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RITES IPO opens June 20: Here’s why we recommend ‘subscribe’
Publish date: 20th June, 2018
Highlights:
A. RITES is all set to launch its Rs 466-crore IPO on June 20—the first divestment exercise of the current fiscal by the government.
B. The RITES IPO issue consists of 25.2 million equity shares, with a face value of Rs 10 and a price band of Rs 180-Rs 185 per equity share.
C. Our Recommendation: ‘subscribe’ to the issue
You may always have wanted to invest in the stock market but choosing the right stock can be an intimidating task. Instead of trying to time the market at your own risk, why not start with baby steps and learn as you go?
While there may be companies that have been performing well, they can be really expensive to invest in. Thus, investing in an IPO could is often considered a good option to start the journey in the equity market. After all, IPOs give you the opportunity to buy shares and capture the company’s growth.
Related: 5 Things to know about IPO investment
The latest company to come up with its initial public offer is the government-owned Rail India Technical and Economic Services (RITES), which is set to launch its Rs 466-crore IPO. The issue opens on June 20 and closes on June 22.
About RITES
RITES is a designated “Mini Ratna” enterprise, engaged in transport consultancy and engineering with diversified services and extensive geographical reach all under one roof. RITES’ services also cover other infrastructure and energy market sectors – transport, roads and highways, ports, inland waterways, airports, institutional buildings, ropeways, power procurement and renewable energy.
IPO Details
• Offer: 25.2 crore equity shares, amounting to Rs 453.6 crore and Rs 466.2 crore
• Face value: Rs 10
• Price band: Rs 180-Rs 185 per share
• Minimum lot size: 80 shares
• Discount: Rs 6 per share for retail investors and eligible employees
• Reservation: 12 lakh equity shares for eligible RITES employees
Related: Share market basics and how to invest in shares online
Kotak Securities recommends ‘Subscribe’
The issue opens on June 20 and closes on June 22. Kotak Securities recommends ‘subscribe’ to the issue offer. Let’s take a look at the reasons below.
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Valuations:
Often, reputed companies price their new shares at levels that are sometimes 20% to 30% lower than the market price of companies in the same sector. This, however, needs to be checked every time you choose to invest in an IPO. Valuation, thus, becomes an important factor to check to identify the stock’s intrinsic value. RITES is pricing its shares at Rs 185. At the higher end of the issue price of Rs 185 per share, the stock is being offered at reasonable valuations. Hence, a good bet in its sector. (Read what is valuation and why it matters)
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Profitability:
The company has been consistently profitable over the last five years. RITES total income has grown at an average annual rate of 9.6% to Rs 135 million in the FY18 from Rs 95 million in the FY13. The company’s net profit has grown at an average annual growth rate of 11.6% to Rs 36 million in FY18 from Rs 23 million in the FY14.
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Order book:
A strong order book is necessary for profits to continue in the future. RITES has a large order book with strong and diversified clientele base across sectors. As of March 31, 2018, RITES order book stands at Rs 480 million, which includes 353 ongoing projects of value over Rs 1 crore each.
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Expertise and specialisation:
RITES has developed technical expertise with specialised domain knowledge across each of the market segments. The company has evolved itself from being a primarily a railway consultancy services provider to a diversified multi – disciplinary transport infrastructure consultancy and engineering organisation undertaking a wide gamut of services. This matters because a generic company without any domain expertise can be easy marks for competitors.
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Key advantage:
RITES has constantly benefitted from being associated with the Indian Railways. Given company’s proven track record of financial performance, service offerings and the market segments in which it operates, it occupies a key position in the growth plans of the Government of India with respect to the infrastructure and energy space.
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Diversified offerings:
The company has a comprehensive range of consultancy services and a diversified sector portfolio in the transport infrastructure space. Over the years, RITES has developed specialised expertise in providing consultancy services across major market segments in the transport infrastructure sector including railways, urban transport, roads and highways, ports, inland waterways, airports and ropeways. Diversification—be it in your investments or for companies—is usually good. It often helps a company cover a wider market.
Interesting fact:
The issue will be the first divestment exercise of the current fiscal by the government. For FY19, the government has set a divestment target of Rs 80,000 crore. With RITES’ offer, the government intends to divest 12.6% of the stake in the company and raise about Rs 453-466 crore through the share sale.
Get the full report, disclaimers and other disclosures
If you are planning to invest in RITES IPO, open a trading account or simply login to your Kotak Securities account to invest now.
