Rail Vikas Nigam Limited IPO Details, Analysis, Subscription & Discussion

RVNL-ipo-Logo

Rail Vikas Nigam Limited IPO Issue Details:

IPO date:                  29 March – 03 April 2019
Issue Size:                481 Cr
Offer Price:              Rs 17 – Rs 19 Per Equity Share
Market Lot:              780 Shares & multiples
Exchange Listing:   BSE, NSE

IPO Timelines (tentative dates):

Allotment & refund:    09 April
Credit to Demat:           09 April
Listing on Exchange:   11 April

Company Promoters: The President of India acting through the Ministry of Railway (MoR)

Objective of the Issue: To carry out the disinvestment of selling 12.12% of the Company’s paid up Equity Share capital

IPO Registrar: Alankit Assignments limited

Company Overview

Incorporated in 2003, Rail Vikas Nigam Limited (RVNL) is a government owned Mini-Ratna company under the ministry of Railway (MoR). RVNL is in the business of executing all types of railway infrastructure projects including new lines, doubling, railway electrification, metro projects, major bridges etc.

MoR provides funds through various sources including budgetary support, its own reserves/ surpluses, multilateral agencies, loans from Financial institutions etc. RVNL Order Book comprises 77k Crore as of December 31, 2018.

Client Base: Major client is the Indian Railways (96% of order book)

The company website: https://www.rvnl.org/

Rail Vikas Nigam Ltd IPO Analysis

Financial Performance:

rvnl-ipo-financials

Company category:  Slow grower/Cyclical

Company Strength:

  • Currently India’s expenditure on Railway infrastructure is increased in substantial amount and expected to continue further as per current plan.
  • Strong order book of 77k Crore as of 31st Dec 2018 out of which 96% from Ministry of Railways.
  • RVNL contributed to more than 33% of the doubling projects and more than 21% of electrification projects of the total reported by Indian Railways for the last five years (FY13 to FY17)
  • Consistent steady financial track record
  • RVNL works on an asset light model wherein in contracts, we require the contractor to provide all the machinery, plants and stores for execution of works
  • RVNL have been authorised by MoR to sanction detailed estimates within prescribed limits and award contracts of any value to contractors for implementation of projects. This provides an advantage over competitors in railway sector.

Company Risks:

  • Substantial amount of profit earned from non-operational or other income source.
  • Low effective profit margin 5 to 8%. 
  • In the event of competitive bidding by MoR, it may impact company’s growth
  • As the major source of funding is MoR, any delay of funding or reimbursement by MoR or state govt may impact company’s financial and operational growth. There had been similar incidents in recent past
  •  Too much dependence on single client MoR. Govt. policy and interference may affect the company
  • The company’s competitor is Indian Railways itself. New projects are first offered to state/zonal railways. If the project is above their scope then it is offered among RVNL, IRCON, RITES.

Peer Comparison:

At the upper price band (Rs 19) the price to earning ratio (P/E) of RVNL is 6.9 compared to price to earning (P/E) of IRCON which is around 9 looks okay as per valuation perspective.

Analysis Conclusion

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  • Strong order book, steady financials, authorised by MoR are the positives while high other income proportion, low profit margin, delay of funding or reimbursement can be negatives.
  • Good market sentiment with respect to coming elections,  reasonable valuation with retail discount are strong factors while PSU (Public Sector undertaking – Govt) image and no response from QIB & NII in first 2 days are worrisome. 
  • My say is surplus cash investors may apply for thin profit gain on listing day (as gmp is around 1 rs on 1st apr) with minimum application as there are metropolise healthcare and may be others will be in pipeline soon. 

Rail Vikas Nigam Ltd IPO subscription status

rvnl-ipo-subscription-figures

Abbreviations

EPS – Earning per share
P/E – Price to Earning
RoE – Return on Equity
QIB – Qualified Institutional Buyer
NII – Non-Institutional Investors
RII – Retail Individual Investor
MoR – Ministry of Railways
RVNL – Rail Vikas Nigam Limited

Disclaimer & Conflict of Interest:

The above analysis is based on my understanding of the company and RHP. You should research more and consult your financial adviser before taking any decision. I may apply to the IPO by seeing response from QIB & NII along with considering above analysis factors.

 

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