Rail Vikas Nigam (RVNL), a public sector enterprise, has launched its initial public offering (IPO) for subscription on March 29 at a price band of Rs 17-19 per share. Notably, it is an offer for sale of 25,34,57,280 equity shares by the Government of India which is expected to raise nearly Rs 481 crore, at the upper end of the price band through this public issue.
What is the Rail Vikas Nigam?
- Rail Vikas Nigam Limited is an organisation associated with Indian Railways whose task is to build engineering works required by Indian Railways.
- To bridge the infrastructure deficit on the Indian Railways, the then PM Bharat Ratna Sri Atal Bihari Vajpayee announced National Rail Vikas Yojana (NRVY) on August 15, 2002 in his address from the Red Fort. NRVY, however, was formally launched by the Hon’ble PM on 26th December 2002.
- To implement NRVY, RVNL was incorporated as an 100% owned PSU of Ministry of Railways (MoR) on 24-1-2003 with objectives for both raising extra-budgetary resources and implementation of projects relating to creation and augmentation of capacity of rail infrastructure on a fast track basis.
- RVNL functions like an extended arm of the Ministry of Railways working for and on behalf of the MoR. The function of the RVNL is to act like an Umbrella SPV and undertake initiatives under its wing like project development, resource mobilization etc. This is either done directly or by creating project specific SPVs or by any other financing structure found suitable.
- It works on the ‘Asset-Light Model’ wherein the contractor provides all the machinery, plants and stores for execution of the project.
- Ever since the inception of the company, the Railways Ministry has transferred to the company, of which, 174 projects were sanctioned for execution.
- 72 projects have been fully completed so far, totalling to an amount of Rs 20,567.28 crore and the balance projects are on-going.
- RVNL has an order book of Rs 77,504.28 crore as on December 31, 2018 which includes 102 ongoing projects.
- The company reported annual growth of over 33.74% in revenues during the Financial Year 2015-18.
- Pradeep Gaur is the current Chairman & Managing Director of the company.
What is Initial Public Offering (IPO)?
- The Initial Public Offering (IPO), also referred to as a stock market launch, is a process wherein an unlisted company declares itself public by issuing its shares to the institutional investors and retails investors.
- The process for IPOs starts when a company employs an investment bank/banks to take care of the IPO.
- Post the IPO, the issuing company becomes a publicly listed company on a recognised stock exchange. Notably, the IPO leads to listing and trading of the company’s securities.
Some people refer to an IPO as a public offering or as ‘going public.’ There are several other ways to go public like a direct listing or Direct Public Offering. A specific set of events take place when a company starts the IPO process,
Rail Vikas Nigam IPO: Key highlights
- The public sector enterprise Rail Vikas Nigam (RVNL) has launched its initial public offering for subscription on March 29 at a price band of Rs 17-19 per share.
- The Rail Vikas Nigam Ltd (RVNL) IPO reportedly comprises of up to 25,34,57,280 equity shares of the company through an offer for sale by the President of India, acting through the Ministry of Railways, Government of India, said a company statement on March 26, 2019.
- The issue, which includes a reservation of 6,57,280 equity shares for eligible employees, will close on April 3, 2019. Retail investors as well as eligible employee bidders will get shares at a discount of 50 paise per share on final issue price.
- It should be noted that RVN is a wholly-owned government company, a mini ratna central public sector enterprise, incorporated by the Ministry of Railways.
Key concerns for the Rail Vikas Nigam
- Post completion of the offer, the GOI will hold approximately 87.84% of the RVNL’s post offer paid up equity share capital.
- Under the Companies Act, it will remain as a public sector undertaking, owned and controlled by the President of India.
Should you invest in Rail Vikas Nigam IPO?
- Canara Bank Securities in a note to its clients recommends subscribing to the stock in the Rail Vikas Nigam IPO. As of March 31, 2018, the company had an EPS of Rs. 2.73 and NAV of Rs. 18.83.
- At the higher end of the price band of Rs. 19, the issue is priced at price to earnings of 7 times (post dilution) on FY18 and 7.8 times on H1FY19 (annualized) basis, which we believe is reasonable as compared to closely listed peer IRCON International that trades at price to earnings of 9.1 times on FY18 basis.
Considering government’s focus on rail infrastructure spends (Metro, Port-Rail Connectivity, electrification etc), healthy order book, asset light model and reasonable valuation, Centrum Wealth Research suggests investors subscribing to the issue from a long term perspective.