RailTel rides data centre boom: Can the Navratna PSU deliver higher growth?

The company owns a pan-India optical-fibre network largely laid along railway tracks and operates certified tier-III data centres in Gurugram and Secunderabad, while expanding services from cloud and co-location to security and managed hosting.

The shift is already visible in the numbers.

RailTel posted record operating revenue of ₹34.7 billion in FY25, a 35% year-on-year gain, and held an order book of ₹71.9 billion as of 29 July, giving roughly two years of revenue visibility.

Management is guiding for about 25% overall revenue growth for FY26 and has planned capex of around ₹3.5 billion, a sizeable chunk of which is earmarked for data-centre and telecom equipment. Those figures, together with plans for 102 edge data-centre locations and a phased 5MW→10MW campus in Noida, explain why investors are watching closely.

That said, project work, which has driven recent growth, is lower-margin than the telecom business, and margins have shown pressure. The central question for investors is whether RailTel can convert its infrastructure and partnerships into sustained, higher-margin growth.

About the company

RailTel Corp. is a central public sector enterprise (CPSE) with Navratna status. It functions primarily as an Information and Communication Technology (ICT) provider and one of the largest neutral telecom infrastructure providers in the country.

The company owns a pan-India optical fibre network spanning over 63,000+ route km (Rkm) of high-capacity optical fibre, mainly laid along railway tracks.

The network covers over 7,000+ railway stations across India. The citywide access network covers over 21,000+ km across the country.

This infrastructure is complemented by certified tier-III data centres, located in Gurugram and Secunderabad, a MeitY-empanelleld cloud platform (RailCloud), and advanced Security and Network Operation Centres.

These centres provide a range of ICT services, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS), co-location, disaster recovery, managed hosting, HD video conferencing, Security Operation Centre (SOC) services, and e-tendering.

The company's operating segments are broadly divided into telecom services and project work services.

The telecom segment comprises National Long Distance (NLD), Internet Service Provider (ISP), IP-1 Services (including Dark Fibre and Tower), and ICT Revenue (Data Centre, RailWire retail broadband).

The project segment includes project execution for Indian Railways (e.g., signalling work, LTE-R, KAVACH, Tunnel Communication) and other external clients (government, ministries, corporations).

Record revenues driven by project business

RailTel's operating revenue in FY25 increased 35% year-on-year (YoY) to ₹34.7 billion, its highest-ever revenue.

The growth was mainly driven by project business, which contributed ₹21.1 billion to the operating turnover. The telecom segment contributed the balance of ₹13.6 billion. The company's net profit grew by 22% to ₹3 billion.

And the momentum continued in Q1FY26. Operating revenue grew 33% YoY to Rs. 7.4 billion. The project segment provided the major boost to revenue, contributing ₹4.1 billion, while the telecom segment contributed ₹3.3 billion.

Within the telecom segment, NLD contributed ₹1.5 billion, followed by ISP ( ₹1 bn), and data centre-related business at ₹510 million.

Profit before interest and tax (PBIT) margin declined 140 basis points (bps) to 12.1%. The telecom segment is a higher-margin business than the project segment. PAT rose 35.8% to ₹661 million.

As of 29 July 2025, the order book stood at ₹71.9 billion, of which approximately 31% is from the railways. This gives revenue visibility of about 2 years.

The management projects an overall revenue growth of about 25% for FY26. It expects a single-digit growth in the telecom segment and high double-digit growth in the project segment.

The growth in the telecom market in India is generally expected to remain stunted, but the core telecom infrastructure acts as a catalyst for securing many IT/ICT projects.

The overall margin range for the year is projected to be around 11-12%. Project margins generally range from 4-5%.

Data centre push gains momentum

RailTel is significantly expanding its data centre capabilities, as its existing capacity is currently at peak utilisation.

To this end, RailTel has partnered with Techno Electric & Engineering Company to develop edge data centres. These edge data centres are planned to be established at 102 locations nationwide.

