RITES Limited IPO Review

RITES Limited

State-owned engineering consultancy RITES Ltd IPO intends to raise ₹466.2 crore through an OFS (Offer for sale). RITES Limited IPO opens on June 20 and closes on 22 June. The company has set a price band of ₹180-185 per share. The IPO is a pure offer for sale by the government, which is selling a 12% stake in the company.

RITES Limited IPO: Details
Issue Period Wed June 20 – Fri, June 22, 2018
Issue Size  OFS of 25,200,000 Shares
Issue Size (Rs. Cr) Rs. ~460 Cr
Price Band Rs.180 – 185
Retail & Employee Discount Rs.6/- per Share
Bid Lot 80 Equity Shares & multiples
Issue Structure :  
QIB 50% of the Net offer 
NIB 15% of the Net offer
Retail 35% of the offer-  8,400,000 Shares-150.36 Cr
Lead Managers Elara Capital, IDBI Capital, IDFC Bank, SBI Capital Market 
Registrar Link Intime 

About RITES Limited
  • RITES Limited is a wholly owned Government Company, under ministry of Railways. RITES was incorporated in 1973 and is a  Miniratna (Category – I) Schedule ‘A’ Public Sector Enterprise. 
  • Based on Public Enterprise Survey 2015-2016, RITES is ranked no. 1 based on net profit and dividend declared in Industrial Development and Technical Consultancy Services sector.
  • RITES has  an experience spanning 43 years and has undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East regions.
  • RITES is the only export arm of Indian Railways for providing rolling stock overseas (other than Thailand, Malaysia and Indonesia)
  • RITES has been appointed by the Government of Mauritius as a consultant for implementing light rail project in Mauritius and also to prepare a detailed project report on Trident port project.
  • RITES Limited is also working on projects in Nepal, Africa, Sri Lanka ,Guyana (South America).
  • As of March 31, 2018, RITES has a total of 3,349 employees.
RITES Limited: Financials
Figs in Rs. Crore
Particulars 9m Fy18 Fy17 Fy16 FY15 FY14
Revenue from Operations Gr 936.15 1,353.36 1,090.53 1,012.69 1,096.49
Revenue Growth (%) 24.10% 7.69% -7.64%  
Profit Before Tax 289.3 507.14 450.62 468.24 391.61
Net Profit 252.54 361.66 282.51 312.21 263.29
Net Profit Margin 26.98% 26.72% 25.91% 30.83% 30.83%
Equity Share Capital 200 200 100 100  
Reserves 1,971.99 1,841.10 1,763.52 1,576.16  
Net worth 2,171.99 2,041.10 1,863.52 1,676.16  
EPS (Rs.) 12.15 17.64 14.05 15.61
RONW(%) 11.19% 17.28% 15.08% 18.62%  
Net Asset Value (Rs.) 108.6 102.06 186.35 167.62  
Face Value 10  
IPO Price 185
PE (Annualized FY18) 11.42
PE – (FY17) 10.49
CAGR Sales 3 Yrs 7.27%
CAGR Net Profit 3 Yrs 11.16%
Market Cap 3700.00
Market cap / Sales 2.73
RITES Limited IPO: Pros
  • RITES is a leading player in the Transport Consultancy and Engineering sector in India.
  • RITES Limited has diversified services and geographical reach in this field under one roof.
  • RITES Limited current order book is about Rs. 4800 crore with  53% of orders for consultancy services, 29% for Turnkey projects, 15% for exports and rest for leasing and power generation.
  • Out of these projects, at the end of FY18, RITES Limited 76.79% of the total orders in hand amounting to Rs. 3700 crore are on nomination basis from MoR, central/state governments and central/state PSUs.
  • This order book includes 353 ongoing projects of value over Rs.1 crore each indicating considerable spread of orders.
  • Over FY16-18, RITES Limited order book has shown a healthy uptick growing by 35.8% CAGR to Rs. 4800 crore in FY18.
  • RITES is a Debt Free company for more than a decade.
  • RITES has a significant presence as a transport infrastructure consultancy organization in the railway sector. Besides this it also provides consultancy services across other infrastructure and energy market sectors like urban transport, roads and highways, ports, inland waterways, airports, institutional buildings, ropeways, power procurement and renewable energy.
  • Substantial revenues  accrues from sale of services and a diversified The multidisciplinary engineering and consultancy organization provides a diversified and comprehensive array of services from conceptualizing to commissioning all the facets of transport infrastructure and related technologies under one roof. 
RITES Limited IPO: Risks
  • RITES Limited is dependent on MoR (Ministry of Railways) for a significant portion of its business
  • Market response to Government owned companies in past has been lackluster.
  • Risk from  Change in government policies and lower allocation for Railways
  • Higher employee cost and less flexibility to attract talent due to Govt control
  • The Ministry of Railway (MoR) has distributed the jurisdiction of work between RITES and IRCON International Ltd. (a peer group PSU under the MoR) in accordance with their respective core competencies. The company is permitted to participate in EPC or BOT contracts, other than railway contracts, in the event there is no conflict of interest with any other public sector undertaking under the MoR.
RITES Limited IPO: Assessment
  • RITES was incorporated by the Ministry of Railways, Government of India  and has the benefit of being associated with the Indian Railways, which is the fourth longest rail network in the world
  • RITES Ltd. is a debt free  company and follows an asset light model.
  • Its growth in revenue and profitability has been consistent over the last few  years. RITES Limited has posted growth of CARG 15.62% in top line and CAGR 7.73% in PAT for last three fiscals (FY15 – FY17) on a consolidated basis.
  • The company’s order book is strong giving good revenue visibility.  Further these constitute 353 ongoing projects of value over Rs.1 crore each and are geographically distributed. Further Consultancy and leasing services which have EBITDA Margins of 28% plus form 53% of its order book.
  • RITES Limited has witnessed healthy growth in Order Book in last three Fiscals.
  • At post issue P/E of around 10.5, the company’s valuations are reasonable.  With a lower retail  issue size of Rs. 150 crore, the IPO should be subscribed unlike some past issues by Govt. owned enterprises.  
  • Despite a lackluster performance by recent Govt controlled IPOs like GIC Re, HAL, BDL etc. whose IPO are ruling below IPO price,my stance on RITES Limited IPO is Positive. I intend to apply in the IPO, but will also keep a watch on response to the IPO on first 2 days. 

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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