RITES IPO opens today as the first mainboard public offer in June. The offer is priced in the rage of INR180 – 185 per share and retail investors will get a discount of INR6 per share on it. Investors can make applications in multiples of 80 shares. Several brokerage houses and analysts have come up with their research notes on the PSU IPO and the recommendations are positive. This is in line with the number of positives we highlighted in our analysis. Here is a quick compilation of RITES IPO recommendations by major brokerage houses.
Angel Broking has a positive view on the IPO, given the healthy order book and diversified clientele base of RITES. “In terms of valuations, pre-issue PE works out to 12x of annualized FY18 EPS `17 (at the upper end of the issue price band), which is reasonably priced considering (a) 3.5x of order book with execution capability and experienced management, (b) maintaining the RoE level in the range of 17- 18%, (c) diversified client base and (d) increasing opportunity of revenue from Railways due to new investment in electrification and infrastructure. Given that the RITES is a preferred consultant of Indian Railways along with other government authorities with exposure in international operation and fair valuation of issue, we recommend SUBSCRIBE to issue,” said the brokerage house in its report.
Choice Broking noted that there are no comparable listed companies in India that engage in the same line of business as of RITES. “On valuation front, at higher price band, the company is demanding a P/E valuation of 10.2x (to its restated FY17 EPS of Rs. 18.1). The issue seems to be attractively priced considering its strategic importance, limited competition, virtually debt free operations and healthy financial performance. Thus considering the above observation we assign a “SUBSCRIBE” rating to the issue with long term investment horizon,” said analyst Rajnath Yadav in his IPO note.
GEPL Capital is also among the brokerage houses with positive RITES IPO recommendations. “RITES Ltd. (RITES) stands to gain from operating leverage. At a P/E of 27xs of FY17 EPS, we believe that Rites demands a fairly valued. We assign a Subscribe rating to the IPO,” noted the brokerage house.
“Given RITES competence along with a good track record, healthy financials and attractive valuations, we advise investors to subscribe to the issue,” mentioned Centrum Broking’s IPO note.
Similarly, IIFL observed that the healthy order book offered revenue visibility over the next 2-3 years but also noticed that earnings growth may be limited. “The company is almost debt free and is sitting on a cash pile of ~Rs 11.3 billion. While RITES is valued at 11x FY18E (ann.) P/E which is at a discount to its peers like NBCC and Engineers India, the increasing mix of low margin turnkey business in overall revenue pie would likely keep earnings growth under check,” said its research report on RITES IPO.
Mehta Equities believes RITES is well placed in Design, engineering and consultancy services and enjoys the benefit of being associated with the Indian Railways. “On valuation perse the issue is well priced and is being offered at 11x FY18 Price to earnings vs Avg 20x peers and on P/BV issue is 0available of 1.9x vs Avg 3x peers. However, in the view of the reasonable valuations, buoyant outlook on railway capex, Debt Free and robust order book, we recommend investors to ‘SUBSCRIBE’ on the issue while looking at the volatility in the market, investors may see muted listing gains, with long term perspective stock can deceiver healthy returns,” noted the brokerage house adding further to positive RITES IPO recommendations.
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While the business model of RITES is sound, valuations make all the difference and the company has done a good job of keeping the issue pricing at attractive levels amid uncertainties in the secondary market. This has enabled a healthy premium in grey market as well. Head to our discussion page to check how other investors on the IPO street are receiving the offer.