IPO Note | Consultancy Services

March 28, 2019

Rail Vikas Nigam Ltd. (RVNL)

sue Open: March 29, 2019

Issue Close: April 03, 2019

Rail Vikas Nigam Ltd. (RVNL) is a wholly owned Government Company, a

Miniratna (Category - I) Schedule ‘A’ Central Public Sector Enterprise. RVNL is a

project executing agency working for and on behalf of MoR (Ministry of Railways).

Issue Details

It undertakes rail project development, mobilization of financial resources and

Face Value: `10

implementation of rail projects pertaining to strengthening of golden quadrilateral

and port connectivity coupled with raising of extra-budgetary resources for project

Present Eq. Paid up Capital: `2,085cr

execution. The role of RVNL is to mobilize finances and is restricted to forming of

Offer for Sale: `477cr

project specific SPVs with private participation.

Retail & Employee Duscount:

Healthy order book with diversified revenue stream: RVNL’s order book stood at

`0.5/Share

~`77,500cr as of December 2018, out of which ~`43,000cr is expected to get

Post Eq. Paid up Capital: `2,085cr

executed over 2-3 years, and the remaining is with a longer gestation period. In

the light of future investment opportunity in railways, we believe RVNL is in a

Issue size (amount): *`426cr -**477 cr

sweet spot to tap the opportunities going forward. Moreover, RVNL has been

successfully able to corner 20-30% of work from MoR (in railway electrification

Price Band: `17 - `19

and doubling of line), which formed roughly 40% of December 2018 order book.

Lot Size: 780 shares and in multiple

Expertise in undertaking all stages of project development and execution from

thereafter

conceptualization to commissioning: Initially RVNL undertook the execution of new

Post-issue implied mkt. cap: *`3,545cr

- **`3,962cr

lines, doubling, gauge conversion, and railway electrification projects. Further,

upon establishing a good track record in the area of execution of these

Promoters holding Pre-Issue: 100%

conventional type of projects, it has diversified and is now executing various types

Promoters holding Post-Issue: 87.8%

of projects including construction of new railway lines in hilly regions, metro lines,

*Calculated on lower price band

workshops and institutional buildings.

Outlook & valuation: In terms of valuations, PE works out to 6.9x FY18 EPS of

** Calculated on upper price band

`2.77 and annualized 6MFY19 PE works out to 7.8X (at the upper end of the

Book Building

issue price band) which is reasonably priced considering (a) healthy order book

QIBs

50% of issue

with near and long term execution visibility, (b) highly capable and experienced

management coupled with asset light business model, (c) healthy dividend payout

Non-Institutional

15% of issue

ratio around 30% in last three years, (d) diversified revenue segment, and (e)

Retail

35% of issue

increasing revenue opportunity from railways due to new investment in

electrification and infrastructure. Given that RVNL is an executing agency of MoR,

we believe it is in a sweet spot to tap the upcoming opportunities in Indian

Post Issue Shareholding Patter

Railways. On the basis of the above arguments, we recommend SUBSCRIBE to

Promoters

88%

issue.

Key Financials

Others

12%

Y/E March (` Cr.)

FY15

FY16

FY17

FY18

FY19*

Net Sales

3,147

4,540

5,915

7,597

7,246

% chg

(5)

Net Profit

337

429

443

570

507

% chg

(11)

EBITDA (%)

146

217

282

389

323

EPS (Rs)

1.62

2.06

2.13

2.73

2.43

P/E (x)

11.76

9.23

8.93

6.95

7.81

P/BV (x)

1.29

1.16

1.11

1.01

0.98

Kripashankar Maurya

RoE (%)

11.0

12.5

14.5

12.5

+022 39357600, Extn: 6004

RoCE (%)

2.5

3.5

4.6

5.9

5.0

[email protected]

EV/EBITDA

41.6

30.0

23.5

20.6

26.0

Source: RHP, *Annualized calculated number, Note: Valuation ratios based on post outstanding shares and at upper end of the price ban

Please refer to important disclosures at the end of this report

RVNL | IPO Note

Company background

RVNL is a wholly owned Government Company, a Miniratna (Category - I) Schedule

‘A’ Central Public Sector Enterprise. RVNL is project executing agency working for and

on behalf of MoR. It undertakes rail project development, mobilization of financial

resources and implementation of rail projects pertaining to strengthening of golden

quadrilateral and port connectivity coupled with raising of extra-budgetary resources for

project execution. The role of RVNL is to mobilize finances and is restricted to forming

of project specific SPVs with private participation.

