The initial public offering (IPO) of RailTel Corporation of India (RailTel) opened for subscription on Tuesday. This will be the seventh IPO of the year 2021.

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RailTel, a Mini Ratna (Category-I) Central Public Sector Enterprise, is wholly-owned by the Government of India and under the administrative control of the Ministry of Railways.

It is an information and communications technology (ICT) infrastructure provider and one of the largest neutral telecom infrastructure providers in India.

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RailTel Corporation IPO to launch on February 16; price band set at Rs 93-94 per share

Here are key things to know about the RailTel Corporation of India IPO subscription:

- The public issue opens for subscription today and closes on February 18. The shares are expected to get listed on February 26.

- The issue is a complete offer for sale by the Government of India. It comprises up to 8,71,53,369 equity shares of the face value of Rs 10 each. Of this, 5 lakh shares will be reserved for the company's employees.

- The company and the government, in consultation with merchant bankers, have fixed the price band for the issue at Rs 93-94 a share.

- Investors can bid for a minimum of 155 equity shares and in multiples of 155 equity shares thereafter. At the higher price band, the minimum application size for retail investors comes to Rs 14,570.

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

- The offer will give Rs 819.24 crore to the government but the company will not get any money from this offer.

- The main object of the offer is to carry out the disinvestment plan of the government and to achieve the benefit of listing on the stock exchanges.

Company profile

RailTel Corporation is amongst the largest neutral telecom infrastructure providers in India with a pan-India optic fiber network and has an exclusive right of way along 67,415 route kilometers connecting 7,321 railway stations for laying optical fiber cable.

It is a Mini Ratna (Category-I) Central Public Sector Enterprise, wholly-owned (100 percent) by the Government of India and under the administrative control of the Ministry of Railways.

The company offers a high capacity bandwidth of up to 800G at 87 locations in India, as of January 31, 2021. It offers a diversified portfolio of ICT services and solutions including MPLS-VPN, leased lines services, TPaaS, e- Office services and data center services, large network hardware system integration, software and digital services.

In addition to laying optical fiber cable network, its transport network is built on high capacity DWDM and an IP/ MPLS network over it to support communication requirements of the Indian Railways and other key customers.

It has also built an optical fiber cable network across cities and towns in India to provide end-to-end bandwidth services through leased circuits, MPLS-VPN ports or Internet bandwidth ports.

RailTel serves as a key network for the Indian Railways. It provides a variety of services to the Indian Railways and has implemented an MPLS data network for integrated payroll and accounting system, unreserved ticketing system, freight operations information system and coaching operations information systems.

Going forward, the company plans to expand its telecom services and deploy the latest technologies. It intends to create open radio access networks, small cell and tower infrastructure at railway stations for hosting telecom players to assist with their preparation for the 5G network.

Further, it plans to continue to invest in expanding its network and deploying the latest technologies to enable a high capacity next-generation network to deliver sustained value to its customers and improve their experience. It also intends to diversify and expand its services and solutions.

Financials

The financial performance of the company has been tepid with Revenue/ PAT CAGR of 7.5 percent and 2.6 percent over FY18-20. However, it has consistently paid a dividend since FY08.

It ranked first in terms of operating profit margin among the key IT/ICT Companies in India in FY20.

Valuation

On the valuation front, the company is valued at a PE of 21.4x FY20 EPS. From a long-term perspective, investors can consider applying for the IPO.

Analyst's take

Nirali Shah, Head of Equity Research, Samco Securities said that since RailTel is a debt-free company and pays consistent dividends it could witness some traction but for long-term investors, there are a few red flags.

"Firstly, the company has delivered single-digit revenue and PAT CAGR of 7.5% and 2.5% respectively from FY18 to FY20. There is a high dependence on government entities and concentration risk given that 23.8% of its revenues comes from the top 3 customers. Its presence in a highly regulated industry is another cause of concern. Overall, the company is fairly priced at its FY20 P/E of 21.3 times," Shah said.

It has been commanding a good grey market premium indicating the offer will sail through but keeping the risks in mind, we recommend investors to subscribe for listing gains only, she added.

(Edited by : Ajay Vaishnav)