RITES IPO opens: Should you subscribe to the issue?

Indian Railways

As Railways’ consultancy firm RITES hits the primary market on Wednesday, brokerages largely recommend subscribing to the issue, citing multiple reasons. The firm opened its initial public offering (IPO) for subscription with a price band of Rs 180-185 apiece.

It would be the first state-owned company to hit the IPO market in FY19. The issue will close on June 22.

The equity shares are proposed to be listed on BSE as well as NSE. Elara Capital India, IDBI Capital Markets & Securities, SBI Capital Markets and IDFC Bank are book running lead managers to the issue. Link Intime India is the registrar.

Brokerages have highlighted the strong order book, steady cash flows as well as reasonable valuations of the issue to ‘subscribe’ to the issue.

Brokerage: Prabhudas Lilladher | Rating: Subscribe

The broking firm highlighted that in terms of valuations, the stock trades at 12x (annualized FY18 EPS). This, it said, seems to be reasonable, given the stable business model, strong order book, increasing revenue opportunities from Railways due to new investments in electrification and infrastructure and healthy RoE of 17-18%. It also said that the cash of Rs 1,500 crore present on its balance sheet, which it pointed as one of the advantages.

Brokerage: KR Choksey Research | Rating: Subscribe

Betting on the management’s guidance to execute Rs 4,800 crore worth of contracts, it expects revenue growth to happen at 20 percent CAGR against 7 percent in the past. Meanwhile, on the valuation front, it said, “The stock is valued at 11.4x on annualized FY18 earnings. We believe the valuations are reasonable,” it said, adding that it is largely on the back of huge cash presence on the balance sheet.

“Valuations are attractive looking at the order backlog and orders visibility from railways. Thus, we recommend subscribe rating on the issue,” it said.

Hem Securities | Rating: Subscribe

Hem Securities observed that the issue is being brought in at PE multiple of 11 on an annualised 9MFY18 EPS with a price band of Rs 180-185 per share and has reasonable valuations. Further, it also highlighted the fact that the company is a preferred consultancy organization agency of the government, including the Railways. Plus, it has healthy order book with strong and diversified clientele base across sectors.

Mehta Group | Rating: Subscribe

Mehta Group too pointed out the company’s advantages in terms of design, engineering and consultancy services and enjoys the benefit of being associated with the Indian Railways. “Over the years, RITES has developed specialized expertise in providing consultancy services across major market segments in the transport infrastructure sector including railways, urban transport, roads and highways, ports, inland waterways, airports and ropeways,” it said.

While it recommends subscribing to the issue, it added that looking at the volatility in the market, investors may see muted listing gains, with long term perspective stock can deceiver healthy returns.