Article

Rail Vikas Nigam Ltd IPO Note – SUBSCRIBE

07 Aug 2019 Nikita Bhoota

Issue Opens: March 29, 2019
Issue Closes: April 03, 2019
Face Value: Rs10
Price Band:  Rs17-19
Issue Size: ~Rs477cr
Public Issue: ~25.35cr shares
Bid Lot: 780 Equity shares     
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

100.0

87.8

Public

0.0

12.2

Source: RHP

Company Background

Rail Vikas Nigam Ltd. (RVNL), a Category I Miniratna company, is a project executing agency working for/on behalf of Ministry of Railways (MoR). It executes railway projects like new lines, doubling, gauge conversion, railway electrification and metropolitan transport projects including metros, workshops and other allied projects. MoR has transferred 179 projects to RVNL since its inception in 2003, of which 174 projects are sanctioned for execution. Further, 72 of these projects have been completed totaling to Rs20,567cr and the balance are ongoing. Its order book as on December 2018 stands at Rs77,504cr with 102 ongoing projects. RVNL is allowed a consolidated management fee on the annual expenditure incurred for the execution of projects (9.25% for metro projects and 8.5% for other plan heads).

Offer Details

The issue consists of an offer for sale (OFS) of ~25.35cr shares by the Government of India (GOI). There is a discount of Rs0.5 per share for eligible employees (reservation of 6.57lk shares) and retail investors.

Financials

Consolidated Rscr.

FY15

FY16

FY17

FY18

^H1FY19

Revenue from operations

3,147

4,540

5,915

7,597

3,623

EBITDA Margin %

4.6

4.8

4.8

5.1

4.5

PAT

337

429

443

570

254

EPS

1.6

2.1

2.1

2.7

1.2

P/E (x)

11.8

9.2

8.9

7.0

--

P/BV (x)

1.3

1.2

1.1

1.0

--

RONW (%)

22.0

13.2

12.7

15.2

--

Source: RHP, 5paisa Research; *EPS & Ratios at higher price band; ^non-annualized H1FY19 numbers.

Key Points

  1. RVNL has recently been assigned the hill projects in the difficult terrains of the Himalayas for the construction of the new lines between Rishikesh-Karnprayag in Uttrakhand and Bhanupalli-Bilaspur- Beri in Himachal Pradesh. The new line till Beri is likely to be extended upto Ladakh on strategic consideration, which may be considered for transfer to RVNL for execution on concurrent basis. These two current projects account for ~28% of its order book. Timely execution of such large challenging projects will build up RVNL’s credentials and likely make it a candidate to secure such orders in the future if the GoI continues to invest in improving connectivity in such geographies
  2. RVNL has been authorized by MoR to sanction detailed estimates within prescribed limits and award contracts of any value to its contractors for implementation of projects. MoR has also delegated powers to RVNL for sanctioning detailed/revised estimates for the projects entrusted to RVNL up to 100% cost on account of price escalation and up to 20% cost on account of reasons other than price escalation on the original sanctioned cost of the projects (inclusive of maximum limit of 5% on account of material modification costing up to `1.5cr in each case). Further, the MoU ensures there is minimal delay on account of funding and improves its delivery timelines. We believe that RVNL has favorable positioning against its competitors as long as such sanctioning powers continue to be entrusted upon it. This is because RVNL will be able to expedite its delivery timelines and reduce project delays resulting in controlling cost and time overruns.
  3. As per the RHP, the GoI has stepped up investments in the railways over the past three years. The total investments on Network Decongestion and Expansion alone are projected to be ~`3.9 lakh cr of the total investments of ~`8.6 lakh cr over FY16-20E. We believe that there is still potential to gain more orders for new-lines, doubling and electrification and add to its already robust order book position of `77,504cr as on December 2018. This ensures revenue visibility of approximately nine years based on FY19E sales. The MoR has been assigning the projects to RVNL in the past on nomination basis and it generally garners ~30%/~20% share of the doubling/electrification work done by Indian Railways. The company may continue to reap the rewards of such practices if these continue in the future.

Key Risk

As on December 2018, the MoR accounted for ~96% of its total order book. It is also completely dependent on MoR and state governments for its project financing requirements. Delay in fund allocation and loss of business from MoR can impact the revenues and cash flows in the future. Other risks include delay in land acquisition by MoR and delay in securing rails and sleepers for the projects.

Conclusion

At the upper price band, the company is seeking P/E multiple of 7.0x/6.8x its FY18/FY19E EPS, which we believe is attractive. Considering the strong near term revenue visibility, we recommend Subscribe to the issue from a longer term perspective.

