Yet another IPO of a Public Sector Company has come to the capital markets. The Government by way of disinvestment plans to raise capital for the Company. Looks like they are trying to reduce fiscal burden!
Let’s take a look at the essentials.

Offer Details:

Book Running Lead Managers:

  • Elara Capital
  • IDBI Capital
  • IDFC Bank
  • SBI Capital Markets

Registrar: Link Intime

Objective of the Issue:

  • To carry out the disinvestment of 252 Million Equity Shares held by the Selling Shareholders in the Company (i.e. The President of India acting on behalf of Ministry of Railways and Government of India) which is equivalent to 12% of the issued, subscribed and paid up Equity Share capital of theCompany as part of the Net Offer.


  • To achieve the benefits of listing the Equity Shares on the Stock Exchanges. It is expected that listing of the Equity Shares will enhance Company’s visibility and brand image.


India is the world’s third largest economy in terms of its PPP (purchasing power parity) and population of over 1.32 billion, has witnessed significant economic growth since the country was liberalized in early 1990s.

India’s Gross Domestic Product (GDP) increased with an accelerating speed with a remarkable figure of 7.1% in FY17. IMF and OECD believe, India will be the fastest growing major economy in the world over the next decade.

The key factors supporting India’s growth include favorable age demographics, income dynamics and growing urbanization. These factors in particular raise demand for infrastructural requirement in India.


Government of India in the past have invested huge sum for infrastructure development in the nation.

In particular, it has invested around 5% of its GDP (i.e. Rs. 98.7 trillion during the 10thfive year plan) and around 7% during the 11th five year plan (i.e. Rs. 23.4 trillion).

Even after such huge investments, there is a huge unmet demand for infrastructure in the nation.

Infrastructure sector in India consist of – electricity, airports, energy, shipping and ports, railways, roads and urban development. Given below are the details of each sector and future.


Indian Railways – the Indian Railways is one of the world’s largest rail networks with 66,687 route kms of route lengths. Indian Railways is a state-owned public utility of the Government of India under the Ministry of Railways.

In the FY16 and FY17 the GOI has made a capital investment of around Rs. 1,000 billion and Rs. 1,170 billion respectively in order to fulfill the unmet demand of the consumers. Further, the GOI is planning electrification of railways as a cost effective measure.


Indian Roads Infrastructure

India has one of the largest road networks in the world aggregating to about 5.5 million kms of roads at present. National Highways (NH) comprise only 1.9% of the total length of roads, but carries over 40% of the total traffic across the length and breadth of the country. India’s road network today transports around 65% of all goods in the country and around 80% of India’s total passenger traffic. The contribution of the road transport sector (as % of GDP) has increased from 3.9% to 4.8% in the corresponding period.

Indian Ports – In India, there are more than about 200 ports including 12 major ports, 6 on the Eastern coast and 6 on the Western coast. Out of non-major ports only one third are operational.

Real Estate and Construction Sector – The market size in India in FY17 was USD 136 billion. The same is expected to grow to USD 180 billion by FY20 and USD 853 billion by FY28. The clocking growth in the sector is attributable to increasing purchasing power with the masses and government initiatives.

Company Overview:

The Company is a wholly owned Government Company, a Miniratna (Category – I) Schedule ‘A’ Public Sector Enterprise. It is a leading player in the transport consultancy and engineering sector in India, the only company having diversified services and geographical reach in this field under one roof. The Company was set up in 1974 and has expanded itself in domestic as well as foreign operations. The Company has undertaken projects in over 55 countries.

The Company also provide consultancy services across other infrastructure and energy market sectors including urban transport,roads and highways, ports, inland waterways, airports, institutional buildings, ropeways, power procurement and renewable energy

The Company is debt free company. However, one of its subsidiary has borrowings amounting to Rs. 772.72 Million.

