Rail Vikas Nigam – Not very Capital Vikas Oriented 

29 Mar
Rail

Rail Vikas Nigam – Not very Capital Vikas Oriented 

Verdict: Not very Capital Vikas Oriented 

IPO Snapshot: Rail Vikas Nigam is entering the primary market on Friday 29th March 2019 with an offer for sale (OFS) of upto 25.35 crore equity shares of Rs. 10 each by the Government of India (GoI), in the price band of Rs. 17 to Rs. 19 per share, retail has been offered a discount of 50 paise per share. Representing 12.16% of the post issue paid-up share capital, issue will raise Rs. 477 crore (at the upper end) and close on Wednesday 3rd April 2019, with listing is likely on 11th April.

Company Background: Rail Vikas Nigam, a 15 year-old Mini Ratna (Category 1) wholly owned GoI subsidiary, executes railway projects such as doubling lines, new lines, electrification, gauge conversion, metro projects etc. for the Ministry of Railways, having an order book of Rs. 77,504 crore (31-12-18) for 102 ongoing projects. Company earns consolidated management fee on the annual expenditure incurred for the execution of projects at the rate of 9.25% for metro projects, 10% for national projects, 8.50% for other plan heads. Currently, it does not have any national projects.

Objects of Issue : Since issue is a 100% OFS, no proceeds will flow to the company.  GoI’s FY20 divestment target of Rs. 90,000 crore will be partly met by the issue proceeds of Rs. 477 crore,  Post IPO, GoI shareholding in the company will shrink to 87.84% from current 100%.

Financials: Steady Growth Between FY15-18, consolidated revenue from operations, PBT and PAT have risen at a CAGR of 34%, 21% and 19% respectively, FY18 consolidated revenue grew 28% YoY to Rs. 7,597 crore, with PBT jumping 22% YoY to Rs. 664 crore. However, 24% of this PBT was earned from non-related / non-core items, such as interest on FD etc., excluding which, PBT margin from operation stood at 6.7% (on core PBT of Rs. 507 crore). For H1FY19, revenue and core PBT stood at Rs. 3,623 crore and Rs. 239 crore respectively, maintaining margins at 6.6%. EPS for FY18 and H1FY19 were reported at Rs. 2.73 and Rs. 1.22 respectively. As of 30-9-18, company’s net worth stood at Rs. 4,062 crore, resulting in BVPS Rs. 19.48 (IPO price marginally lower than book value). Total debt (all from Indian Railway Finance Corp.) was Rs. 1,963 crore with cash and equivalents of Rs. 1,272 crore, leading to net debt to equity ratio of 0.17:1. FY18 RoE grew to 14.5%, from FY17 12.5%. Valuation: At Rs. 19 per share, company’s market cap and EV will be Rs. 3,960 crore and Rs. 4,650 crore respectively, which discounts historic (FY18) earnings by PE and EV/EBITDA multiples of 7x and 6.5x respectively. Q4 is generally a very strong quarter for execution of government projects, leading to FY19E PE and EV/EBITDA multiples of 6x and 5.5x respectively for the company.

Conclusion: Issue can be summarized as under –

Positives: (i) Steady financial growth (ii) Good order book

Neutral: (i) valuation not much different than peer’s (ii) 4% dividend yield

Negatives: (i) poor track record of recent PSU IPOs (ii) it is a penny stock (iii) PSU stocks have been  out-of-flavor in secondary market

Since negatives out-number positives, the IPO is not vey Capital Vikas Oriented.

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