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Review By Rudra Shares & Stock Brokers Ltd on June 20, 2018

RITES provide consultancy & engineering services to Indian Railways. Apart from catering to the railways, the company also provides multi sectoral consultancy services to other transport modes like roads & highways, posts & inland waterways, airport and urban transport like metros which de-risks in the event of slowdown in any one sector.

It has the ability to collaborate and work jointly through alliances, joint ventures, subsidiaries and consortium arrangements. This enables them to enhance the quality of services and to develop technical expertise and domain knowledge

Taking into consideration, the company's Large order book with strong and diversified clientele base (increased by 35.8% CAGR to Rs. 48,18.6 cr in FY18), Consistently paying dividend, healthy financial performance, debt free operations & limited competition, issue seems to be attractively priced.

Moreover, on the upper price band of Rs 185 with annualized EPS of 9M FY18, P/E works out at 10.23 xs. Therefore we recommend to SUBSCRIBE the IPO.

THE OFFER

• Issue Open: 20 June 2018 to 22 June 2018
• Issue Type: Book Built Issue IPO
• Issue Size: Offer for Sale of 25,200,000 Equity Shares @ 10 aggregating up to Rs 466.20 Cr
• Face Value: Rs 10 per Equity Share
• Issue Price: Rs 180 - Rs 185 per Equity Share
• Market Lot: 80 Shares
• Minimum Order Quantity: 80 Shares
• Listing At: NSE, BSE

CAPITAL STRUCTURE

The share capital of Company, is set forth below (Amount in Rs except share data)

Authorized Share Capital:-

300,000,000Equity Shares @10 Aggregate values 3,000,000,000

Issued, subscribed and paid up capital before the Issue:-

200,000,000Equity Shares @10 Aggregate value 2,000,000,000

Present Issue:-

Offer for Sale of 25,200,000 Equity Shares @ 10 aggregating up to Rs 466.20 Cr

OBJECT OF THE OFFER

• To carry out the disinvestment of 24,000,000 Equity Shares held by the Selling Shareholder in the Company, equivalent to 12% of the issued subscribed and paid up Equity Share capital of the Company as part of the Net Offer.
• To achieve the benefits of listing the Equity Shares on the Stock Exchanges.

COMPANY OVERVIEW

Rites is a GOI owned a Miniratna (Category – I) Public Sector Enterprise, started in 1974 and a leading player in the transport consultancy and engineering sector in India. It is a multidisciplinary engineering and consultancy organization providing diversified and comprehensive array of services from concept to commissioning in all facets of transport infrastructure and related technologies.

It has undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East regions. Rites LTD is the only export arm of Indian Railways for providing rolling stock overseas (other than Thailand, Malaysia and Indonesia).

Company is incorporated by the Ministry of Railways, Government of India and have the benefit of being associated with the Indian Railways, which is the fourth longest rail network in the world and have developed expertise in :-

• Design, engineering and consultancy services in transport infrastructure sector with focus on railways, urban transport, roads and highways, ports, inland waterways, airports and ropeways;
• Leasing, export, maintenance and rehabilitation of locomotives and rolling stock
• Wagon manufacturing, renewable energy generation and power procurement for Indian Railways.

CLIENTELE

PUBLIC SECTOR

• Indian Railways,
• NTPC,
• High Speed Rail Corporation of India Limited,
• Steel Authority of India Limited,
• Rashtriya Ispat Nigam Limited,
• Hindustan Petroleum Corporation Limited,
• Bharat Coking Coal Limited,
• Metro Link Express for Gandhinagar and Ahmadabad (MEGA) Company Limited,
• Indian Port Rail Corporation Limited,
• Airports Authority of India, among others

PRIVATE BANK

• L&T Metro Rail (Hyderabad) Limited,
• Kanti Bijlee Utpadan Nigam Limited (KBUNL),
• Cimmco Limited,
• Titagrah Wagons Limited,
• Snowmex Engineers Limited,
• Unity Infraprojects Limited,
• Marymatha Constructions Limited,
• AFCON Infrastructure Limited,
• Indian Geotechnical Services Limited,
• NATRIP Implementation Society

ROAD MAP AHEAD

Company objectives are to expand their market share and aim to accomplish this through the following strategies:

• Continue to build on core competencies in transport infrastructure sector.
• Strengthen EPC/Turnkey business.
• Expand international operations.
• Expand operations in the power procurement and renewable energy sector through subsidiary & Railway Energy Management Company Limited, which is the only entity mandated for procurement of power from third parties.

STRENGTHS

• Comprehensive range of consultancy services and a diversified sector portfolio in the transport infrastructure space.
• Large order book with strong and diversified clientele base across sectors.
• Experienced management personnel and technically qualified team.
• Preferred consultancy organization of the Government of India including the Indian Railways.

FINANCIAL PERFORMANCE

Total Revenues stood Rs 936.1cr, Rs 1353.3cr, Rs 1090.5cr and Rs 1012.6cr, in nine months period ended December 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PBT was Rs 389.2cr, Rs 507.1cr, Rs 450.6cr and Rs 468.2cr, in nine months period ended December 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PAT was Rs 252.5cr, Rs 361.6cr, Rs 282.5cr and Rs 312.2cr, in nine months period ended December 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

Company has an order book of Rs 4818.6cr as on March 31, 2018 which includes 353 ongoing projects of value over 1 cr each.

Over FY16-18, the company's order book has increased by 35.8% CAGR to Rs. 4818.6cr in FY18.

RISK FOR THE BUSINESS

• Company depend on the Ministry of Railways, GoI, central/state governments and central/state PSUs for a significant portion of contracts on order book which are awarded on a nomination basis.
• Company has had negative cash flows from investing operations and financing activities in the past and may continue to have negative cash flows in the future.
• Company is subject to inherent risks associated with external suppliers, contractors and sub- contractors being involved in projects.
• Company depends on the ministry for a significant portion of business. Any changes in the government policies or decisions by the MoR may result in an adverse effect on business growth.
• Company is in the process of winding up its subsidiaries, namely RISL, RITES (AFRIKA) and RMAC (Saudi Arabia). The winding up of these subsidiaries may lead to additional liabilities.
• The GoI has implemented a new national tax regime by imposing GST. Company is unable to quantify the impact of this development at this stage.