Key Strengths:

  • Comprehensive range of consultancy services and a diversified sector portfolio in the transport infrastructure space
  • Large order book with strong and diversified clientele base across sectors
  • Preferred consultancy organization of the Government of India including the Indian Railways
  • Technical expertise and business divisions with specialized domain knowledge
  • Experienced management personnel and technically qualified team


  • Leverage experience and continue to build core competencies in transport infrastructure sector
  • Strengthen Turnkey business – the same is also reflected in the order book status
  • Expand our international operations – the company is planning to expand its existing range of products exported.
  • Expand operations in the power procurement and renewable energy sector through subsidiary – Railway Energy Management Company Limited.

Risk Factors:

  • The Company is majorly dependent on Government and Ministry of Railways for its orders. Out of the total order book of Rs. 48,186.76 Million as on 31st March, 2018, 76.79% of orders attribute to Government and Ministry of Railways (MoR) order.
  • Further, it is also dependent on Ministry of Railways for technical staff and equipment. The locomotives, rolling stock, equipment and spares, exported or leased out are not manufactured by the company and there is dependence on MoR for the same.
  • The Company doesn’t have any direct peer competitor, however they have started to face stiff competition in India and abroad from private enterprises. Advance technology available with the competitors may make the company less competitive in the future. This means that the Company may lose business orders in future and may not be able to show similar growth prospects.
  • Also, large part of the company’s export business is dependent on bilateral agreements and line of credit extended by the GOI with other nations. If there are any policy changes by the GOI or the other nations, this may adversely affect company’s export business.
  • The Government has significant influence over the decisions and actions of the Company. This may restrict the decision making ability of the Company, which may not be favorable for the shareholders.

Joint Ventures and Subsidiaries:

The Company has three subsidiaries and has entered into 7 joint ventures. Upon reviewing the financial data we observe that the company has mainly incurred losses from these joint ventures. Further, the company is under the process of winding up its subsidiaries namely, RISL, RITES (AFRIKA) and RMAC (Saudi Arabia).

Financial Information:

The Company main product offerings are can be bifurcated in following main categories:

Focus areas: consultancy services and turnkey projects

The Company’s main revenue source is that of consultancy services followed by export of locomotives, rolling stocks, equipment and spares (refer pie chart below). The Company entered into a new business line of Power generation from FY16. The revenue from the said source is miniscule, however the company is positive and is expecting revenue growth from it.


The Company has a strong order book of Rs. 48,187 million as on 31st March, 2018 consisting of 53% from consultancy services, 29% from turnkey projects and remaining from other offerings. This clearly depicts that the company is strengthening itself in other areas.

Stable financials with strong operating profit margin (OPM)

The Company’s revenue growth in FY17 was 24.1% which is considerably higher than that of 7.7% in FY16. The CAGR of the company was 15.60%. The company is enjoying higher margins from consultancy business, which contributes more than half of its order book. As of FY18, company’s order book stood at Rs 48,187 million, 3.9 times order book to sales; thus providing strong revenue visibility.

In addition to the above, the Company has consistently paid dividends to its shareholders from FY13 till FY18. It has paid dividend at the rate of 77% and 73% of face value in FY16 and FY17 respectively.



The company is in niche space of transport consultancy, which is well poised to benefit from the large opportunities in the infrastructure space especially railways. The company has been virtually debt-free with the net worth of the company as of December 2018  close to Rs 22,240 Million, translating into a book value of Rs 111 per share as against Rs 13,800 Million in cash i.e. cash per share of Rs. 68.9.

It has a stable business model, strong order book, increasing revenue opportunities from Railways due to new investments in electrification and infrastructure. The Company has an asset light balance sheet with healthy return ratio RoE of 17-18% and  a good dividend payout policy.

The financials for the front, first nine-months ended December 2018, revenue and net profit stood at Rs 9,362 Million and Rs 2,430 Million, respectively. At the higher end of the issue price of Rs 185 per share, the stock is being offered at 10.42 times of the  annualised 9MFY18 earnings, ie.EPS of Rs 16.2 which is reasonably valued.

Looking at the volatility in the market, investors may see muted listing gains however with a long-term perspective, the stock can deliver healthy returns.

-Report by Ms.Khushbu Gajra under the guidance of Mr. Chirag Gothi