Rail Vikas Nigam IPO review (May apply)

• RVNL – a 'Miniratna' consultancy service providing PSU under MoR.
• The company has posted growth in top and bottom lines for the last four fiscals.
• The issue is priced reasonably based on its financial performance.
• Issue constitutes just 12.16% of post-issue paid-up equity of RVNL.
• As on 31.12.18, orders on hands are Rs. 77504.28 cr.

ABOUT COMPANY:
Rail Vikas Nigam Ltd. (RVNL) is a consultancy service providing company under the Railway Ministry of Government of India. RVNL-is a wholly owned Government company and is a 'Miniratna – Category-I'. It provides project executing agency service to Railways for projects pertaining to the development of railways, mobilization of financial resources, implementation of rail projects pertaining to strengthening of golden quadrilateral and port connectivity etc. RVNL has provides its consultancy services for new railway lines, doubling, gauge conversion, railway electrification, metro projects, workshops, major bridges, construction of cable strayed bridges, institution buildings etc.

Since RNVL's inception in 2003, Ministry of Railway has transferred 179 projects out of which 174 are sanctioned for execution. Out of these, 72 projects have been fully completed (valued at Rs. 20567.28 cr.) and the rest is ongoing. RVNL has an order book of Rs. 77504.28 cr. on hand as on 31.12.2018 covering 102 projects. RVNL is working on an asset-light model as it has not to make any investments in plant and machinery.

ISSUE DETAILS/CAPITAL HISTORY:
Under the disinvestment programme of Government of India, RVNL marks the beginning for Fiscal 20 with its maiden float of 253457280 equity shares of Rs. 10 each via book building issue to dilute 12.16% of government holding. It has fixed a price band of Rs. 17 – Rs. 19 per share. Minimum application is to be made for 780 shares and in multiples thereon, thereafter. The issue opens for subscription on 29.03.19 and will close on 03.04.19. Post allotment, shares will be listed on BSE and NSE. RVNL is offering a discount of Rs. 0.50 per share to retail as well as eligible employees. It has reserved 657280 shares for eligible employees and out of rest, QIB quota is 50%, HNI 15% and Retail 35%. This being the secondary offer, no fund is going to the company.

With this issue, RVNL mulls raising Rs. 430.88 cr. to Rs. 481.57 cr. (at gross level) based on lower and upper price bands. BRLM's to this issue are Yes Securities (India) Ltd., Elara Capital (India) Pvt. Ltd. and IDBI Capital Markets & Securities Ltd. Alankit Assignments Ltd. is the registrar to the issue. RVNL has, so far, issued/converted entire equity at par. The average cost of acquisition of shares by the promoter and selling shareholder is Rs. 10 per share. Post issue, it's paid-up equity remains same at Rs. 2085.02 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for last three fiscals, RVNL has (on a consolidated basis) posted total revenues/net profits of Rs. 4720.09 cr. /Rs. 300.37 cr. (FY16), Rs. 6162.66 cr. / Rs.389.13 cr. (FY17) and Rs. 7781.36 cr. / Rs. 470.06 cr. (FY18). For the first half of FY19, it has earned a net profit of Rs. 229.24 cr. on revenue of Rs. 3770.35 cr. According to management, the first half always has a lean period of the monsoon that affects its revenue. The issue is priced at a P/BV of 0.98 on the basis of its consolidated NAV of Rs. 19.48 as on 30.09.18. The company has posted growth in its top and bottom lines for the last four fiscals.


For the last three fiscals, it has posted an average EPS of Rs. 2.42 and an average RoNW of13.51%. The issue is priced at a P/E of 6.96 based on FY18 earnings, but on the basis of lean first-half earnings, if we annualize it and attribute it on post issue equity, then asking price is at a P/E of around 8.64. Thus the issue appears priced reasonably. For the last four fiscals, RVNL has posted CAGR of 33.7% in Revenues and 19.1% in net profits.

COMPARE WITH LISTED PEERS:
As per offer documents, it has shown IRCON as its listed peer that is currently trading at a P/E of around 7. However, IRCON cannot be strictly compared with RVNL.

MERCHANT BANKER'S TRACK RECORDS:
On BRLM's front, three merchant bankers associated with the offer have handled 18 public issues in the past three years out of which 6 issues closed below the issue price on listing date.