RailTel IPO Most Detailed Review : Should You Buy Or not?

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RailTel Corporation of India, is a Mini Ratna (Category-I) Central Public Sector Enterprise, wholly-owned by the Government of India and under the administrative control of the Ministry of Railways. They have announced IPO with following Details :

RailTel IPO details

In this post I am going to do an in -depth analysis of company Profile which may help in your decision towards subscribing this IPO.

Let’s discuss first about What They DO :

#1. Summary of Business

  • RailTel was incorporated on September 26, 2000, with the aim of modernizing the existing telecom system for train control, operation, and safety and to generate additional revenues by creating nationwide broadband and multimedia network by laying optical fiber cable by using the right of way along railway tracks.
  • They are an information and communications technology (“ICT”) infrastructure provider and one of the largest neutral telecom infrastructure providers in India (Source: CRISIL Report).
  •   Their optical fiber network is present pan-India and has the exclusive right of way for optical fiber cable network along 67,415 route kilometers and have optical fiber cable network along over 59,098 route kilometers connecting 5,929 railway stations as of January 31, 2021.
  • They operate data centers in Gurugram, Haryana, and Secunderabad, Telangana to host and collocate critical applications for customers including the Indian Railways.

Railtel Portfolio of Services

Its very important to know about product and services of the company in which anyone is going to invest, Hence we will do a step-by-step explanation of their portfolio which comprises of :

(i) Telecom Network Services-

NLD Services: As part of our NLD services, They offer enterprise customers with (i) leased line services; and (ii) MPLS-based VPN facilities.

Internet Service Provider (“ISP”) Services: They provide: 1. retail broadband business, ‘RailWire’ and 2. Internet leased line services to small and medium enterprises and other enterprises in accordance with the terms of our ISP license provided by the Department of Telecommunication, GoI.

(ii) Telecom Infrastructure Services;

 (iii) Managed Data Center and Hosting Services; and

 (iv) Collaboration Services.

Hence Their technology solutions/services are aimed at serving a range of industries.

railtel portfolio

If you notice, Their more than 50% revenue put together coming from Telecom network services.

#2. Key projects by the Indian Railways with Railtel

Content on demand

Content on-demand (“CoD”) will be available in all premium/express/mail and suburban trains of the Indian Railways. The project will be implemented in two years and the provision of multilingual content such as movies, shows, and educational programs, made available both in paid and unpaid formats for a contract period of 10 years, which includes the first two years of implementation by RailTel. RailTel has selected Margo Network, a subsidiary of Zee Entertainment, as the digital entertainment service provider for providing CoD on trains and at railway stations. In addition, the CoD platform will also offer e-commerce services such as bookings for a cab, bus, and trains. The project is expected to cover all 17 zones of Indian Railways and approximately 8,731 trains – 3003 trains (premium/mail/express – to and fro) pan India and 2,864 pairs of suburban trains. CoD will also be made available at all Wi-Fi-enabled railway stations (over 5,563 stations as of date).

Railway display network (“RDN”) project

Indian Railways propose to install display screens at foot-over bridges, platforms, waiting rooms, amongst other, at railway stations under the RDN project. RailTel has been appointed as nodal agency to implement and manage Indian Railway’s RDN system.

500 display screens have already been installed for the pilot project.

Internet Protocol (IP)-based video surveillance system (VSS)

Indian Railways is in the process of installing IP -based VSS at stations, that is, at waiting halls, reservation counters, parking areas, main entrance/ exit, platforms, foot over bridges, booking offices, amongst others. This system is expected to ensure better security of passengers at railway stations and railway property. The Railway Board has approved works for provision of VSS covering 983 stations with Nirbhaya funds. In Fiscal 2020, a budget of ₹ 2,500 million was allotted to Indian Railways from Nirbhaya fund for installation of video surveillance system.

In the first phase of installation, VSS is being installed at 200 stations Pan-India and as on date work has been completed at 81 stations across India.

E-office (phase-II)

Indian Railways in an active effort to adapting paperless office culture (to save operational cost and reduce the carbon footprint) and for providing better services to the public introduced National Informatics Center (“NIC”) e-office. NIC e-office is a cloud-enabled software developed by NIC that is being deployed/hosted from RailTel Tier III UPTIME.

#3. Key opportunities

The telecom services and its allied business grow upon opportunities such as low rural teledensity, the infrastructure required for 5G launch, low cost-mobile handsets, growing demand for internet among the emerging culture of work-from-home, and relaxation on FDI inflows to encourage investments in the sector. As you know, it will be long article to write about all core opportunities they have, will try to summarize in few points :

broadband subscription in india railtel

As per the prospectus, we can see there is an enormous amount of possibility to increase its business in the broadband sector.

  • Low rural teledensity to drive wireless subscriber base going ahead.
  • Pre-requisite for launch of 5G services to boost fiber and satellite infrastructure.
  • Leasing of fiber can make India 5G-ready earlier.
  • Internet of Things to disclose newer revenue streams for telecom companies going ahead.
  • The proliferation of low-cost mobile handsets.
  • FDI cap relaxation to drive investments in the sector.

