RailTel Corporation IPO final day: Issue subscribed 42.4 times, QIB portion booked 65 times

RailTel Corporation of India, a Mini Ratna central public sector enterprise and information & communications technology (ICT) infrastructure provider, will close its initial public offering on February 18. The Rs 819-crore offer has subscribed 42.39 times as the issue received bids for 259.4 crore equity shares against IPO size of over 6.11 crore shares, the subscription data available on the exchanges showed.

The IPO size did not include the anchor book portion as the company already mopped up Rs 244 crore from anchor investors at higher end of price band of Rs 93-94 per share on February 15. The public issue comprises a complete offer for sale of over 8.71 crore equity shares by the Government of India.

The portion set aside for qualified institutional buyers has seen a 65.14 times subscription and that of non-institutional investors 73.25 times. Retail investors have put in bids 16.79 times the reserved portion and employees' book was subscribed 3.36 times.

RailTel is one of the largest neutral telecom infrastructure providers in India with a pan-India optic fibre network. The company is a key partner to Indian Railways in digital transformation initiatives such as multi-protocol label switching (MPLS) data network, content on demand, e-office, Railway Display Network (RDN), Video Surveillance Systems (VSS), Hospital Management Information System, Modern Train Control System & Railwire Wi-Fi.

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Further, Railwire's (retail broadband service) number of subscribers increased 2.55x to 3,05,746 in the last nine months. RailTel's revenues and operating profit have clocked a CAGR of 7.5 percent and 12.4 percent, respectively over FY2018-FY2020.

"The company's growth in the coming years, would be driven by exclusive right of way with Ministry of Railways for laying optic fiber cables, projects for VSS at 6,049 stations, installation of train collision avoidance system and high-speed communication corridor along its rail network, projects with the Kerala and Haryana state governments and manage network services for the subsidiaries of Coal India," Sharekhan said.

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RailTel is debt-free and has been consistently paying dividends since 2008. Given decent financial track record and strong run-way for growth in coming years, future looks promising for the RailTel, the brokerage feels.

At the IPO price band of Rs 93-94, the offer is valued at 21.2-21.4x its diluted FY2020 reported EPS of Rs 4.4 (and 15.7-15.8x its FY2020 adjusted EPS of Rs 5.9), said Sharekhan.

As on January 2021, RailTel's optic fibre network covered over 59,098 route kilometres and 5,929 railway stations. It operates data centres in Gurugram, Haryana and Secunderabad in  Telangana to host and collocate critical applications for customers, including the Indian Railways.

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In addition to strategic and critical network infrastructure services, RailTel also undertakes various ICT projects for the railways, Centre and state governments, including various train control system projects for the Indian Railways.

Mehta Equities believes RailTel IPO gives investors a unique opportunity to invest in Mini Ratna (Cat-I) Central PSE company, which has the monopolistic business opportunity and a key partner to the Indian Railways in digital transformation.

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"We are also optimistic about Railtel as it has partnered Bharat Net project to create optical fiber cable-based broadband infrastructure in laying optical fiber cable across 36,000 gram panchayats in India. With optic fiber network covering over around 60,000plus route kms and covers 6,000 railway stations across towns and cities in India, RailTel offers a diverse range of services across segments like Telecom Network Services, Internet Service and support Telecom Infrastructure Services to Indian Railways," the brokerage said.

On valuations parse at upper price band (Rs 94), the issue is asking for market cap Rs 3,017 crore with PE (annualized FY21) 33x and P/BV stands at 2x, which seems to be fairly priced, the brokerage said. Hence, looking at the faster digital transformation of Indian Railways and growth prospects, Mehta Equities recommends investors to "subscribe for listing gain".