Rail Vikas Limited (RVNL) has come up with an IPO at price band of Rs. 17- Rs. 19. RVNL is a wholly owned government entity under the Ministry of Railway.
- Rail Vikas Nigam Ltd. (RVNL) was incorporated in the year 2003 as a wholly owned Public Sector Undertaking (PSU). It assists the Indian Railways by helping them build the required engineering works. It is also Miniratna I, Schedule’ A’ company.
- RVNL is engaged in the business of executing all types of railway project which includes new lines, gauge conversion, doubling, railway electrification, metro projects, workshops, institution buildings, etc.
- The Ministry of Railways has assigned RVNL 172 projects out of which 166 projects are already sanctioned for execution. 60 of the sanctioned projects have already been completed amounting to Rs 167, 77.700 crores
- RVNL have recently been assigned the hill projects in the difficult terrains of the Himalayas for the construction of new lines between Rishikesh-Karnprayag in Uttrakhand and Bhanupalli.
- The company has seven production units to manufacture locomotives, coaches and wheels and about 50 workshops to undertake periodic overhaul or midlife rehabilitation of rolling stock.
- The company has also been contributing to one-third of the total doubling completed by Indian Railways for the last 3 fiscals. Where the order book value for doubling of RVNL was Rs 27,721 crore.
- The company’s major objective is to provide services at a more economical rate as compared to their competitors IRCON International Limited, RITES Limited and Konkan Railway Corporation Limited.
Highlights of the issue
|Issue opens||March 29, 2019|
|Issue closes||April 3, 2019|
|Commencement of trading on Stock Exchange||April 11, 2019|
|Issue price Band||Rs. 17-Rs. 19|
|Issue size||Rs. 477.11 Cr.|
|Face value||Rs. 10|
|Retail Discount||Rs. 0.50|
|Employee Discount||Rs. 0.50|
|Minimum lot||780 shares|
|Total shares||253,457,280 shares|
|Particulars||% of allocation|
Book Running Lead Managers
|· Yes Securities (India) Ltd.|
|· Elara Capital (India) Private Ltd|
|· IDBI Capital Markets & Securities Ltd.|
Registrar to the Issue
|· Alankit Assignment Ltd.|
Financial Highlights: (RS. in crores)
|EBITDA Margin (%)||4.6%||4.8%||4.8%||5.1%||5.6%|
|Profit Before Tax||248.33||3,69.85||488.91||564.14||285.72|
|Net Profit Margin||6.4%||6.4%||6.3%||6%||6.1%|
Revenue from Business verticals:
(Rs. in crores)
|Metropolitan Transport Projects (including metros)||543.310||705.546||638.666||178.954|
|Others (bridge construction etc.) (in numbers)||32.832||133.637||108.403||51.841|
Revenue from Business Vertical: (Rs. in crores)
Net Profit Margin (%)
Business of the company:
RVNL is a Miniratna (Category- I) wholly owned government entity engaged in all stages of project execution agency on behalf of Ministry of Railway (MOR). The company executes various Metropolitan Transport Projects, Gauge Conversion, Railway Electrification, Doubling, metro projects, workshops, etc.
The projects undertaken by the company are spread across the country and for effective implementation of projects, 43 project implementation units (PIUs) as on December 31, 2018, have been authorized at different locations to execute projects in their geographical hinterland.
Order book and execution of projects:
Since inception, the company was awarded 179 projects by MOR. Out of these, 174 have been sanctioned for execution. From these 72 projects have been fully completed aggregating to Rs. 205,672.50 million and 102 ongoing projects.
Management Fees charged by RVNL:
RVNL receives consolidated management fees including the supervision and management charges for execution of projects. For the metro project, the management fee charged by RVNL is 9.25%. Whereas, for conventional projects (other plan heads) they charge 8.50% from MOR and 10% for national projects.
The projects are located at Delhi, Mumbai, Kolkata – 3 units, Chennai -2 units, Secunderabad – 2 units, Vijayawada, Bhubaneshwar – 3 units, Bhopal – 2 units, Jhansi, Kota, Jodhpur, Waltair (Vishakhapatnam) – 2 units, Bengaluru, Pune – 2 units, Raipur – 3 units, Lucknow – 3 units, Ranchi, Rishikesh, Ahmedabad – 2 units, Kanpur, Varanasi- 4 units, Chandigarh, Kharagpur, Agra, Ambala and Guwahati.
