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Below are Views On RailTel IPO Comment by Ms. Nirali Shah, Head of Equity Research, Samco Securities

RailTel is coming out with an IPO of Rs 819.24 Cr, an OFS by the Government of India to divest part of their stake. The company derives 66% of its revenues from the telecom segment while the remaining portion is from railways and other projects. RailTel, if performs efficiently can benefit from the 5G growth in India from a fiberisation needs’ perspective. It could also play a key role in digital transformation of the railways. Besides, Covid-19 has had a minimal impact on the telecom industry and has infact triggered growth for certain players due to increased data usage and VPN services for people working from home. 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 high dependence on government entities and concentration risk given that 23.8% of its revenues comes from top 3 customers. Its presence in a highly regulated industry is another cause of concern. Over all, the company is fairly priced at its FY20 P/E of 21.3 times. 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.

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