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State-owned RailTel Corporation of India Ltd’s initial public offering (IPO) will open for subscription on February 16 and close on February 18. The IPO’s offer comprises of 8.71 crore shares of face value Rs 10 each, including 5 lakh shares reserved for its employees. If you need help deciding whether to go for this IPO or give it a miss, we have compiled information around RailTel’s fundamentals-based on its Red Herring Prospectus for your quick reference. Read on!

P.S: You can invest in RailTel IPO on Groww from February 16 till February 18 via UPI. To do so, go to IPO. and select ‘RailTel’ IPO from the list of open IPOs. Click on ‘apply’ to proceed with the application.

Here is a quick look at the financial performance of RailTel Corporation of India Limited over the last seven years:

2020 2019 2018 2017 2016 2015 2014
Total Assets 2398.10 2227.68 2322.88 2311 2209 2057 2054
Total Income 1112 1017 1025 899 641 553 537
Total Expenses 751 690 712 595 367 298 284
Profit After Tax 138 110 156 127 102 121 138

All amounts in INR Crore

A quick glance at the financial performance of RailTel over the last seven years highlights the fact that there has been a steady growth in revenue. During this period, the total income of the company showed growth at a CAGR of 11.71%. Interestingly, while the company started with a working capital loan, currently, it does not have any long-term debt. Barring a few short-term loans and credit advances, RailTel is almost free of debt! 

SWOT Analysis

Strengths of RailTel Corporation of India Limited

  • RailTel is among the largest neutral telecom infrastructure providers in India with a pan-India optic fiber network
  • The company offers a diversified portfolio of ICT services and solutions including MPLS-VPN, leased lines services, TPaaS, e-Office services, data center services, large network hardware system integration, and software and digital services.
  • RailTel serves as a key partner to the Indian Railways in digital transformation. It provides a range of services to the Railways including the implementation of an MPLS data network for integrated payroll and accounting system, unreserved ticketing system, freight operations information system, and coaching operations information systems.
  • The company has a track record of executing projects of national importance and boasts of a robust pipeline of projects.
  • The company has been consistently profitable since 2007 and has a positive net worth since its incorporation.
  • RailTel is professionally managed with strong corporate governance and a senior management team with significant industry experience.

Weaknesses of RailTel Corporation of India Limited

  • RailTel relies heavily on the Indian Railways, Government of India, and PSUs for most of its business.
  • The ICT infrastructure industry involves high fixed costs and capital outflow.
  • Since the telecom sector is prone to regular upgrades and the introduction of new technologies, RailTel needs to constantly keep itself relevant by inducing the required changes.
  • The telecom industry is highly competitive and RailTel needs to be at the top of its game at all times. Any slip-up can be costly.

Peer Comparison

According to the Draft Red Herring Prospectus, there are no listed companies that engage in a business similar to that of RailTel Corporation. Hence, it is not possible to provide any industry comparison.

Opportunity to Investors – Valuation of the IPO

Since there are no peers to compare the valuation of the RailTel IPO with the peer benchmark, investors will need to look at the intrinsic value of the company and compare it with its proposed share price.

We will use the intrinsic value formula provided by the founder of value investing – Benjamin Graham:

Intrinsic Value = Current Earnings x (8.5 + [2 x expected annual growth rate])

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In FY 2020, RailTel booked profits of Rs.138 crores. Also, let’s take the estimated annual growth rate at 7.47% (based on the CAGR of its revenue from operations from 2018 to 2020). Therefore,

Intrinsic Value of RailTel = 138 x (8.5 + [2 x 7.47]) = Rs.3234.72 crores

Even if we deduct a margin of safety of 10%, the intrinsic value of RailTel = Rs.2911.25 crores

As per the IPO structure, the company has a market cap of Rs.2906.8 crores.  

Risk Factors

  • The telecommunications industry in India is highly regulated and changes in laws, regulations or governmental policy could potentially adversely affect RailTel’s business, prospects, financial condition, cash flows, and results of operations. 
  • RailTel depends on and derives a substantial portion of its revenue from PSU customers, the Indian Railways, and other GoI entities, as well as State Governments. Its relationship with GoI entities and State Governments exposes it to risks inherent in doing business with them, which may adversely affect its business, results of operations, and financial condition.
  • If the company does not continue to provide telecommunications or related services that are technologically up to date, it may not remain competitive, and its business, prospects, and results of operations may be adversely affected.
  • RailTel is involved in certain legal proceedings. Hence, any adverse developments related to them could materially and adversely affect its business, reputation, and cash flows.
  • If RailTel cannot scale its business or manage its businesses effectively or is unable to successfully implement its strategies, the quality of its services and its results of operations could be adversely affected.
  • Internet security concerns and illegal distribution by third-parties could adversely affect its broadband internet access services.
  • RailTel depends on the continued service of its employees, and its business and growth prospects may be disrupted if it loses its employees’ services or if the employee costs increase.
  • The company may require significant amounts of capital to finance its business expansion, which may require it to incur significant capital expenditure, and operating and financing costs. It may not be able to obtain additional financing to meet its business and operational capital requirements, including its capital expenditure requirements

Promoters of RailTel Corporation of India Limited IPO

  1. The President of India acting through the Ministry of Railways, Government of India

Things to keep in mind before investing in the RailTel IPO

Here are some things that you need to keep in mind before investing in the RailTel IPO:

  1. RailTel Corporation is one of the largest neutral telecom providers in India.
  2. It is a key partner to the Indian Railways in digital transformation. However, this increases its dependency on the Railways for its business.
  3. The telecom industry is highly competitive and RailTel will have to stay ahead of the competition at all times to sustain profits.

Hope this was helpful!

Happy Investing!

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