The $112 million IPO of Indian Railways owned RailTel is now open for subscription — Here’s why analysts think the IPO is attractive

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The $112 million IPO of Indian Railways owned RailTel is now open for subscription — Here’s why analysts think the IPO is attractive
  • The IPO of state-run RailTel Corp will remain open till February 18.
  • The shares were trading at a premium of ₹35-40 in the grey market, ahead of the IPO.
  • Nearly all the brokerages have given a ‘subscribe’ rating for the issue citing long term as well as listing gains.
  • Its net profit margin of 13% in FY 2020 was the highest among the Key Telecom Companies and Key IT/ICT companies in India.
The ₹819 crore ($112 million) initial public offering (IPO) of state-run RailTel Corp of India is now open for public subscription. The IPO will remain open till February 18.

RailTel is a government-owned information and communications technology (ICT) infrastructure provider firm and one of India's largest neutral telecom infrastructure providers. This would be the seventh initial public offerings this year, and second by the Ministry of Railways after it recently pared stake in Indian Railway Finance Corporation IPO— which listed at a 4% discount last month.

Nearly all the brokerages have given a ‘subscribe’ rating for the issue citing long term as well as listing gains. According to investment experts about the RailTel business, the best thing is its exclusive right of generating additional revenues by creating nationwide broadband and multimedia networks by laying optical fibre cable by using the right of way along railway tracks.

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Per red herring prospectus, as of January 31, the company had the exclusive right of way along 67415 route kilometres connecting 7321 railway stations for laying optical fibre cable.

Streets View: RailTel IPO
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Hem SecuritiesSubscribe

RailTel Corp of India IPO: All you need to know
  • The company is engaged in the modernisation of the existing telecom system for train control, operation and safety and generates additional revenues by creating nationwide broadband and multimedia networks by laying optical fibre cables along railway tracks.
  • It is worth noting that RailTel will not receive any proceeds from the offer for sale and the same will go to the Government of India, the promoter of the company.
  • Once the IPO is concluded, the equity shares will be listed on both the exchanges — BSE and NSE.
  • ICICI Securities, IDBI Capital Markets & Securities and SBI Capital Markets are the book running lead managers for its public offering IPO.
Strong financials, healthy business growth, soaring grey market premium — here’s all that excites investment experts

Excited investors are ready to pay more for its shares

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The public issue received positive reviews from the brokerages, making the grey market pay a hefty premium for its shares. The shares were trading at a premium of ₹35-40 a piece in the grey market, ahead of the IPO. However, the grey market is not an official measure of the market premium. But it is a fair indicator of demand for the shares in the market.

Outlook and Valuations

According to Hem Securities, the company’s valuation is fully priced. But looking after the industry dynamics of telecom and telecom data services where the broadband market is gaining pace this will boost the company's performance in the future.

“Also the edge which company holds over its peers in terms of financial performance makes this issue attractive to deploy the funds in,” the brokerage added.
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Assessment of the key telecom service companies in India
As of March 20AirtelBSNLMTNLRail TelJioVodafone Idea
Compounded annual revenue growth rate in the 5 years ending March 20200%-11%-12%19%64%7%
Net profit margin -66%-83%-167%13%10%-164%
*Source: Hem Securities

Strong Financials

The company has established a consistent track record of financial performance and growth. Its net profit margin of 13% in FY 2020 was the highest among the Key Telecom Companies and Key IT/ICT companies in India.
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The $112 million IPO of Indian Railways owned RailTel is now open for subscription — Here’s why analysts think the IPO is attractive

As of January 31, the company had 3 lakh users of ‘RailWire’ service. The number of subscribers has increased 2.55 times since April 30 last year.

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