RailTel: Analysts expect shares to list at 16-18% premium over issue price

The IPO by RailTel Corporation had witnessed a robust response from market participants and was subscribed 42 times

Shares of RailTel Corporation of India were commanding a premium of Rs 15-17 per unit in the unlisted market ahead of their debut on exchanges on Friday, February 26, implying listing gains of 16-18 per cent over the issue price of Rs 94 per share.

But a correction in the secondary market has dented the listing pop by nearly 50 per cent for RailTel shares as they were trading at Rs 109-112 apiece in the unlisted market from Rs 122 earlier, said grey market watcher Manan Doshi, co-founder of Unlistedarena.com.

Keshav Lahoti, equity research analyst at Angel Broking too shares the view and sees a small premium listing for RailTel of around 15 per cent.

Doshi, however, added that the sentiments around the issue are strong and a solid listing for Nureca on Thursday along with overall bullishness in the market could drive the grey market premium for RailTel higher.

The initial public offer (IPO) that ran between February 16-18 had witnessed robust response from market participants and was subscribed 42 times. Most brokerages had a positive view on the company and ascribed a subscribe rating to the issue.

Should you sell on listing?

Analyst advised against booking profit and exiting the stock in case of a listing at a premium as they believe the company is a long-term bet with good business prospects.

"Investors should wait and hold the stock as it is a good story. RailTel has good prospects and it will get business from Indian railways and private players in the future. I am positive on the company and investors can hold shares for the long-term," said Lahoti.

His brokerage Angel Broking had recommended Subscribe to the issue as it believes the company is going to play a key role in the digital transformation of Indian Railways and said the company's margins and return ratios are better than other telecom players with a strong financial position.

Astha Jain of Hem Securities recommends booking partial profit in case of listing premium of 12 per cent or above but holding the remaining stock for the long-term on the back of positive industry dynamics and the edge RailTel holds over peers.

At the higher price band of Rs 94 per share, RailTel’s share is valued at an FY20 P/E multiple of 15.8x (to its restated EPS of Rs 5.9). Other railway infrastructure companies (IRCON, RITES and RVNL) are trading at an average P/E of 9.5x. "However, considering the futuristic service and growth plans of the IR and RailTel’s ability to monetize its existing assets through subscription plans and co-sharing with private operators, we feel that fundamentals are positive for the company," said Choice Broking in an IPO note.

Some analysts in their IPO coverage reported had flagged risks such as dependence on the government projects and single-digit PAT CAGR of 7.5 per cent and 2.5 per cent, respectively from FY18 to FY20.