Wired and Wireless technologies in India growing with a rapid phase, Below are some stats :

Government emerging as an important end user of Railtel products and services

The Government is also emerging as an important end-user, mainly on account of the surge in e-governance initiatives. Most government projects are expected to be executed using VPN. The Government’s intent to improve rural connectivity will further aid growth in the laying of optic fiber cable. Some of the important projects are:

  • State-wide area network;
  •  Accelerated power development and reform program;
  • Crime and criminal tracking network system;
  • National intelligence grid;
  •  Public distribution system;
  •  India Post;
  •  Property registration;
  • Sulekha plan monitoring system;
  • National knowledge network (NKN); and
  •  Kerala fiber-optic network (KOFN).

Digital India program to further aid growth in VPN segment Under the  Digital India initiative.

#4. Strategies

They Continue to expand their telecom services and deploy latest technologies

To build 5G infrastructure in India, fiberisation of telecom towers is a pre-requisite (Source: CRISIL Report).

As part of the digital India initiatives by the Government of India, they are well positioned to connect gram panchayats and provide high speed Wi-Fi particularly in gram panchayats near railway stations where optical fiber cable network exists.

They have invested significantly in Wi-Fi with their station Wi-Fi network spread across 5,929 railway stations and exploring various models for monetization of station Wi-Fi. The station Wi-Fi network is being used for monetization from the Content on Demand project.

Further diversify services and solutions with a focus on Indian Railways.

Expansion of services outside India

RailTel intends to offer services selectively in jurisdictions outside India. They are currently in the process of bidding for projects in Africa that include supply, delivery, installation, testing, and commissioning of goods and services for digital literacy in public primary schools in Kenya. Not only this, they are working and developing projects for the Indian Railways, particularly modernizing and digitizing the existing networks, to other projects in Bangladesh where they are currently evaluating projects. In addition, they are exploring business opportunities in Mauritius and in particular in the healthcare segment.

In June 2020,  The DoT informed the supreme court that it has withdrawn 96% of its 4000 billion$ dues in AGR from non-telecom PSUs as their core operation is not in TeleCom services.” which is good news!

#5. Risks

Being a government organization, RailTel is also vulnerable to some risks associated with their business such as :

  • Supreme court may reverse its decisions about AGR dues.
  • Too much trade receivables.
  • The debtor Cycle( period of credit) is very high with more than 5 months of negative Cash flows in the Past.

#6. Finances

ShareHolding Pattern is 100% government of India

In spite of a robust business model and monopoly in certain areas, they don’t have any promising financial stats as such. ( Like total revenue, PAT and Total assets, etc.).One positive aspect is that the company is debt-free and funding its operations entirely through internal accruals since 2013.

#7. Competitive Analysis

Indian telecom players offer so manys services other than just voice and data services. Some of the key services of Indian telecom players include wireline and wireless voice services, wireline and wireless broadband services, leased line, video conferencing, enterprise services, data center, and other value added services.

An indicative list of services offered by key players in the industry is depicted in the table below.

The CRISIL Report has provided an assessment of the key telecom service companies in India, which include Bharti Airtel Limited, BSNL, Mahanagar Telephone Nigam Limited (“MTNL”), RailTel, Reliance Jio Infocomm Limited, Tata Communications Limited and Vodafone Idea Limited (collectively, the “Key Telecom Companies”). The criteria for consideration of the Key Telecom Companies by the CRISIL Report is based on such companies presence in wireless and wireline broadband, NLD/ILD, video conferencing services, passive infrastructure, domestic leased line, data center and enterprise services.

Key financial parameters of the Key Telecom Companies :

Notes: Ratios calculated as per CRISIL Research standards as described in Red Herring Prospectus(RHP)

Key observations

• In Fiscal 2020, RailTel reported the highest net profit margin of 13%, owing to a zero debt in Fiscal 2020. Reliance Jio Infocomm Limited and Tata Communications Limited followed RailTel with 10% and 4%, respectively, in Fiscal 2020.

• RailTel ranked considerably well in operational profitability in Fiscal 2020. RailTel’s operating profit margin was 30% in Fiscal 2020, whereas Vodafone Idea Limited and Reliance Jio Infocomm Limited were 33% and 40%, respectively, in Fiscal 2020.

• In Fiscal 2020, Railtel registered the highest return on capital employed (“RoCE”) of 14%, followed by Reliance Jio Infocomm Limited at 13% in the same period.

That’s all folks!

Finally we will look into live subscription stats of IPO so that we know how overall demand has been in market :

RailTel IPO Subscription Status Live

It has subscribed 2.64 times. The public issue subscribed 4.99 times in the retail category, 0.00 times in QIB, and 0.75 times in the NII category by Feb 16, 2021, 05:00.

CategorySubscription Status
Qualified Institutional0.00 Times
Non Institutional0.75 Times
Retail Individual4.99 Times
Employee0.81 Times
Others[.] Times
Total2.64 Times
source : https://www.chittorgarh.com/

RailTel IPO Subscription Details (Day by Day)

RailTel IPO subscribed 2.64 times. received bids for 4.99 times issue size in retail, 0.00 times issue size in QIB, and 0.75 times issue size in the Non-institutional category by Feb 16, 2021, 05:00.

DateQIBNIIRetailEmployeeTotal
Feb 16, 2021 05:000.00x0.75x4.99x0.81x2.64x
source : https://www.chittorgarh.com/

anurag sharma-the founder of BookProfit

About the author

Anurag Sharma, NISM certified research Analyst and A stock market trader with 10+years’ experience himself, helps beginner sharpen their trading skills with super simple Intraday, Swing, and money management strategies that work. Grab your free consultation and learn to research, plan, and trade better in just 27 days.

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