RVNL Customer base:
The major client of RVNL is the Indian Railways. Furthermore, other clients include various central and state government ministries, departments, and public sector undertakings.
Project sanctions by MOR to RVNL:
The Railways in India are divided into 72 zones. Further, each of these zones has its assigned regional departments that conduct projects and assignments on behalf of MOR. But, complex and higher CapEx projects are authorized to companies like RVNL, RITES, IRCON, Konkan Railways, etc. Unlike RVNL’s other CPSE peers (IRCON, RITES) they do not bid for projects under the Ministry of Shipping. MOR, Ministry of Shipping and road assigns RVNL the projects and assignments. RVNL attracts 8.5% as management fees for conventional projects and9.5% for metro projects.
SPV Pipeline of RVNL:
At present, the company has 6 Special Vehicle (SPV) in its pipeline. Out of the 6 SPV’s, three SPV’s are at different stages of operations that are expected to complete by the end of FY21. The Kutch Railway Company and Bharuch Dahej Railway Company are adequately operational. Dighi Roha Rail Company is the only SPV that has failed to steer off.
Services provided by the company
- Project execution and development of work related to the creation of Rail infrastructure.
- Creating Projects: specific SPVs for boosting private assistance in the funding of railway infrastructure projects
- Undertaking execution of railway projects under a specific financial settlement for the MoR and other Government departments
- Other Ancillary services.
Object of the Issue:
The Net Proceeds of the Issue after deducting the issue expenses shall be utilized for the following agenda.
- To carry out the disinvestment of 252,800,000 Equity Shares held by the Promoter of the Company i.e. President of India.
- To achieve the benefits of listing the Equity Shares of the company on the Stock Exchanges.
RNVL will not receive any proceeds from the Offer and all such proceeds will go to the Promoter i.e. President of India.
Pre-Issue Shareholding pattern of Rail Vikas Nigam Limited
|Particulars||Number of Shares||% of holding|
|Promoter and Promoter Group||2,08,50,20,100||100%|
Post-Issue Shareholding Pattern
|Particulars||Number of Shares||% of holding|
|Promoter and Promoter Group||1,83,22,20,100||87.84%|
Promoter of the Company:
The president of India is the sole promoter of the company, acting through the Ministry of Railways, Government of India holds 99.9% stake in the company which will drop to 87.84% post issue.
Capital Structure (Rs. In crores)
|Authorized Capital||3000 crores|
|Issued Subscribed and Paid-up share-capital||2085 crores|
|Paid up capital (Post-Issue)||2085 Crores|
Overview of the Sector:
India has the fourth largest railway network in the world with a total network of 67,368 route kilometer (rkm). Railways in India runs nearly 21,000 trains daily; i.e. approximately 13,313 passenger trains that carry more than 2.3 crore passengers and approximately 8,000 freight trains that carry around 3 million tonnes of freight per day.
In 2016, Indian Railways has announced an Rs 856,020 crore CapEx plan for 2016-20 (five years), 90% more than the combined capital outlay in the previous 15 years. The railway transport infrastructure services industry is expected to witness project commissioning worth Rs 87,590 crore during 2017-19. Out of this, projects entailing an investment of ₹44,100 crore are expected to come on-stream in 2017-18. The remaining projects worth ₹43,490 crore are likely to be commissioned in 2018-19.
National Rail Plan 2030:
The Ministry of Railways (MoR) aims to develop National Rail Plan, 2030 to provide a long term outlook to plan for augmenting the railway network, in deliberation with several state governments, public representatives and other important Central Ministries. NRP-2030 will strive to adapt and integrate the rail network with other modes of transport and create synergy for achieving a seamless multimodal transportation network across India.
Construction of new lines:
Construction of new lines is authorized for providing connectivity to the regions not adequately connected with the Railway network. To bring those regions under the National main-stream of development new sanctions are awarded to companies like Rail Vikas Nigam for execution. Indian Railways envisages constructing an average of 2,500 Kms. of New lines every year according to the Railway vision 2020.
