As the issue is 100% OFS, the firm will not receive any funds raised from the issue.
Rail Vikas Nigam (RVNL), a wholly-owned government company, was incorporated by the railway ministry as a project executing agency. RVNL raises funds by forming project-specific special purpose vehicles (SPVs) to attract private participation. RVNL is in the business of executing all kinds of railway projects. Since RVNL’s inception in 2003, the railway ministry has transferred 179 projects to the firm; of which 174 are sanctioned for execution. Of these, 72 projects have been fully completed amounting to `20,567 crore while the rest are ongoing. Going ahead, RVNL is looking at: a) capitalising on the opportunities provided by ramping up of rail infrastructure; b) leveraging expertise to secure orders from other ministries/PSUs; and c)
high-value orders (hilly terrains).
At the higher end of the price band of `19, the issue is priced at P/E of 7.0x (after dilution) on FY18 and 7.8x on H1FY19 (annualised) basis, which we believe is reasonable compared with closely listed peer Ircon International that trades at P/E of 9.1x on FY18 basis. As of December 31, 2018, RVNL’s order book stands at `77,504 crore (10.2x FY18 revenue), which includes 102 ongoing projects. Currently, the ministry is a major client for RVNL (96.1% of December 2018 order book). Over FY15P-18, RVNL has reported decent growth with revenue and PAT CAGR of 34.2% and 19.2%, respectively.
RVNL’s entire borrowing on books (from Indian Railway Finance Corporation) is a pass-through entry, where the ministry services the entire debt. Given the government focus on rail infrastructure spends (Metro, port-rail connectivity, electrification etc), healthy order book, asset light model and reasonable valuation, we suggest that investors can subscribe to the issue from a long-term perspective.
The IPO consists entirely of an offer for sale (OFS) of 25.35 crore shares (12.2% of post-dilution equity) by the government of India. Of the total issue, 0.3% shares, that is, 6,57,280 shares shall be reserved for the employees of RVNL. The retail investors and employees will be offered a discount of `0.5 per share. As the issue is 100% OFS, the firm will not receive any funds raised from the issue.