Rail Vikas Nigam IPO – Mini Ratna Company – Should you Invest?

Rail Vikas Nigam IPO – Mini Ratna Company – Should you InvestRail Vikas Nigam IPO Review


Delhi based “Mini Ratna” company, Rail Vikas Nigam IPO would open for subscription on 29th March, 2019. Rail Vikas Nigam (Govt of India enterprise) is a consulting services company under the Ministry of Railways. Company revenues increased from Rs 3,269 Crores to Rs 7,822 Crores in the last 4 years. What are the positive factors in Rail Vikas Nigam IPO? What are the hidden factors in Rail Vikas Nigam IPO? Should you invest in Rail Vikas Nigam IPO? Let me do 360 degree review of the Rail Vikas Nigam IPO.

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About Rail Vikas Nigam Limited


They are in the business of executing all types of railway projects including new lines, doubling, gauge conversion, railway electrification, metro projects, workshops, major bridges, construction of cable stayed bridges, institutional buildings, etc. They are a wholly owned government company, a Miniratna, Central Public Sector Enterprise, incorporated by the Ministry of Railways (MoR).

Their activities under the various plan heads can be classified as under:

1) New lines: This includes augmenting the rail network by laying new lines. The objective of laying new lines includes achieving seamless multi-modal transportation network across the country and connecting remote areas.

2) Doubling: Doubling involves the provision of additional lines by way of doubling the existing routes to enable the Indian Railways to ease out traffic constraints of single line or construction of 3rd/4th line to  increase the charted capacity. company is a significant contributor to the doubling projects and has been contributing to approximately one third of the total doubling being completed / commissioned on Indian Railways for the last three years.

3) Gauge conversion: This includes conversion of meter gauge lines to broad gauge railway lines.

4) Railway electrification: This includes electrification of current un-electrified rail network and electrification on the new rail network.

5) Metropolitan transport projects: This includes setting up of metro lines and suburban network in metropolitan cities.

6) Workshops: This includes manufacturing facilities, and workshops for repairing and manufacturing rolling stock.

7) Others: This includes but is not limited to construction of traffic facilities, railway safety works (building of sub-ways in lieu of crossings), other electrification works, training works, surveys, construction of bridges including rail over bridges, etc.

Rail Vikas Nigam IPO Issue details


IPO opening date: 29-Mar-2019

IPO closure date: 3-Apr-2019

Face Value: Rs 10 per share

Issue price band: Rs 17 to Rs 19 per share.

Issue size: 431 Crores

IPO Lot size: 780 shares and 780 shares, there-off

Minimum investment: Rs 14,280 on higher price band

Leading Managers: Yes Securities, Elara Capital and IDBI Capital

Listing: BSE / NSE

Download Rail Vikas Nigam IPO DRHP Prospectus at this link.

Objects of the Rail Vikas Nigam IPO issue


The Objects of the issue are:

(i) To carry out the disinvestment of 25.28 Crore Equity Shares held by the Selling Shareholder in the Company, equivalent to 12.12% of Company’s paid up Equity Share capital of the Company as part of the Net Offer.

(ii) To achieve the benefits of listing the Equity Shares on the Stock Exchanges. Company will not receive any proceeds from the Offer and all  such proceeds will go to the Selling Shareholder.

Company Promoters


The Promoter of the company is the President of India, acting through the Ministry of Railways, Govt of India.

Company Financials (Reinstated-Consolidated)


1) The company generated revenue of Rs 3,269 Crores for the year ended Mar-15 and Rs 7,822 Crores for the year ended Mar-18. Its revenues are Rs 3,770 Crores for 6 months ended Sep-2018.

2) The company posted a profit of Rs 336.8 Crores for the year ended Mar-15 and profit of Rs 569.9 Crores for the year ended Mar-18. It posted a profit of Rs 256.3 Crores for 6 months ended Sep-2018.

3) Its EPS for FY2018 is Rs 2.73 and 3 years average EPS is Rs 2.42. Its 6 months ended Sep-2018 EPS is Rs 1.22.

Rail Vikas Nigam Limited IPO Financials - FY2014-2019-Consolidated

Company Financials (Reinstated-Unconsolidated)


1) The company generated revenue of Rs 3,269 Crores for the year ended Mar-15 and Rs 7,781 Crores for the year ended Mar-18. Its revenues are Rs 3,770 Crores for 6 months ended Sep-2018.

2) The company posted a profit of Rs 208.6 Crores for the year ended Mar-15 and profit of Rs 470 Crores for the year ended Mar-18. It posted a profit of Rs 229.2 Crores for 6 months ended Sep-2018.

3) Its EPS for FY2018 is Rs 2.25 and 3 years average EPS is Rs 1.99. Its 6 months ended Sep-2018 EPS is Rs 1.1.

Rail Vikas Nigam Limited IPO Financials - FY2014-2019-Unconsolidated

What are the key strengths of Rail Vikas Nigam Limited?


Here are the key strengths of the company.

