RailTel Corporation IPO Review 2021: The RailTel IPO opens on 16th Feb and closes on 18th Feb 2021. In this article, we cover the RailTel IPO Review and look into important IPO information and find out the possible prospects of the company. Let’s get started.
Table of Contents
RailTel IPO Review – About the Company
RailTel Corporation is an Rs. 1,100 Cr public sector company, wholly owned by the Government of India (GOI) and administered by the Ministry of Railways. Incorporated in 2000, RailTel Corporation is one of the largest neutral telecom infrastructure providers in the country. It was set up objective of creating nationwide broadband, telecom and multimedia network, to modernize train control operation and safety systems of Indian Railways. The company has data centers in Haryana, Gurugram, Secunderabad, and Telangana.
RailTel, in collaboration with Google, provides free WiFi access at selected railway stations across India. Google chose railway stations to provide free WiFi because they have access to a reliable power supply and fiber provided by RailTel. In addition, the passengers at a station come from all demographics of India. The company uses the latest technology like high dense wavelength division multiplexing (DWDM) and multi-protocol label switching (MPLS) network.
RailTel IPO Review – Advantages of RailTel
1. Railtel is one of the largest neutral telecom infrastructure providers in India. As of June 30, 2020, the company had an exclusive right of way along 67,415 route kilometers connecting 7,321 railway stations for laying optical fiber cable. The company has over 55,000 route kilometers of optical fiber cable network and has connected 5,677 railway stations across towns and cities in India as of June 30, 2020.
2. Railtel is also an implementing partner for the Bharat Net project to create optical fiber cable-based broadband infrastructure in laying optical fiber cable across 36,000-gram panchayats in India.
As of June 30, 2020, they had completed laying 24,037 kilometers of optical fiber cables connecting over 6,500-gram panchayats.
3. The Company has also been awarded a number of projects which are in progress.
These include the Kerala Fiber Optic Network project. The aim of this project involves the provision of scalable and resilient optic fiber across Kerala.
4. Railtel serves as a key network for the Indian Railways and provides a variety of services to the Indian Railways. The company is working with Indian Railways to transform stations into digital hubs by providing free public Wi-Fi. As of June 30, 2020, 5,677 railway stations were live with ‘RailWire’ Wi-Fi. The company recorded over 14 million unique users per day in Fiscal 2020. RailWire recorded an average of 8200 TB of aggregated data consumption per month in Fiscal 2020.
5. Company is currently in the process of bidding for international projects. This includes one for supply, delivery, installation, testing, and commissioning of goods and services for digital literacy in public primary schools in Kenya. The company also has plans to use its expertise in working and developing projects for the Indian Railways, to modernize and digitize the existing networks in Bangladesh and Jordan.
RailTel IPO – Risks that the company faces
1. The telecommunications industry in India is highly regulated. Any changes in laws, regulations, or government policy could potentially adversely affect their business, prospects, financial condition, cash flows, and results of operations.
2. The company depends on and derives a substantial portion of its revenue from PSU customers. This includes the Indian Railways, and other GoI entities, as well as State Governments. This relationship with GoI and State entities expose them to the risks inherent in doing business with them. A substantial portion of their revenues is derived from three key customers:
- National Informatics Centre Services Inc.
- Indian Railways
- Employees’ State Insurance Corporation of India.
Revenue generated from these three customers represented 42.13%,23.41%, and 25.09 %(Total – 90.63%) of their total revenue from operations as restated, in Fiscal 2018, 2019, and 2020, respectively.
3. The company has to keep up with the changes in the industry. This puts them at risk of not being competitive if they fail to keep up with the technological changes.
The company has stated that it may fail to successfully respond to technological advances and evolving industry standards. This is because upgrading their services in response to market demand may require the adoption of new technologies including 5G that could render many of the existing technologies in use, less competitive or obsolete.
4. The company is also involved in certain legal proceedings. Any adverse developments could materially and adversely affect our business, reputation, and cash flows.
- Civil proceeding – 1 ( amount involved Rs. 58.29 million),
- Criminal proceedings – 2 ( amount involved Rs. 15.70 million),
- Tax-related proceedings – 14( amount involved Rs. 322.30)
5. The industry also suffers from Internet security concerns which could adversely affect their broadband internet access services.
6. The company generates a certain portion of their revenue from providing data services and a failure to successfully compete in providing data services could have an adverse effect on their business. In Fiscal 2018, 2019, and 2020, revenue generated from providing ISP services represented 14.48%, 15.63%, and 14.26% of their total income, respectively.
Various factors such as rising income levels, decline in prices of smartphones, increasing availability of mobile-based content, higher data demanding media including videos, games, and other applications on smartphones, and the rollout of long term evolution or LTE networks have led to the rapid growth of data usage in the telecom sector in India.
7. The company has experienced negative cash flows in the past. Future negative cash flows could affect their ability to operate a business and implement growth plans, thereby affecting our financial condition.
8. The company is wholly-owned and controlled by the GoI. This makes them susceptible to changes to its policies. The GoI will continue to retain a majority shareholding in Railtel after the Offer. This allows it to exercise significant influence over us. The GoI will require Railtel to take actions aimed at serving the public interest. This will not necessarily be profitable or financially feasible.
RailTel IPO Review – Key IPO Information
The company is wholly owned by the Government of India (GOI). ICICI Securities, IDBI Capital Markets & Securities, and SBI Capital Markets have been appointed as the book running lead managers to the issue.
| Particular | Details |
|---|---|
| IPO Size | ₹819.24 Cr |
| Fresh Issue | - |
| Offer For Sale(OFS) | ₹819.24 Cr |
| Opening Date | Feb 16, 2021 |
| Closing Date | Feb 18, 2021 |
| Face Value | ₹10 per equity share |
| Price Band | ₹93 to ₹94 per equity share |
| Lot Size | 155 Shares |
| Minimum Lot Size | 1(₹14,570) |
| Maximum Lot Size | 13(₹189,410) |
| Listing Date: | Feb 26, 2021 |
The government will remain as the majority shareholder post the IPO. An aggregate of 20% of the post–Offer Equity Share capital will be held by GOI as minimum promoters contribution. This portion will be locked-in for a period of three years from the date of allotment.
Purpose of the IPO
(i) to carry out the disinvestment of Equity Shares by the Selling Shareholder (government)
Their Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.
(ii) to achieve the benefits of listing the Equity Shares on the Stock Exchanges.
Grey market information
The share prices of RailTel surgery in the grey market. The premium increased from Rs. 32 on Thursday to Rs. 47 on Saturday.
On Saturday the shares were seen trading at Rs.141 which implies a premium of 50% over the issue price of Rs. 94.
RailTel IPO Review: Key Competitors
Here are a few of the key competitors of RailTel
- Bharti Airtel Limited,
- Reliance Jio Infocomm Limited,
- Power Grid Corporation of India Limited
- Bharat Sanchar Nigam Limited
- Mahanagar Telephone Nigam Limited
Closing Thoughts
In this post, we covered the RailTel IPO Review. The IPO opens on 16th Feb and closes on 18th Feb 2021. For retail investors, it can be a good opportunity to look into the company’s future prospects and apply for the IPO if they believe in the products and growth prospects of RailTel.
That’s all for this post. Do let us know what you think of RailTel IPO Review. Are you planning to apply for this IPO or not? Comment below. Cheers!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