Work has already begun on setting up these facilities. The smaller edge data centres are planned to be around 0.2 megawatts each, with possibly four or five starting this year.

It’s also working to develop a state-of-the-art 10 megawatt (MW) data centre in Noida through a private investment partnership. This work has already started. The company plans to begin with a 5 MW capacity in the next two years and subsequently upgrade it to 10 MW.

RailTel has also signed Memoranda of Understanding (MoUs) with private entities, including Anant Raj and Larsen & Toubro. These MoUs aim to jointly offer data centre co-location and managed services to RailTel's customers.

Additionally, RailTel plans to utilise third-party data centres for passive infrastructure services during the current financial year. This will enable flexibility in commercial models, which may include revenue sharing or leasing passive infrastructure.

Out of the planned capital expenditure (capex) of around ₹3.5 billion for FY26, a significant portion is directed toward data centres and telecom equipment.

The management notes that data centre-related income is growing comfortably, projecting an overall growth rate for this segment of around 15-20%.

Kavach orders

The company is involved in Kavach (Train Collision Avoidance System) projects of the railways. Quadrant Future Tech is an exclusive original equipment partner (OEM) of RailTel for Kavach Equipment.

The company has been awarded two works for deploying Kavach covering 1,109 route km of track on the East Central Railway. The total value of the current Kavach orders is close to ₹5 billion.

These are long-term, engineering-intensive projects with expected execution timelines stretching up to FY27 and possibly into FY28.

In communication infrastructure, RailTel is deploying a complete ground infrastructure for 4G LTE over 523 route km in the Secunderabad division of South-Central Railway.

It’s also implementing a unified communication infrastructure (including IP-MPLS LANs, VoIP exchange, and IP-based control communication) across Western and Eastern Railways.

RailTel is also undertaking various electronic interlocking works in the Northern, East Central, and South Eastern Railways, as well as automatic block signalling projects in the South Central Railway.

Government digital projects

The company is a trusted technology partner for mission-mode projects for the Indian government. It has rolled out the e-Office platform across 236 Indian Railways units and over 80 other organizations.

It has also implemented the Hospital Management Information System (HMIS) in 713 railway units.

RailWire is a RailTel retail broadband service (FTTH). It serves more than 575,000 subscribers through tie-ups with over 11,000 partners.

RailTel is bundling services to attract subscribers, notably through partnerships with Playbox TV for OTT aggregation, offering bundled plans to over 67,000 customers.

It also offers the newly launched OTT platform ‘WAVE’ (implemented by RailTel for Prasar Bharti) and DTH bundled plans through a tie-up with Dish TV.

Chasing growth abroad

RailTel is expanding its footprint internationally, leveraging its expertise in digital transformation.

It executed a project involving the supply, installation, testing, and commissioning of electronic cricket score boards in Sabina Park Cricket Stadium, Kingston, Jamaica. The Indian government funded this. The company is also seeking business opportunities in South Asian, African, and Caribbean countries.

RailTel is under active consideration by the Ministry of External Affairs for selection as a project implementation agency for a data centre project in Ethiopia.

It has also signed a tripartite MoU with InoviTel and Tsiko Africa Energy of the Tsiko Group to focus on telecom, railways, and IT/ICT businesses in South Africa.

Conclusion

RailTel is evolving from a traditional telecom infrastructure provider into a broader ICT and digital transformation partner. Its strong order book, healthy revenue growth, and leadership in railway signalling projects offer visibility and stability.

At the same time, its aggressive push into data centres positions it well to benefit from India’s growing digital infrastructure needs.

That said, project-driven margins remain thin, and scaling new businesses will take time.

For investors, the story hinges on whether RailTel can successfully translate its infrastructure and partnerships into sustainable, higher-margin growth in the years to come.

That’s why, instead of relying on hype, it’s necessary to carefully analyse the company's fundamentals, including its financial performance, corporate governance practices, and growth strategies.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com