Indian Railways employ three types of gauges:
- Broad Gauge: 1,676mm (5 feet 6 inches)
- Meter Gauge 1,000 mm ( 3feet 3/8 inches)
- Narrow Gauge: 762 mm (2 feet, 6 inches) and 610 mm (2 feet)
To enhance passengers’ accommodation and commercial viability of Indian Railways, the government has taken a decision to convert the existing Meter Gauge and Narrow Gauge into Broad Gauge phase-wise.
In consonance with the uni-gauge policy of 1991, the conversion of the remaining portion of the MG section will provide a stout investment opportunity in this segment.
The operation of doubling involves the provision of additional lines by way of doubling the existing routes to permit the Railways to expedite traffic constraints of a single line or construction and raise the chartered capacity. In some sections, 3rd and 4th lines are also being laid by MOR. According to Vision Document 2020, there is an increased focus on achieving at least 1,200 km of doubling.
In addition to the doubling works being executed by Zonal Railways, RVNL is a significant contributor to the doubling projects and has been contributing to approximately one-third of the total doubling being commissioned on Indian Railways in last 3 fiscals. The other companies assigned with doubling projects by Indian Railways constitute IRCON Ltd and RITES Ltd.
Indian Railways has taken measures in order to control the spiraling fuel bill, reduce dependence on imported fossil oil, increase the energy security of the nation, reduce pollution, improve operational efficiency and operating ratio, it is crucial that electrification is conceded priority on Railways.
The Safety segment is extremely sensitive in terms of both social as well as economic perspectives. It needs paramount attention as it involves the lives of the travelling public. Considering the magnitude of the safety measures, the Government has invested Rs.127, 000 in the 5 years i.e. from 2015 and aims to invest further in 2019-20 to track renewal, bridge works, the road over bridge (ROB), the road under the bridge (RUB) and Signalling & Telecommunication (S&T).
RVNL has contributed more than 33% of the doubling projects and more than 22% of electrification projects in last 5 fiscals for Indian Railways.
RVNL’s contribution on the execution of Doubling projects undertaken on behalf of Indian Railway
|Year||Total for Indian Railways (km)||Contribution by RVNL (km)||% contribution by RVNL|
Railway Electrification contribution of RVNL for Indian Railway:
|Year||Total for Indian Railways (km)||Contribution by RVNL (km)||% contribution by RVNL|
- The company has established expertise in undertaking all kind of projects and executes them from conceptualizing to commissioning them in this sector.
- The company has leveraged its expertise in diversified segments of railway infrastructure like Doubling, gauge conversion, new line, metro projects railway electrification, etc.
- The company has been authorized by Ministry of Railway (MOR) to sanction detailed and in the prescribed time limit.
- The company has shown a consistent track record of financial performance. The revenue has increased in the last 4 fiscals at a CAGR of 29.36%. And the Net profit increased at a CAGR of 15.20% in last 4 fiscals.
- The company has successfully completed 7 projects awarded by MOR in relation to the construction of workshops which includes augmentation of locomotive works in Varanasi.
- RVNL has a robust balance sheet and also maintained a healthy dividend payout in the last 4 fiscals.
- RVNL has robust order-book pipeline, at present company has accumulated orders of Rs 77,500 crores. According to the management out of these, 77,500 crores, Rs. 30,000 crores orders will be executed within 5 to 7 years. Whereas, the remaining Rs. 44,500 crores are expected to be completed within 3 to 4 years.
- Ministry of Railway and Government of India have shown consistent efforts to upgrade and improve the railways connect and services. This, in turn, will lead to various execution opportunities for RVNL from the MoR.
