The Government aims to divest 12 per cent stake in RITES through IPO, which is planned between June 20-22. After divestment, the Government will have a holding of about 87.4 per cent, as another 0.6 per cent will be given to employees. “There will be no fresh share offering,” said RITES Chairman Rajeev Mehrotra in an interview to BusinessLine .
The IPO is a part of the Government’s strategic disinvestment plan, as the company, owned by the Railway Ministry, has enough funds for its immediate capital expenditure.
The company is expected to list by the first week of July. The price band is likely to be decided next week. In fiscal 2018 ended March, in the absence of private sector capital expenditure, the government had stepped in to fill the vacuum to give a growth push to the economy. Now, it is looking to shore up revenues by selling stake in profitable public sector units.
By virtue of being a government-owned mini-ratna, it gets a large chunk of revenue on nomination basis. Nomination basis means it is evaluated based on its technical expertise, and it does not have to face open competitive bidding.
However, that is not of much concern to RITES, which has started bagging more than half of its business through competition. For instance, several metro-rail projects that are being implemented in Nagpur, Ahmedabad and Pune, are secured through competition.
In its competition, it counts firms from America, France, Germany, Italy and Japan, among others. “We are not afraid of competition,” said Mehrotra, pointing out that not all firms have technical expertise in all areas.
The company has a paid-up equity of ₹200 crore, networth of ₹2,100 crore, and has cash reserves of over ₹1,400 (1,454) crore, of which working capital requirement is about ₹500 crore. In fiscal 2017, the firm had revenue of ₹1,563 crore, as per restated accounts. The firm had total revenues of ₹1,061 crore till December 2017 for the fiscal 2017-18 ended March. It expects to maintain the same growth trend in revenue this year.
The EBITDA margin of the company has been 32-42 per cent of profit after tax in last five years. The company has been a “good dividend payer” of 30-40 per cent based on government norms. Consulting, exports, leasing are the businesses that contribute maximum to the EBITDA margins.
It provides consulting in transportation, multimodal, city planning, railways, shipping, water management, designing, and operating stations among other things. Under leasing, it provides locomotives to be operated on private lines in ports, power, mining and steel firms through a wet leasing arrangement – by providing drivers and maintenance staff. This is important in the back drop of railways pursuing investments in rail link infrastructure.
GEO POLITICAL FACTORS
“The firm has experience of doing business 55 countries, and is now working in 10 countries,” said Mehrotra. The company, which does several strategic businesses, is not untouched by market conditions.
While the CMD has hopes for all business segments, the business to watch out for is REMCL, said Mehrotra, who has been Director Finance in RITES, and has prior experience in Power Finance Corporation as well. REMCL, which started by trading power to lower the cost of electricity for Indian Railways, has also diversified into wind and solar power.