RailTel Corp with strong project background promises growth

RAILTEL Corporation of India Limited (RailTel) is tapping the capital markets with its offer for sale of 8,71,53,369 equity shares in a price band of Rs 93-94. The issue opened on February 16, Tuesday and closes on February 18, Thursday.

The company is into three broad verticals namely: national long distance internet service provider, telecom infrastructure services and managed data centre and hosting. It also has a projects division which does activities in all these three areas plus more. The company had revenues of Rs 1,128 crore for March 20 and Rs 537 crore for the six months ended September 20. Its profits before tax were Rs 184 crore and 67 crore respectively.

The company reported an EPS of Rs 4.40 for the year ended March 2020 and the PE multiple is 21.14 to 21.36 times the earnings. The network for ISP has been created and this should see the company increasing its revenues and its profit in this segment going forward. Secondly, being the telecom arm of the railways, it is executing a number of projects concerning railway safety and accident-free rail travel which on completion would increase profitability of the company significantly.

It has a right of way along the railway tracks and has laid fibre optic cable across 59,098 km against a total of 67,415 km. RailTel has connected railway stations on this route and has internet services and offers the same to passengers, the railways and companies who want connectivity.

For telecom companies it has erected telecom towers alongside the railway tracks to host the repeater stations, so that their subscribers have a better experience. Further for last mile connectivity it uses the services of over 5,000 cable operators in towns and cities and offer ISP services. It also has dark fibre available which would increase the revenue potential going forward. These activities earn regular revenue for the company and it is sweating the assets which have been created. There is virtually zero raw materials incrementally and insignificant maintenance as well.

Projects is a key area for RailTel. Under this segment it executes projects for the ministry of railways on a nomination basis and gets fixed margins. It also does so for other public sector enterprises and international projects involving railways. Recently it was awarded a pilot project for the modern train control system under which a key area would be to ensure that trains are run accident free. This would be a prestigious project for RailTel and post the pilot would be extended to cover the entire network.

RailTel is part of the Bharat Net project and is creating the network which would connect India with gram panchayats. This covers the entire country and RailTel is doing part of this nationwide project. RailTel has already connected 56,611-gram panchayats and wi-fi is operational in 24,804-gram panchayats.

RailTel is looking to expand its activities to include high speed mobile communication corridors to cater to voice and data needs of ground to train communication and also train to train communication. This would be a big opportunity as there would be video on demand services offered by RailTel.

Being a railway company, RailTel has a distinct advantage over other service providers. It is this opportunity and the unique network along the railway tracks which ensures steady and profitable revenues for the company. An attractive offering with ample scope for appreciation.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)