Investment Shastra

RailTel IPO Review: Avoid, Not a wealth creator

RailTel IPO Details:

IPO Date: Feb 16th to Feb 18th, 2021

Total Shares for subscription: 8.7 Crore

IPO Size: ~Rs. 820 Cr

Lot Size: 155 shares

Price Band: Rs. 93-94 /share

Market Cap: ~Rs. 30,000 Cr

Recommendation: AVOID

Purpose of RailTel Corporation of India Limited IPO

  • Offer for Sale by existing shareholders. The company won’t receive any proceeds from IPO

About the RailTel Corporation of India Limited

RailTel Corporation is an Rs. 1,100 Cr public sector company, wholly owned by the Government of India (GOI) and administrated by the Ministry of Railways. It is an Information and Communication Technology (ICT) infrastructure provider company. The company was established with the key objective to modernize telecom infrastructure for train control, operations, and safety. It also generates additional sales from nationwide broadband and multimedia network by laying fiber optic cable alongside railway lines.

As of 30 June 2020, it has covered an optic fiber network over 55,000 Km and 5677 railway stations. The company has data centers in Haryana, Gurugram, Secunderabad, and Telangana.

RailTel offers its enterprise customers digital channels for voice, internet leased lines, virtual private networks.  Besides, it also provides an infrastructure to telecom operators to extend their coverage/mobile switching while for TV cables to handle the long-distance transmission of digital video.

Financials of RailTel Limited

Financials of RailTel Limited

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MoneyWorks4me Opinion

Since RailTel is a mature telecom infrastructure company, its growth rate is low and profitability (ROE) is low. Because the company has guaranteed fee income, it can leverage and improve its profitability and earnings growth. For cyclical industry, debt needs to be avoided for unforeseen volatility in sales, but for steady companies, it is a must to take improve profitability above the cost of capital.

 We find that the investment in such a company will only earn dividend income and unlikely to compound capital at higher than 10% CAGR, low return on investment for equity risk in our opinion.

We would recommend Avoid due to limited ROE (below cost of capital) and limited growth prospects

IPO Activity Date
IPO Open Date 16th Feb 2021
IPO Close Date 18th Feb 2021
Basis of Allotment Finalisation Date 23rd Feb 2021
Refunds Initiation 24th Feb 2021
A credit of Shares to Demat Account 24th Feb 2021
IPO Listing Date 26th Feb 2021

Date QIB NII Retail Employee Total
Feb 16, 2021, 05:00 0.00x 0.75x 4.99x 0.81x 2.64x
Feb 17, 2021, 05:00 2.96x 2.63x 10.55x 1.85x 6.64x
Feb 18, 2021, 05:00 65.14x 73.25x 16.78x 3.35x 42.39x

1. When will the RailTel IPO open?

RailTel IPO will open for subscription on Tuesday, February 16, and will close on Thursday, February 18.

2. What is the price band of RailTel IPO?

The price band for RailTel IPO is Rs 93-94.

3. What is the lot size for RailTel IPO?

Retail investors can subscribe to the IPO minimum lot size is 155 shares, upto a maximum of 13 lots. i.e. Rs. 1,90,000.

4. What is the issue size of RailTel IPO?

The government of India would be selling 8.71 Crore shares through the issue.

5. What is the quota reserved for retail investors in RailTel IPO?

The quota for retail investors in RailTel IPO is fixed at 35 percent of the net offer. This amounts to 3 Crore, i.e. Rs. 282 Crore.

6. What are the chances of getting an allotment?

Approx. 1,93,000 retail investors can get an allotment assuming a bid size of 1 lot. So the chances of allotment are Average.

7. When will details of RailTel IPO’s anchor investors be disclosed?

The details of anchor investors of the IPO will be out either on the last day of this week or on Monday.

8. When will the basis of allotment be out?

Allotment will be finalized on February 23 and refunds will be credited by February 24. Shares allotment will be credited in Demat accounts by February 24.

9. What is the listing date of RailTel IPO?

The tentative listing of RailTel IPO is February 26.

10. Where could we check the RailTel IPO allotment?

One can check the subscription status on Kfin Technologies.

11. Who are the leading book managers to the issue?

Book running lead managers to the IPO are ICICI Securities, IDBI Capital Markets & Securities, and SBI Capital Markets.

12. What does RailTel do?

As per the DRHP document, RailTel is one of the largest neutral telecom infrastructure providers in India. It is a Mini Ratna (Category-I) Central Public Sector Enterprise, wholly-owned by the Government of India. The company was incorporated in September 2000 with the aim of modernising the existing telecom system for train control, operation, and safety, and to generate additional revenues by creating nationwide broadband and multimedia networks by laying optical fiber cable by using the right of way along railway tracks.

13. Who are the peers of RailTel?

There are no listed companies in India that have a similar business model as RailTel.

Know more: Indian IPO Historic Data 2021

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Ketan Gujarathi

Manager - Equity Research; Based in Pune, a Total of 7 years of work experience ranging from equity analysis, credit rating and banking. MBA in Finance and a Bachelor's degree in Engineering. Passionate about studying companies. Likes reading history & business books. Spends free time with friends and family.

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