RITES Ltd - IPO Note - Angel Broking

RITES is a wholly owned Government Company, a Miniratna (Category - I) Schedule 'A' Public Sector Enterprise. It is a leading player in the transport consultancy and engineering sector in India and the only company having diversified services and geographical reach in this field under one roof. 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.

Healthy order book with diversified clientele base: RITES' order book stood at ~Rs. 4,800cr as of March 2018 (3.5X of FY17 top-line). The company receives orders on nomination/single tender basis on regular intervals from its clients such as national government, governmental instrumentalities and public sector enterprises.

Strengthening EPC/Turnkey business: RITES intends to increase its revenue mix in Turnkey projects owing to new investments in electrification and railway infrastructure. So far RITES has been awarded two projects for new railway lines and two projects for railway electrification.

Preferred consultancy organization of GOI including Indian Railways: RITES was incorporated by the Ministry of Finance (MoR) and is a nominated organization of the Indian Railways for export of railway locomotives, coaches and other equipments, which are manufactured by the Indian Railways (except exports to Malaysia, Indonesia and Thailand). It is also a nominated organization for inspection of various materials and equipment purchased by the Indian Railways.

Outlook & valuation: In terms of valuations, pre-issue PE works out to 12x of annualized FY18 EPS Rs. 17 (at the upper end of the issue price band), which is reasonably priced considering (a) 3.5x of order book with execution capability and experienced management, (b) maintaining the RoE level in the range of 17-18%, (c) diversified client base and (d) increasing opportunity of revenue from Railways due to new investment in electrification and infrastructure. Given that the RITES is a preferred consultant of Indian Railways along with other government authorities with exposure in international operation and fair valuation of issue, we recommend SUBSCRIBE to issue.

Source : Equity Bulls

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