to make money in the stock market, if you invest in those companies which do not show at-least 20% growth in top-line. 2. OPM are almost flat at 30% in the last 3 years. 3. The bottom-line is also flat. And there is no growth in the EPS as well. 4. Mcap = 3000 Cr  and total revenue is 1100 Crores for FY20. So, Mcap/Revenue = 3x (on higher side considering stagnant growth). 5. P/E = 21x. 6. In government PSUs, the most important parameter to look upon is "Receivables". It means in how many days the company receives payment of its work. Generally, Receivables days under 100 is considered good. For Railtel, the receivables days is around 170 days. In FY20, out of total sales of 1100 Crores, the 507 Crores is receivables.

Comparison With Peers:

There are no listed companies in India that engage in a business similar to that of Railtel.

Recommendation on RailTel IPO:

Review and Recommendation of InvestorZone are 3/10 1. The business of Railtel is totally dependent on PSUs and Railways wherein getting timely projects is cumbersome task. Moreover, getting timely payments from the PSUs is also difficult . If you see the balance sheet of Railtel, they have very high receivables, almost 50% of revenue. This shows that the company is struggling to get timely payments. 2. There is almost no growth in the company's bottom-line. 3. Asking Mcap of 3000 Crores is on higher side. 4. Pure OFS wherein company will not getting anything.

Registrar of RailTel IPO:

  1. Kfin Technology Private Limited

Discussion on RailTel IPO:


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