Issue Details

The company is raising ~`477cr through an offer for sale in the price band of `17-19

with retail and employee discount of Rs0.5/share. The offer will constitute ~12.15% of

the post-issue paid-up equity share capital of the company, assuming the issue is

subscribed at the upper end of the price band. The company is offering 25.34cr shares

that are being sold by Government of India (GOI).

Exhibit 1: Pre and Post-IPO shareholding pattern

No of shares (Pre-issue)

% No of shares (Post-issue)

Promoter (GOI)

2,08,50,20,100

100%

1,83,15,62,820

88%

Other

25,34,57,280

12%

Total

2,08,50,20,100

100%

2,08,50,20,100 100%

Source: RHP, Angel Research; Note: Calculated on upper price band

Objects of the offer

 As the issue is an offer for sale, RVNL will not receive any proceeds from the offer.

Outlook & valuation:

In terms of valuations, PE works out to 6.9x FY18 EPS of `2.77 and annualized

6MFY19 PE works out to 7.8X (at the upper end of the issue price band), which is

reasonably priced considering (a) healthy order book with near and long term

execution visibility, (b) highly capable and experienced management coupled

with asset light business model, (c) healthy dividend payout ratio around 30% in

last three years, (d) diversified revenue segment, and (e) increasing revenue

opportunity from railways due to new investment in electrification and

infrastructure. Given that RVNL is an executing agency of MoR, we believe it is in

a sweet spot to tap the upcoming opportunities in Indian Railways. On the basis

of the above arguments, we recommend SUBSCRIBE to issue.

Key Risks

High dependence on railway orders

RVNL receives most of the orders from the Railways, hence any slowdown in railway

spending may adversely impact the financial performance of the company.

March 28, 2019

RVNL | IPO Note

Income Statement

Y/E March (` Cr.)

FY15

FY16

FY17

FY18

FY19*

Total operating income

3,147

4,540

5,915

7,597

7,246

% chg

(5)

Total Expenditure

3,001

4,322

5,633

7,209

6,923

Raw Material

2,896

4,189

5,468

7,024

6,702

Personnel

117

134

155

Others Expenses

EBITDA

146

217

282

389

323

% chg

(17)

(% of Net Sales)

Depreciation& Amortisation

EBIT

140

213

277

384

318

% chg

(17)

(% of Net Sales)

Interest & other Charges

Other Income

123

180

248

225

295

(% of PBT)

Extraordinary Items

Share in profit of Associates

Recurring PBT

248

370

489

563

570

Share in Profit/(Loss) of Joint Ventures

128

129

100

% chg

Tax

PAT (reported)

376

499

543

663

618

% chg

(7)

(% of Net Sales)

Basic & Fully Diluted EPS (Rs)

1.62

2.06

2.13

2.73

2.43

% chg

(11)

Source: RHP, Angel Research

Note *Annualized number

March 28, 2019

RVNL | IPO Note

Balance sheet

Y/E March (`Cr.)