Order Book of RVNL:
|Key segments||Length in route kilometer||Order Book Value as of December 31, 2018 (₹ in crores)|
|New Line (includes port connectivity)||976.76||30763.52|
|Metropolitan Transport Projects||156.82||9593.55|
|Workshops (in numbers)||16||2618.30|
|Others (bridge construction etc.) (in numbers)||15||1626.63|
Highly reliable on the Ministry of Railways (MOR)
The company is highly reliable on the Ministry of Railways (MOR) for funds and manpower supply which in turn might lead to delay in execution of projects. RVNL largely depends on the MoR for funds since they assign a fixed budget for the company each year for undertaking the projects. In FY18, the total capital and development expenditure of railways has been pegged at Rs 148,528 crore
RVNL highly depends on the contractors, sub-contractors, and consultants that are engaged in adhering to the quality and conditions. Any casualties from the contractors, sub-contractors, and consultants will lead to an increase in the cost of projects, delay in the projects and can hamper the quality.
Delay in Project Execution:
The total order book value of the company as on December 31, 2018, is Rs. 775,042.80 million. Out of the 77,500 crores, two projects i.e. Rishikesh Karnprayag new line project and Bhanupalli- Bilaspur Beri new line project constitute Rs. 15,001.770 crores and Rs. 6,413.510 crores, respectively. That aggregates to 27.63% of the company’s overall order book. Any delay on account of land acquisitions, forest, and environmental clearance issues, etc. or delay in timely and adequate financing of these projects by MoR, could adversely affect the company’s order book position, business, financial condition and results of operation.
Long contract gestation period:
As on December 31, 2018, order book of the company stood at Rs. 77,504.280 crores of which 96.11%, was from MoR. Further, the order book may be affected due to the delays in performance of the contracts by the contractors assigned by RVNL as well as the long gestation period in the completion of projects. Therefore, this might hinder the revenue and the performance of the company.
- The company had negative cash flow from operating and financial activities in last 4 fiscals.
- As on December 2018, the company has an outstanding unsecured loan of Rs. 2,842.630 crores from IRFC. failing to pay can affect the profitability
- There has been negative cash flow from one of the SPV Dighi Roha Rail Company FY16: -0.773 crores, FY17 – 0.073 crores, FY18: – 0.042 crores, H1FY19: 0.015 crores
- The company’s cash flows can be affected as the business is seasonal in nature i.e. Monsoon affects their cash flow.
|PEER Comparison||EPS (₹ per share)||NAV (₹ per share)||RoNW (%)||P/E Ratio|
|Rail Vikas Nigam Limited||2.73||18.83||14.52||6.95x|
|IRCON International Limited||42.13||383.64||10.98||9.49x|
- During the year FY15 RVNL posted a net turnover of Rs. 3,269.649 crores/ Net profit of Rs. 208.626 crores. In FY16. The turnover posted by the company stood at Rs. 4,720.085 crores/ Net profit stood at Rs. 300.320 crores. In FY17 the turnover accounted for Rs. 6,162.663 crores/ Net profit was Rs. 389.104 crores. FY18 turnover stood at Rs.7, 781.362 crores/ Net Profit accounted to Rs. 470.055 crores. During H1FY19 the turnover of the company was Rs. 3, 77.034 crores/ Net Profit stood at Rs. 229.244 crores.
- RVNL’s EBITDA for FY15, FY16, FY17, and FY18 stood at Rs. 6 crores, 217.4 crores, 281.8 crores, 388.8 crores respectively.
- The average diluted EPS of the last 3 years accounts to Rs. 2.42 per share.
- The dividend yield of RVNL is 4%.
- The Dividend Payout Ratio was 36%.
- The Return on Assets in FY18 is 5% whereas, in H1FY19 was 3%.
