The government’s divestment plans for this financial year has started off with the opening of initial public offering (IPO) of RITES Ltd on June 20. Rites is a wholly owned government company, which got incorporated in 1974, under the aegis of Indian Railways. It is a multi-disciplinary consultancy organization in the fields of transport, infrastructure, and related technologies.Also Read - Supreme Court Moved Against LIC IPO, Seeks Scrapping Of Process
Before you invest in the IPO here are 10 points to know about RITES.
1) It has a price band of Rs180-185 per share, with an aim to raise Rs 466.2 crore by offloading 12 per cent of its stake. Also Read - LIC IPO: Grey Market Premium Down By 90% Ahead Of Exchange Listing
2) RITES’ order book stood at Rs 4,800 crore as of March 2018, which is 3.5 times FY 17 revenue. Also Read - Delhivery IPO: GMP, Price Band, Other Details Before Opening Of IPO Tomorrow | Know Here
3) The company has been making profits over the last five years and have paid dividends regularly to the shareholders.
4) The company exports railway locomotives, coaches and other equipment, which are manufactured by the Indian Railways. It is a nominated organization for inspection of various materials and equipment purchased by the Indian Railways.
5) Recently, RITES has been awarded two projects for new railway lines and two projects for railway electrification.
6) Given that the RITES is a preferred consultant of Indian Railways along with other government authorities with exposure in international operation and fair valuation of the issue, Angel Broking recommends subscribing to the issue. According to the report, “In terms of valuations, pre-issue PE works out to 12x of annualized FY18 EPS Rs 17 (at the upper end of the issue price band).”
7) The report states it is reasonably priced considering (a) 3.5x of order book with execution capability and experienced management, (b) maintaining the RoE level in the range of 17- 18 per cent, (c) diversified client base and (d) increasing opportunity of revenue from railways due to new investment in electrification and infrastructure.
8) The company plans to expand its international operations by expanding its business of rehabilitation of locomotives and wagons overseas and the exporting of railway locomotives, rolling stock, railway equipment and other spares. The smc report states that the company is also planning to expand its existing range of products for export to various international customers by developing different types of locomotives for export and leasing.
9) On valuation, the smc report states, “considering the P/E valuation on the upper price band of Rs 185 EPS and P/E of estimated annualised FY2018 are Rs 16.84 and 10.99 multiple respectively and at a lower price band of Rs. 180, P/E multiple is 10.69.
10) The smc report states, Looking at the P/B ratio on the upper price band of Rs 185 , book value and P/B of estimated annualised FY18 are Rs.115.21 and 1.60 multiple respectively and at a lower price band of Rs. 180 P/B multiple is 1.56. No change in pre and post issue EPS and Book Value as the company is not making the fresh issue of capital.