FY15

FY16

FY17

FY18

6MFY19

SOURCES OF FUNDS

Equity Share Capital

2,085

Reserves& Surplus

975

1,337

1,472

1,840

1,977

Shareholders Funds

3,061

3,422

3,557

3,925

4,062

Total Loans

2,514

2,624

2,437

2,634

2,286

Other Liab & Prov

Total Liabilities

5,580

6,054

6,003

6,608

6,385

APPLICATION OF FUNDS

Net Block

249

Other Investments

897

1,020

1,255

1,244

1,274

Investments

498

Current Assets

13,517

18,118

3,998

3,282

3,697

Inventories

11,565

14,824

766

Sundry Debtors

262

590

479

1,177

1,439

Cash & Bank

808

1,378

1,255

343

Bank

882

1,327

1,498

1,761

2,201

Loans & Advances

722

1,885

1,903

1,529

1,559

Other Assets

495

1,177

1,686

2,255

1,945

Current liabilities

10,556

16,162

2,857

1,960

2,348

Net Current Assets

2,961

1,957

1,141

1,322

1,349

Other Non Current Asset

Total Assets

5,580

6,054

6,003

6,609

6,385

Source: RHP, Angel Research

March 28, 2019

RVNL | IPO Note

Cash Flow

Y/E March (` Cr)

FY15

FY16

FY17

FY18

6MFY19

Profit before tax

3,766

4,990

5,433

6,640

3,101

Share in (Profit)/Loss

(1,281)

(1,289)

(542)

(998)

(244)

of JV

Depreciation

Others

(876)

(1,321)

(1,645)

(1,235)

(1,281)

Change in Working

1,660

2,426

3,296

4,456

1,604

Capital

Adjustments for

(Increase)/

(25,162)

(46,734)

138,933

(1,256)

(2,920)

Decrease in Operating

Assets:

Adjustments for

(Increase)/

25,132

56,113

(133,771)

(5,234)

3,986

Decrease in Operating

Liabilities:

Direct Taxes Paid/

495

5,285

2,759

1,087

550

Received

Cash Flow from

1,134

6,519

5,698

(3,122)

2,119

Operations

(Inc.)/ Dec. in Fixed

(84)

(104)

(1,798)

(974)

(95)

Assets

(Inc.)/ Dec. in

(208)

1,101

1,544

790

914

Investments

Cash Flow from

(292)

997

(254)

(184)

819

Investing

Issue of Equity

Inc./(Dec.) in loans

(1,523)

(1,823)

(6,684)

(5,812)

(5,860)

Others

Cash Flow from

(1,523)

(1,823)

(6,684)

(5,812)

(5,860)

Financing

Inc./(Dec.) in Cash

(680)

5,693

(1,240)

(9,117)

(2,921)

Opening Cash

8,761

8,081

13,776

12,546

3,429

balances

Closing Cash

8,081

13,774

12,537

3,428

507

balances

Source: RHP, Angel Research

March 28, 2019

RVNL | IPO Note

Valuation ratio

Y/E March

FY2015

FY2016

FY2017

FY2018

FY19*

Valuation Ratio (x)

P/E (on FDEPS)

11.8

9.2

8.9

7.0

7.8

P/CEPS

11.6

9.1

8.8

6.9

7.7

P/BV

1.29

1.16

1.11

1.01

0.98

EV/Sales

1.92

1.44

1.12

1.05

1.16

EV / Total Assets

1.08

1.10

1.21

1.31

Per Share Data (Rs)

EPS (Basic)

1.6

2.1

2.7

2.4

EPS (fully diluted)

1.6

2.1

2.7

2.4

Cash EPS

1.6

2.1

2.2

2.8

2.5

DPS

0.2

1.2

0.8

0.5

Book Value

14.7

16.4

17.1

18.8

19.5

Returns (%)

ROCE

2.5%

3.5%

4.6%

5.9%

5.0%

Angel ROIC (Pre-tax)

4.1%

6.4%

8.5%

7.7%

ROE

11.0%

12.5%

14.5%

12.5%

Turnover ratios (x)

Inventory / Sales (days)

1,342

1,192

0.1

0.3

Receivables (days)

21.7

38.7

17.2

44.9

59.3

Payables (days)

5.2

7.3

6.8

3.3

7.5

Working capital cycle (ex-cash) (days)

1,358

1,223

Source: RHP, Angel Research

Note *Annualized number

March 28, 2019

RVNL | IPO Note

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Disclosure of Interest Statement

RVNL

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or

relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

March 28, 2019