Strong Debut: RITES’ IPO receives positive investor response

RITES’ IPO receives positive investor response

Miniratna firm RITES Limited, which is a leading player in the transport consultancy and engineering sector, was the first state-owned company to hit the pri-

mary market in the current fiscal year by launching its Rs 4.66 billion initial public offering (IPO). The public issue resulted in a 12.6 per cent stake dilution by the government. The IPO was not only well received by investors but also made a strong debut on the bourses. Other firms such as Rail Vikas Nigam Limited (RVNL), Indian Railway Finance Corporation (IRFC) and IRCON International Limited are following suit and are expected to float their respective public issues by the end of the year.

The issue

The price band of the offer was set at Rs 180-185 per share with a face value of Rs 10. It does not comprise any fresh issue of shares, but an offer for sale of 25.2 million shares. Besides this, 1.2 million shares were reserved for eligible employees. At the upper price band of the offer, the company aimed to raise Rs 4.66 billion. The three-day IPO closed on June 22, 2018. The government earlier held 100 per cent stake in the company, and after the IPO, this came down to 87.4 per cent. Shares were listed on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Retail investors and employees were offered a discount of Rs 6 per share. The qualified institutional buyer category was allotted 48 per cent of the offer while 14 per cent was reserved for non-institutional investors and 33 per cent for retail investors. The bookrunning lead managers for the IPO were Elara Capital (India) Limited, IDBI Capital Markets and Securities Limited, IDFC Bank Limited and SBI Capital Markets Limited.

According to analysts, the issue was attractively priced considering RITES’ strategic importance, limited competition, virtually debt-free operations and healthy financial performance. Moreover, its order book as of March 31, 2018 is 3.5 times the revenue posted in 2016-17, which gives the company strong revenue visibility going forward. Being present in the niche space of transport consultancy, the company is well poised to benefit from the large opportunities in the infrastructure space, especially the railway sector.

The IPO received strong investor demand, with the issue getting oversubscribed 67.24 times on the final day of bidding. Given the company’s established position in the business and healthy growth prospects, the IPO drew a lot of investor interest. RITES made its market debut on the stock exchanges on July 2, 2018. The railway consulting firm is listed at Rs 190 on the BSE, a 2.7 per cent premium over the issue price of Rs 185.

The company

RITES Limited, a Government of India enterprise, was established in 1974 under the aegis of Indian Railways (IR). It is a leading player in the transport infrastructure consultancy space and the only company that has diversified services under one roof and vast geographical reach. RITES initially provided consultancy services to the railways. It has since diversified into other transportation sectors such as metro rail, roads, airports, etc., enhancing its growth outlook. The company has operational experience in over 55 countries in Asia, Africa, Latin America, South America and the Middle East. Consultancy services are 50-60 per cent of revenues but it has also started exporting locomotives, rolling stock, equipment and spares. The latter now accounts for 22-25 per cent of its revenue. In addition to exports, RITES is also doing well in the leasing services and turnkey construction segments.

Some of the key clients of the company are IR, NTPC Limited, Dedicated Freight Corridor Corporation of India Limited, 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 Ahmedabad Company Limited, Indian Port Rail Corporation Limited and the Airports Authority of India. RITES also engages with various large private sector corporations including L&T Metro Rail (Hyderabad) Limited, Kanti Bijlee Utpadan Nigam Limited, Titagarh Wagons Limited, Snowmex Engineers Limited, Unity Infraprojects Limited, AFCON Infrastructure Limited and Indian Geotechnical Services Limited.

As of March 31, 2018, RITES’ order book stood at Rs 48.18 billion, which includes 353 ongoing projects valued at over Rs 10 million each.

Other issuances

After the resounding success of the RITES IPO, the government is planning to launch IPOs of IRFC, IRCON and RVNL. RVNL and IRCON have already received the Securities and Exchange Board of India’s (SEBI) go-ahead to float an IPO. The former will sell 208.5 million equity shares or over 10 per cent stake of the government while the latter will offload over 9.9 million shares. Meanwhile, IRFC will soon file the draft prospectus with SEBI for its initial share sale and subsequent listing. This is part of the Department of Investment and Public Asset Management’s larger plan to garner disinvestment proceeds to the tune of Rs 800 billion as per the 2018-19 budget estimates.


Since RITES is the preferred consultant of IR and other government organisations, analysts were bullish on the IPO. However, they were concerned about the increasing share of the lower-margin turnkey business in the overall revenue. In addition, due to the company’s overdependence on railwy orders, any slowdown in railway capex could impact order inflow and revenue. That said, a robust order book with a diversified client base across sectors and consistent financial performance proved to be tailwinds for the successful IPO.

Ishita Gupta