RailTel IPO: Here’s All You Need To Know

RailTel Corporation of India, a Miniratna fully owned by the central government, aims to sell a 27.1% stake through a three-day initial public offering starting Tuesday, becoming the second state-run company under the Indian Railways to go public this year.

The Rs 819-crore maiden offer by the telecom and data services provider to the public and private sectors, according to its red herring prospectus, is an offer-for-sale by the President of India acting through the Ministry of Railways at Rs 93-94 apiece. The IPO comprises 8.71 crore shares on offer, including 5 lakh reserved for its employees.

• Issue opens: Feb. 16

• Issue close: Feb. 18

• Face value: Rs 10 apiece

Of the net offer of 8.7 crore shares, the portion allocated for qualified institutional buyers is 50%, while it’s not less than 15% and 35% for non-institutional and retail investors, respectively. The portion reserved for anchor investors is up to 60% of QIBs’.

ICICI Securities, IDBI Capital Markets & Securities and SBI Capital Markets are the book-running lead managers to the issue.

The IPO, however, won’t help the government get anywhere close to its divestment target of Rs 2.10 lakh crore for the financial year ending March 2021. According to the Department of Investment and Public Asset Management, the government has raised only Rs 19,499 crore so far in FY21 from asset sales in public sector firms. The target for the next fiscal is Rs 1.75 lakh crore.

RailTel’s maiden offer follows Indian Railway Finance Corp Ltd. that listed on exchanges in January. It’s the sixth railway company to go public, and the fifth so far in the calendar year 2021 when participation of retail investors in the equity markets in India and around the world has increased following the pandemic-induced lockdowns.

Previous offers from the railway stable are Ircon International Ltd., RITES Ltd., Rail Vikas Nigam Ltd., and Indian Railway Catering and Tourism Corp.

Business

RailTel was incorporated on Sept. 26, 2000, with a bid to modernise existing telecom infrastructure for train control, operation and safety. It also aimed to create a nationwide broadband and multimedia network by laying optical fibre cable by using the right of way along railway tracks. It undertakes various information and communication technology projects for Indian Railways, the central and state governments.

The company operates an optical fibre network covering 59,098 route kilometers and 5,929 railway stations across towns and cities in India as of Jan. 31, 2021. It has the exclusive right of way along 67,415 kilometers connecting 7,321 railway stations. RailTel has acted as a key partner to Indian Railways in digital transformation by implementing networks for integrated payroll and accounting system, unreserved ticketing system, freight operations information system, and coaching operations information systems.

Services

RailTel offers telecom network and infrastructure services, managing data centers and hosting services, and system integration to its customers.

• Long-distance telecommunication services, including various teleservices such as voice, data, fax, text, video, and multimedia.

• Internet leased line services with multiple bandwidth options ranging from 2 mbps and above across India.

• Storage, power, cooling, and physical security for servers.

• Space on microwave towers for collocating base transceiver stations for telecom operators.

• Hosting, cloud computing, disaster recovery services, Aadhaar authentication services, and other IT-related services.

• Offers data centre and facility management services, Wi-Fi projects, city surveillance projects, laying state wide fibre-optic network and its maintenance.

Projects

RailTel has successfully completed several long-term projects, including the National Knowledge Network and Bharat Net projects for providing high-capacity bandwidth pipes for educational institutions, and laying optical fibre cable for connectivity of gram panchayats in India.

Some of the proposed projects are modern train control system, healthcare, and tele-medicine, tunnel communication and, e-education.

Crisil Research expects average monthly data usage per subscriber per month to grow at an annualised rate of 20% from 2018-19 to 2023-24. This, it said, offers a huge opportunity for telecom service providers, including RailTel.

The optical fibre network remains the most preferred medium for data transmission, the red herring prospectus said citing Crisil’s report. To build 5G infrastructure in India, fiberisation of telecom towers is a pre-requisite. Also, artificial intelligence, internet of things, big data, cloud computing, and digitalisation will aid growth in the data centre services business. Demand for enterprise data services is expected to grow as connectivity spreads across semi-urban and rural areas, the prospectus said.

Financials

RailTel has maintained a profitability record since 2007 and is a consistent dividend payer. The company is debt-free and funding its operations entirely through internal accruals since 2013. The company has paid a dividend of Rs 46.2 crore in 2019-20. Its revenue from operation recorded a compounded annual growth rate of 7.47% from 2017-18 to 2019-20.

Peer

In 2019-20, RailTel reported the highest net profit margin and operating profit margin among key information and communication technology providers. Its return on capital employed was also the most among peers.

Risks

• Regulatory risks: changes in laws, licence terms, and government policies can potentially affect the business.
• High dependency on PSU customers: any change in investment plans of such PSUs can affect the company’s ability to participate in competitive bidding or negotiations for future projects.
• Technological changes: if the company failed to keep pace with changing technology, it may lose customers and subscribers.
• Internet security concerns: computer viruses, piracy, cyberattacks, break-ins, and other inappropriate or unauthorised uses of the company’s network may impact the operations.