- The Returns on Equity (ROE) in FY18 is 23% and in H1FY19 is 19%
- Consolidate NAV for FY18 stood at Rs. 18.83 and in H1FY19 it was Rs. 19.48
- EBITDA Margins grew on a sequential basis in FY15 EBITDA Margin was 4.6%, FY16: 4.8, FY17: 4.8%, FY18 it was 5.1%
Restated Summary of Cash Flow Statement (Rs. In crores)
|Cash Flow from Operating Activities||2,12.004||(312.152)||5,70.754||652.092||113.446|
|Cash Flow Investing Activities||81.917||(18.393)||(25.369)||99.709||(29.173)|
|Cash Flow from Financing Activities||(586.001)||(581.199)||(668.407)||(182.251)||(1,52.291)|
|Cash & Cash Equivalent at the end of the year||50.772||342.852||1254.596||1,377.618||808.069|
Restated Summary Statement of Profit and Loss
|Consolidated Profit and loss Statement||FY15||FY16||FY17||FY18||H1FY19|
|Revenue from operations||3146.535||4539.854||5915.106||7556.559||3622.882|
|Expenses on Operations||2895.733||4188.936||5467.848||6983.167||3351.106|
|Employee benefits expenses||77.116||96.71||117.018||133.988||77.599|
|Depreciation, amortization, and impairment||5.121||4.669||5.012||4.835||2.706|
|CSR and R&D Expenses||4.669||5.975||6.123||7.674||10.174|
|Profit/(loss) before exceptional items and tax||248.335||369.853||488.912||5,64.149||285.722|
|Profit/(Loss) before tax||248.335||369.853||488.912||564.149||285.722|
|(1) Current tax||48.985||77.774||103.225||118.639||58.537|
|(2) Deferred tax (net)||-9.276||-8.241||-3.417||-24.545||-2.059|
|Total Tax Expense||39.709||69.533||99.808||94.094||56.478|
|Profit/(loss) for the period||208.626||300.320||389.104||470.055||229.244|
Restated Summary Statement of Assets and Liabilities
|Consolidated Balance Sheet||FY15||FY16||FY17||FY18||H1FY19|
|1 Non-current asset|
|Property, Plant, and equipment||5.762||5.955||7.571||248.761||248.861|
|Other Intangible assets||0.026||0.013||0.006||0.111||0.054|
|Intangible assets under development||1.658||5.582||12.729||21.137||27.316|
|Investments in Joint venture||895.726||1013.853||1078.549||1222.182||1246.553|
|Deferred tax assets (Net)||29.219||37.497||40.961||65.563||67.622|
|Other non-current assets||0.848||0.898||164.056||0.27||0.205|
|Cash and cash equivalents||808.069||1377.618||1254.596||342.852||50.772|
|Bank Balances other than (iii) above||485||16,55.||14,50||1060||1221.255|
|Other current assets||882.164||1326.878||1497.928||9.888||4.625|
|Current Tax Asset (Net)||16.66||7.472||10.532||1761.088||2200.692|
|II. EQUITY AND LIABILITIES|
|Equity Share Capital||2085.020||2085.020||2085.020||2085.020||2085.020|
|(a) Financial Liabilities|
|(ii) Other financial liabilities||0||0||0||374.828||322.544|
|(b) Other Non- current liabilities||0||0||0||9.161||8.167|
|(a) Financial Liabilities|
|(i) Trade payables||44.996||90.495||109.892||68.448||148.939|
|(ii) Other financial liabilities||665.741||766.170||912.194||891.275||961.560|
|(b) Other current liabilities||9822.674||1,5280.367||1793.948||942.351||1172.486|
|(d) Current Tax liability (Net)||7.675||1.645||0||12.888||3.513|
|Total Equity and Liabilities||16135.371||22215.675||8859.596||8568.546||8732.410|
At an upper price band of the issue
- Rail Vikas Nigam Ltd will be trading at 6.95x earnings.
- The Company will trade at Price to Book of 0.091x.
- The issue is priced at PEG ratio of 14.97x.
The company has a proven track record in undertaking all kinds of projects and executing them. The Railways sector has become dynamic which is providing various investment opportunities. Government spending on infrastructure and development has increased tremendously. Government’s focus on railways has increased. RVNL has a strong order book of Rs.77,500 crores out of which Rs. 44,500 crores is expected to be completed within 3 to 4 years and the remaining Rs. 30,000 crores orders will be executed within 5 to 7 years. The stock is attractively priced at a P/E of 6.95x and P/B of 0.09x.
RVNL is highly dependent on the contracts received by MoR. Any change in the Government policy and uncertainty regarding changes in Government policy can affect the margins. Furthermore, Long gestation in projects night hurt the profitability and growth margins.
However, overall growth factor and overall positive sentiments in the sector, makes this IPO a compelling Buy
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