1) Expertise in undertaking all stages of project development and execution from conceptualization to commissioning

2) Established financial track record.

3) Undertaken diverse categories of projects with an asset light model.

4) Empowerment by MoR for sanctioning project estimates and award of contracts.

5) Standardization of operating procedures resulting in faster decision making.

6) Experienced Board and Key Managerial Personnel and skillfully trained workforce.

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What are the Strategies of Rail Vikas Nigam Ltd?


Here are the key strategies of the company.

1) To leverage their position as an executing agency in MoR’s investment plan for ramping of rail infrastructure

2) Securing of rail infrastructure projects from other ministries/ PSUs.

3) Focus on high value projects.

4) Implementation of railway workshops and factory projects.

What is the Grey Market Price (GMP) of Rail Vikas Nigam IPO?


There is no Rail Vikas Nigam IPO GMP trading happening in the market.

Reasons to invest in Rail Vikas Nigam IPO


1) Leading PSU consultancy Mini Ratna company working on Ministry of Railways Projects.

2) The company has shown good revenue growth in the last 4.5 years.

3) The company is earning consistent profits in the last 4.5 years.

4) Retail investors would get Rs 0.5 discount per share.  

Risk Factors / Reasons not to invest in Rail Vikas Nigam Ltd IPO


1) They majorly depend on the MoR for sourcing of their projects. Recently, there have been reconsiderations by the MoR regarding the modalities of their project assignments. There can be no assurance that future projects will be granted to them, which may result in an adverse effect on their business growth, financial condition and results of operations.

2) They completely depend on the project sponsoring authorities like MoR and state governments, etc. for financing of their projects. There can be no assurance that in future adequate financing will be granted to them, which may result in an adverse effect on their business growth, financial condition and results of operations.

3) They may not continue to have power to sanction detailed/revised estimates of the works assigned to them by the MoR which may adversely affect their business growth, financial condition and results of operations.

4) They largely depend on MoR for funds and manpower supply which may lead to a delay in execution of projects and limit the number of projects undertaken by them.

5) They depend on MoR for allotment of rails and sleepers for laying of track for new line, gauge conversion and doubling projects. Any delay from the MoR for allotment of the required rails and sleepers may delay their projects and may adversely affect their business, financial condition and results of operations.

6) Two of their projects viz. the hill railway projects of Rishikesh Karnprayag new line project and Bhanupalli- Bilaspur Beri new line project constitute a substantial portion of their order book. Any delay of these projects or delay in timely and adequate financing of these projects by MoR, may adversely affect their business, financial condition and results of operations.

7) Their ftheir metro projects currently ongoing in Kolkata have been facing delays. Any further delay/review of these projects may adversely affect their business, revenues and results of operations

8) Their growth rate, the number of projects they have been assigned in the past by MoR and their current order book may not be indicative of their future growth rate or the number of orders they will receive in the future.

9) Objection from Government of Odisha to their involvement in the project execution for their Group Companies in the State may adversely impact their business and financial condition.

10) There are outstanding legal and tax proceedings involving company and their Group Company(ies) and any adverse decision in such proceedings may expose us, their Directors and their Group Company to liabilities or penalties and may adversely affect their business, financial condition, results of operation and cash flows.

11) Company being a CPSE is currently not in compliance with certain provisions of the SEBI Listing Regulations and Companies Act, as may be applicable, in relation to the terms of reference of the Audit Committee and the Nomination and Remuneration Committee.

12) Some of the group companies have incurred losses in recent periods.

13) For complete internal and external risk factors, you can refer the DRP of the company.

Rail Vikas Nigam Limited IPO Schedule


29th March, 2019 – Offer Opens

3rd April, 2019 – Offer Closes

8th April, 2019 – Finalization of Basis of Allotment

9th April, 2019 – Unblocking of ASBA / Initiation of Refunds

9th April, 2019 – Credit of shares to Demat Accounts

11th April, 2019 – Listing on NSE & BSE

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Should you invest in a Rail Vikas Nigam Ltd IPO?


If we consider consolidated EPS of Rs 2.73 for FY2018 and a higher price band of Rs 19, the P/E works out to be 6.9x. Similarly, if we take consolidated EPS of 3 years average of Rs 2.42, P/E works out to be 7.8x. Means company is asking highest price band of Rs 19 in the P/E of 6.9x to 7.8x. Its only comparable competitor is Ircon International which is trading at P/E of 9.5x, hence Rail Vikas Nigam IPO Price of Rs 19 is reasonably priced.

Company revenues have shown good improvement in the last 4 years. It is earning consistent margins. Its issue price is also reasonably priced. Railway segment has good potential which can be en-cashed by companies like Rail Vikas Nigam. Long term investors who are willing to create good wealth can invest in this IPO for 3-5 years time frame. Owning to the elections ahead in India, stock markets are volatile, hence one may or may not get listing gains..

Disclaimer: I have an interest in investing in this IPO and above analysis is based on my personal views. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

Rail Vikas Nigam IPO Review

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