Research Disclaimer

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Rail Vikas Nigam Ltd IPO Note – SUBSCRIBE

07 Aug 2019 Nikita Bhoota

Issue Opens: March 29, 2019
Issue Closes: April 03, 2019
Face Value: Rs10
Price Band:  Rs17-19
Issue Size: ~Rs477cr
Public Issue: ~25.35cr shares
Bid Lot: 780 Equity shares     
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

100.0

87.8

Public

0.0

12.2

Source: RHP

Company Background

Rail Vikas Nigam Ltd. (RVNL), a Category I Miniratna company, is a project executing agency working for/on behalf of Ministry of Railways (MoR). It executes railway projects like new lines, doubling, gauge conversion, railway electrification and metropolitan transport projects including metros, workshops and other allied projects. MoR has transferred 179 projects to RVNL since its inception in 2003, of which 174 projects are sanctioned for execution. Further, 72 of these projects have been completed totaling to Rs20,567cr and the balance are ongoing. Its order book as on December 2018 stands at Rs77,504cr with 102 ongoing projects. RVNL is allowed a consolidated management fee on the annual expenditure incurred for the execution of projects (9.25% for metro projects and 8.5% for other plan heads).

Offer Details

The issue consists of an offer for sale (OFS) of ~25.35cr shares by the Government of India (GOI). There is a discount of Rs0.5 per share for eligible employees (reservation of 6.57lk shares) and retail investors.

Financials

Consolidated Rscr.

FY15

FY16

FY17

FY18

^H1FY19

Revenue from operations

3,147

4,540

5,915

7,597

3,623

EBITDA Margin %

4.6

4.8

4.8

5.1

4.5

PAT

337

429

443

570

254

EPS

1.6

2.1

2.1

2.7

1.2

P/E (x)

11.8

9.2

8.9

7.0

--

P/BV (x)

1.3

1.2

1.1

1.0

--

RONW (%)

22.0

13.2

12.7

15.2

--

Source: RHP, 5paisa Research; *EPS & Ratios at higher price band; ^non-annualized H1FY19 numbers.

Key Points

  1. RVNL has recently been assigned the hill projects in the difficult terrains of the Himalayas for the construction of the new lines between Rishikesh-Karnprayag in Uttrakhand and Bhanupalli-Bilaspur- Beri in Himachal Pradesh. The new line till Beri is likely to be extended upto Ladakh on strategic consideration, which may be considered for transfer to RVNL for execution on concurrent basis. These two current projects account for ~28% of its order book. Timely execution of such large challenging projects will build up RVNL’s credentials and likely make it a candidate to secure such orders in the future if the GoI continues to invest in improving connectivity in such geographies
  2. RVNL has been authorized by MoR to sanction detailed estimates within prescribed limits and award contracts of any value to its contractors for implementation of projects. MoR has also delegated powers to RVNL for sanctioning detailed/revised estimates for the projects entrusted to RVNL up to 100% cost on account of price escalation and up to 20% cost on account of reasons other than price escalation on the original sanctioned cost of the projects (inclusive of maximum limit of 5% on account of material modification costing up to `1.5cr in each case). Further, the MoU ensures there is minimal delay on account of funding and improves its delivery timelines. We believe that RVNL has favorable positioning against its competitors as long as such sanctioning powers continue to be entrusted upon it. This is because RVNL will be able to expedite its delivery timelines and reduce project delays resulting in controlling cost and time overruns.
  3. As per the RHP, the GoI has stepped up investments in the railways over the past three years. The total investments on Network Decongestion and Expansion alone are projected to be ~`3.9 lakh cr of the total investments of ~`8.6 lakh cr over FY16-20E. We believe that there is still potential to gain more orders for new-lines, doubling and electrification and add to its already robust order book position of `77,504cr as on December 2018. This ensures revenue visibility of approximately nine years based on FY19E sales. The MoR has been assigning the projects to RVNL in the past on nomination basis and it generally garners ~30%/~20% share of the doubling/electrification work done by Indian Railways. The company may continue to reap the rewards of such practices if these continue in the future.

Key Risk

As on December 2018, the MoR accounted for ~96% of its total order book. It is also completely dependent on MoR and state governments for its project financing requirements. Delay in fund allocation and loss of business from MoR can impact the revenues and cash flows in the future. Other risks include delay in land acquisition by MoR and delay in securing rails and sleepers for the projects.

Conclusion

At the upper price band, the company is seeking P/E multiple of 7.0x/6.8x its FY18/FY19E EPS, which we believe is attractive. Considering the strong near term revenue visibility, we recommend Subscribe to the issue from a longer term perspective.

Research Disclaimer