Rail Vikas Nigam makes a lacklustre market debut

The initial public offer (IPO) with a price band of Rs17-19 per share was open for subscription from 29 March to 3 April.

The RVNL issue, the first central public sector enterprise (CPSE) to be divested in the current fiscal, was subscribed 1.83 times and was expected to raise about Rs481 crore. 

According to analysts, the valuation of the wholly-owned government company was reasonable or fair and they expected the stock to fare well in the market. 

With the issue, the government stake in the company is down 12.2 per cent.

According to Canara Bank Securities Ltd, the issue is fairly priced. “As of 31 March 2018, the company had an earnings per share (EPS) of Rs2.73 and net asset value (NAV) of Rs18.83. The company would trade at 6.96 times PE for FY18 earnings," it said in a report on 28 March.

It, however, added that with the proposed review of the current practice of awarding railway work on nomination basis, the current strong order book and proven execution record may not help the PSU.

While RVNL is expected to finish orders worth approximately Rs30,000 crore in the next two-three years, there is some uncertainty with regard to flow of orders. 

“The outcome may have bearing on size of the future order flow and margins. Nevertheless, Rail Vikas commands better bidding prospects due to the proven past record," Canara Bank Securities added.

As of 31 December 2018, the company’s order book stands at Rs77,504 crore (10.2 times of FY18 revenue), which includes 102 on-going projects. Currently, the ministry of railways is a major client for the company. Over FY15-18, it has reported revenue and net profit CAGR of 34.2 per cent and 19.2 per cent, respectively. The company executes projects by raising funds via special purpose vehicle (SPV) route on project specific basis and strategic stakeholders. Its entire borrowing on books is a pass through entry, where railway ministry services the entire debt.

RVNL undertakes railway projects including laying of new lines, doubling, gauge conversion, railway electrification, metro projects, workshops, etc. The company generally works on a turnkey basis and undertakes the full cycle of project development from conceptualisation to commissioning, including design, estimates, and award of contracts, project and contract management, etc.

RVNL has completed 72 projects of a total value of Rs20,567.28 crore and are currently implementing some projects. During the financial year ended 31 March 2018, it completed a total of 885.50 km of project that include 315.20 km of doubling and 425 km of railway electrification.