IPO analysis: RailTel Corporation of India

IPO Rating- Invest with limited exposure 

About the issue 

RailTel is a Miniratna (Category-I) central public sector enterprise,  which is wholly-owned by the Government of India and comes under the administrative control of the Ministry of Railways. It is entering the capital with its initial public offering (IPO) of equity shares of the face value of Rs 10 each.  The price band of the issue has been fixed at Rs 93 to Rs 94 per equity share of the face value of Rs 10 each. The total number of shares for sale is 8,71,53,369. The opening date of the IPO is February 16, 2021 while its closing date is February 18, 2021. The objective of the offer is to carry out the disinvestment of 8,71,53,369 equity shares by the selling shareholder and also, to achieve the benefits of listing the equity shares on the stock exchanges. 

About the company 

RailTel Corporation of India Ltd was incorporated on September 26, 2000 with an aim of modernising the existing telecom system for train control, operation and safety and also, to generate revenue by creating nationwide broadband & multimedia network by laying optical fibre cable by using rights-of-way along the railway tracks. It is an information and communications technology infrastructure provider and one of the largest neutral telecom infrastructure providers in India. As of January 31, 2021, RailTel’s optic fibre network covers 59,098 route kilometres and 5,929 railway stations across multiple towns & cities in India. RailTel operates data centres in Gurugram and Secunderabad to host and collocate critical applications for customers including the Indian Railways. RailTel offers diverse services across various industries such as telecom network services, telecom infrastructure services, managed data centre as well as hosting services & projects. 

Strengths 

A pan-India optic fibre network  

Diversified portfolio of services & solutions  

A key partner to Indian Railways  

Expansion of services  

Financials 

RailTel has a consistent track record of financial performance and growth. It has been profitable since FY 2007 and has regularly declared and paid dividends since FY 2008. Its net worth turned out to be positive since incorporation and has been consistently increasing. Its operations have been funded entirely by internal funds since FY 2013 and apart from this, it is a debt-free company. 

Recommendation 

The strength that RailTel enjoys is the fact that it gets first priority on all the Indian Railways contracts. The railways are currently undergoing a digital transformation. In the next few years, public Wi-Fi will be provided at all railway stations and entertainment content would be made available for travellers. This presents a huge opportunity for RailTel’s growth and expansion. RailTel offers enterprise data services to companies. There is an increasing demand from companies, which are shifting their operations to digital platforms and hence, the growth opportunity for RailTel becomes clear. RailTel is also appointed by the Ministry of Railways for implementation of the Hospital Management Information System. The demand for digital services is increasing, which is also augmenting the optical fibre network. Focus on rural fiberisation will help the long-term growth prospects of RailTel as well. As India turns into a lucrative 5G opportunity, RailTel will be a key beneficiary. Looking at the huge capital expenditure required by Indian Railways, we believe that the company will keep growing its business at a healthy rate, and hence, you can invest with limited exposure.