The rising significance of network infrastructure has ignited hopes of solid prospects for telecom infrastructure provider RailTel Corporation of India which owns a Pan-India optic fibre network. The company’s stock has risen over 70 percent in the past one year, reflecting the enthusiasm.
Technical chartists believe the rally could sustain, though, after some bit of correction.
“The stock is showing some signs of distribution after a strong rally as it has slipped below its 20-day moving average. If it slips below Rs 163, then one can expect a correction towards Rs 149–144 zone, which will be a good buying zone. On the upside, if it manages to cross the resistance level of Rs 175, then a northward journey towards Rs 190 can be seen,” said Santosh Meena, Head of Research at Swastika Investmart.
RailTel was incorporated on September 26, 2000, to modernise the telecom system for train control, operation, and safety and to generate additional revenues by creating a nationwide broadband and multimedia network, laying optical fibre cable using the right of way along railway tracks.
The company maintains a strategic partnership with Indian Railways and is involved in diverse projects. These include vital services like IP video surveillance, 'e-Office', and both short and long-haul connectivity between stations for Indian Railways' units. RailTel also offers passenger amenities such as on-demand content and Wi-Fi at major Indian railway stations.
Some market participants like the company’s strong parentage with majority ownership by the government under the Ministry of Railways, and its strong liquidity position. The support from the railway ministry guarantees the company’s capability to carry out railway-related connectivity projects and attract business from other public sector undertakings, they said.
Consolidated net profit in the June quarter rose 49 percent YoY to Rs 38.39 crore while sales came in at Rs 467.61 crore, up 24 percent. EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) was up about 19 percent at Rs 89.27 crore in the June quarter.
“RailTel is favourably positioned to benefit from several policy-led enhancement and digitisation plans. While the order book translates to a promising top line, the nature of orders and RailTel's unit economics and operating efficiency present a strong case for healthier margins going ahead,” said Nirav Karkera, Head of Research, Fisdom.
Railtel is in a good position to gain from creating value by collaborating effectively with other railway-related businesses. Overall, while many developments are effectively priced in, there remains a significant runway as major growth triggers lie ahead, Karkera pointed out.
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BharatNet
RailTel is a critical piece of the BharatNet jigsaw, highlighted Karkera. The company is progressing at a reassuring pace in terms of expanding the optic fibre network and gram panchayat connectivity under BharatNet.
The Union Cabinet has reportedly given the green light to allocate Rs 1.4 lakh crore for the upcoming phase of BharatNet. This initiative aims to extend the reach of the 5G network to remote regions of the country. This funding will not only support rural broadband expansion but also the revitalisation of 508 railway stations. Among the companies set to benefit, RailTel is one.
Reports indicate that the implementation of the network rollout for BharatNet has been entrusted to several central public sector units including BSNL, RailTel and Power Grid Corporation of India.
BharatNet stands as one of the world's largest rural telecommunications projects. It is being executed in stages to provide last-mile broadband connectivity to all 2.5 lakh gram panchayats (local self-governing bodies) in the country. As of now, about 1.94 lakh villages have been connected, and the remaining villages are projected to be linked within the next 2.5 years.
In addition to its participation in the government's effort to deliver broadband services to rural regions, RailTel has accomplished the installation of more than 27,401 kilometres of optical fibre cables, covering 9,490 gram panchayats. Moreover, in Gujarat and the North-East, a total of 8,014 gram panchayats and block headquarters are now equipped to provide services. RailTel's optical fibre network extends across 25 districts in the North-East.
Other government boosters
Besides BharatNet, there are other government initiatives that are also expected to propel the growth of the telecom infrastructure provider. Such initiatives include the National Knowledge Network, which aims to connect 765 institutes of higher education and research across a common platform, along with the implementation of campus connection and Wi-Fi facilities across 26 universities in India.
It is currently implementing projects for the Ordnance Factory Board, Ministry of Defence, Coal India Ltd, Indian Air Force, State Bank of India, etc, which will provide a diversified source of revenue in the coming quarters, said Mohit Nigam, Head of PMS Division, Hem Securities.
In addition, the company serves the defence sector through tasks like supporting critical network infrastructure for defence forces, managing nationwide DRDO network, maintaining Air Force equipment through AFNET, setting up Air Force connectivity hubs, overseeing Coast Guard connectivity, and executing comprehensive solutions for Ordnance Factory locations across India.
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Valuations
The recent stellar run-up in the share price may lead to a perception of the stock drifting towards being richly valued. However, the spurt has been largely in line with growth – delivered and anticipated, Karkera said. He believes more positive triggers are clearly on the horizon with elevated probabilities of materialising.
“In light of such context, the stock appears justifiably valued at the moment,” he added.
Nigam of Hem Securities is of the view that the company can be considered a good long-term investment bet. With the company witnessing an increase in competitive intensity in project business, both from government entities and private companies, RailTel has shifted its strategy from chasing margin-based contracts to volume-based contracts, he said.
“The stock is trading at a fairly low valuation as compared to the industry and its peers. Investors should accumulate the stock at every available dip,” said Nigam.
He pointed out that RailTel's price-to-earnings (PE) ratio stands at 31.2 times over the past 12 months, in comparison with the industry's PE ratio of 39.1 times
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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