Mumbai: The government kick-started its divestment plans for the current financial year with the initial public offering (IPO) of RITES Ltd, which opened for subscription on Wednesday. With a price band set at ₹ 180-185 per share, the government is aiming to raise ₹ 466.2 crore by selling a 12% stake. According to most analysts, the issue is attractively or reasonably priced. On Day 1 of bidding, the RITES IPO was subscribed 60%, according to NSE data. The category marked for retail investors saw strong demand, being subscribed 1.64 times. The category set aside for qualified institutional buyers (QIBs) was subscribed 2% while that of non-institutional investors 19%.
At the higher end of the issue price of ₹ 185 per share, the stock is being offered at 10.5 times of FY18 earnings, said Kotak Securties Ltd. “On an EV/EBITDA basis, the stock is trading at 11.9 times FY18 EBITDA. The stock is trading at a discount to listed peer like Engineers India Ltd (EIL). We note that to a large extent, EIL scores over Hindustan Aeronautics Ltd (HAL) in terms of higher revenue visibility provided by its order book,” it said in a note on 18 June. EV is enterprise value and EBITDA is earnings before interest, taxes, depreciation, and amortization.
Motilal Oswal Securities Ltd (MOSL) finds its valuations to be attractive. It said that being present in niche space of transport consultancy, the company is well poised to benefit from the large opportunities in the infrastructure space especially railways. Few things that the brokerage firm likes about RITES Ltd are its good execution track record, stable financials with strong operating profit margin (OPM), asset light balance sheet with healthy return ratios and good dividend payout policy.
“As of FY18, RITES’ order book stood at ₹ 4,820 crore, 3.9 times order book to sales; thus providing strong revenue visibility. It is well diversified with consultancy services contributing 53%, followed by turnkey projects (29%), exports (15%) and leasing services (3%),” it said in a note on 18 June.
However, seasonality of its business is one of the risk factors, said Canara Bank Securities Ltd. “RITES’s business activities are subject to seasonal fluctuations that may take a toll on top line of the company. RITES derives 76.79% of its revenue from the Indian Railways; this may lead to business concentration risk going forward,” the research firm said.
