RITES IPO opens for subscription on June 20. Should you invest?

Established in 1974, RITES has undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East

The initial public offer (IPO) of RITES – a government-owned railway consultancy firm and a Miniratna (Category – I) Schedule ‘A’ Public Sector Enterprise – opens for subscription on June 20. The price band for the issue has been fixed at Rs 180-185 a share (discount of Rs 6 per share for retail shareholders and employees), and the government aims to raise up to Rs 460 crore via this sale. The issue closes on June 22.

Established in 1974, RITES has undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East regions. It is the only export arm of Indian Railways for providing rolling stock overseas (otheRITES IPO, IPO, Angel Broking, Centrum Wealth, Arihant Capital, Indian Railways, Infrastructure, PSU IPO, Markets, Market newsr than Thailand, Malaysia and Indonesia).

Going ahead, the company plans to scale up operations in the transport infrastructure space (expansion into turnkey railway, airport, metro projects etc.) along with strengthening its international operations, reports suggest.

So, should you subscribe to this IPO? Here's what leading brokerages across the country suggest.

ANGEL BROKING

In terms of valuation, pre-issue price-to-earnings (PE) works out to 12x of annualised FY18 earnings per share (EPS) of Rs 17 (at the upper end of the issue price band), which is reasonably priced considering: (a) 3.5x of order book with execution capability and experienced management, (b) maintaining the RoE level in the range of 17- 18%, (c) diversified client base and (d) increasing opportunity of revenue from Railways due to new investment in electrification and infrastructure.

Also Read: Investors will know we are here for 44 yrs, like an Indian MNC: RITES CMD

Given that the RITES is a preferred consultant of Indian Railways along with other government authorities with exposure in international operation and fair valuation of issue, we recommend subscribing to issue.

CENTRUM WEALTH

Over FY13-17, RITES registered revenue and PAT CAGR of 9% and 11%, respectively. Average earnings before interest, taxation, depreciation and amortisation (EBITDA) margins and return on equity (RoE) over the period stood at 28% and 18%, respectively. RITES is a virtually debt free company.

At the higher end of the price band of ₹185, the issue is priced at P/E of 10.5x (post dilution) on FY17 and 11.4x on 9MFY18 (annualized) basis, which we believe is attractive. The company has no listed peer. Given RITES competence along with good track record, healthy financials and attractive valuations, we suggest that investors Subscribe to the issue.