IPO Analysis: RITES Limited

IPO Rating – 53 (Investment recommended)* 

About the Issue 

Rites Limited, a Government company, is coming with an IPO which will open for subscription from June 20 to June 22, 2018. The issue consists of Offer for Sale (OFS) of 2,52,00,000 equity shares worth Rs 466.20 crores. The issue price band is between Rs 180-185 per equity share. The face value of the share is Rs 10. The minimum lot size for subscription is 80 shares. Post allotment, company will get listed on both BSE and NSE. 

Purpose of the Issue 

The objects of the Offer include –

- To carry out the disinvestment of 24,000,000 Equity Shares held by the Selling Shareholder in the Company, equivalent to 12% of the issued, subscribed and paid up Equity Share  capital of the Company as part of the Net Offer, and 1,200,000 Equity Shares that will be reserved for Employee Reservation Portion.

- To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

The company will not receive any proceeds from the Offer as all the proceeds will go the Selling shareholders. The Promoter of the company is the President of India acting through the Ministry of Railways. 

Company Background 

RITES Ltd. is a wholly owned Government company, a Miniratna (Category I) Schedule A public sector enterprise engaged in transport consultancy and engineering sector in India. It is the only company having diversified services and extensive geographical reach all under one roof. The company has an experience spanning 44 years and has undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East regions. 

Apart from having presence as a transport infrastructure consultancy organisation in the railway sector, it also provides consultancy services across other infrastructure and energy market sectors including urban transport, roads and highways, ports, inland waterways, airports, institutional buildings, ropeways, power procurement and renewable energy. 

RITES Ltd. was incorporated by the Ministry of Railways, Government of India and has the benefit of being associated with the Indian Railways. It has developed expertise in –

- Design, engineering and consultancy services in transport infrastructure sector with focus on railways, urban transport, roads and highways, ports, inland waterways, airports and ropeways;

- Leasing, export, maintenance and rehabilitation of locomotives and rolling stock;

- Undertaking turnkey projects on engineering, procurement and construction basis for railway line, track doubling, 3rd line, railway electrification, up gradation works for railway transport systems and workshops, railway stations, and construction of institutional/ residential/ commercial buildings, both with or without equity participation; and

- Wagon manufacturing, renewable energy generation and power procurement for Indian Railways through various collaborations by way of joint venture arrangements, subsidiaries or consortium arrangements.

In India, company’s clients include various central and state government ministries, departments, instrumentalities as well as local government bodies and public-sector undertakings. Of the total current order book, 77% orders are from Central & State Governments.



Financial Performance 



Company’s revenue has grown at a CAGR of 15.6% over FY15-17. The PAT has grown at a CAGR of 7.6% over FY15-17. As of March 31, 2018, company’s order book stood at Rs 4818.67 crores, which includes 353 ongoing projects. Such strong order book has given revenue visibility for next 2-3 years. Over the last 5 years, company has maintained dividend pay-out of Rs 374 crores. For FY17, it paid final dividend of Rs 78 crores and for FY18, an interim dividend of Rs 70 crores. 

Valuation 

For FY17, company delivered RoNW of 17.4%. By taking the upper price band of Rs 185 with EPS of Rs 17.6 as of FY17, the P/E works out at 10.51x. No listed companies are engaged in the same business line hence the company cannot be compared with peers. 

Our View 

RITES Ltd. is a debt free and asset light company. Its growth in revenue and profitability has been consistent over the last few years. The company’s order book is strong giving decent revenue visibility. It has been paying out dividends consistently since past many years. Also, the valuation seems to be attractive. It has strong client base and mainly caters to the Indian Railways. Looking at the volatility in the market, investors may not get listing gains, but they can subscribe for the IPO with long term perspective. 


*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment 

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