RailTel IPO Financial Analysis (Subscribe for Long Term)

Strengths

Amongst the largest neutral telecom infrastructure providers in India with a pan-India optical fiber network.
A diversified portfolio of services and solutions.
Experience in executing projects of national importance with a robust pipeline of projects.

Challenges

Dependent on and derive a substantial portion of revenues from PSU customers, the Indian Railways and other GoI entities as well as State Governments.

RailTel Business Background

Incorporated in the year 2000, RailTel is 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.
As of June 30, 2020, the optical fiber network covered over 55,000 route kilometers and covered 5,677 railway stations across towns and cities in India. RailTel has data centers in Gurugram, Haryana Secunderabad, and Telangana to host and collocate critical applications for customers including the Indian Railways. It also undertakes various ICT projects for the Indian Railways, central government, and state governments, including various train control system projects for Indian Railways.

RailTel’s portfolio of services can be broadly classified as below:

Telecom Network Services
Telecom Infrastructure Services
Managed Data Centre and Hosting Services
Projects (System Integration Services)

RailTel Financial Review

Income from telecom services (66%) and income from projects (33%) are the main revenue generation activities for RailTel. The PSU posted revenues of Rs 553.78 crore in H1FY21. PAT was Rs 45.58 for the respective period. The total revenue for FY 20 increased marginally by 12.3% to Rs 1166 crore from Rs 1038 crore in FY19. PAT has remained consistent for the last three years being above Rs 130 crore. RailTel has a strong operating and net margin at 31.88% and 12.09% respectively for FY20. The margins are consistent since the last three fiscals.

RailTel has negligible debt and has significant cash and bank reserves of Rs 268 crore as of FY20. Return on net worth has remained at 10.0% (FY20), 10.5% (FY19), and 10.7% (FY18) for the last three fiscals.

Table 1 - RailTel Financials and Ratios (Amount in Rs Crore)
Title	H1FY21	FY2020	FY2019	FY2018
Total Revenue	553.78	1166.01	1038.27	1021.22
PAT	45.58	141.01	135.36	134.01
EBITDA	146.43	371.70	337.16	342.51
Total Assets	2482.15	2398.1	2227.68	2322.88
Cash and Bank	368.94	268.43	406.93	509.22
Cash flow from operating activities	20.79	173.3	35.39	40.88
Operating Margin	26.44%	31.88%	32.47%	33.54%
Net margin	8.23%	12.09%	13.04%	13.12%

There are no listed peers as per the RHP but RailTel faces significant competition from companies having PAN India presence like Bharti Airtel Limited, Reliance Jio Infocomm Limited, Power Grid Corporation of India Limited as well as Bharat Sanchar Nigam Limited, and Mahanagar Telephone Nigam Limited. But the product offerings of RailTel are unique and different from other private telecom companies.

RailTel Valuation

At NAV of Rs 42.67 for FY20, the issue is priced at a P/BV of 2.2 at an upper price band of Rs 94. The company has a P/E of 21.36 with an EPS of Rs 4.4 per share.

Table 1 - Valuation Analysis of RailTel
Valuation Parameters	FY20	FY19	FY18
EPS	4.40	4.22	4.18
Return on net worth	10.30%	10.50%	10.90%

Future Outlook and Conclusion

The key clients of RailTel include Indian Railways, Kerala state government, coal sector, and public sector banks like SBI. The current order book stood at Rs 4000 crore. The PSU has some big-ticket size projects which include installation of video surveillance system across 6000 railway stations, installation of 14000 CCTV on railway stations, lay statewide optical fiber network in Kerala and Haryana. The high-speed communication corridor project is to be completed in 5-7 years. Tremendous growth is to be seen in the data center services in the future as the government plans to invest in smart cities, health, e-office projects, and education.

RailTel is among the largest telecom infrastructure providers in India with a pan India optic fiber network. RailTel has stable financial performance and a strong pipeline of projects for the future. The majority of the revenues are contributed by the Indian Railways and other government sector entities. Revenue from operations has grown at a CAGR of 7.47%. However, the projects are long term, and also the turnaround time for receivables in a PSU is longer as compared to the private peers. Hence, investors shall subscribe for the long term.

Reviewer recommends Subscribe for Long Term to the issue.

Review By CA Priyanka Choudhary on 10th Nov 2020

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

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