RailTel

Mandatory Disclaimer: All the information is from the DRHP and RHP of RailTel. This post is for research purposes and is not a stock recommendation. I am neither entitled to any profits, nor liable to any losses that you make by taking investment decisions based on what you read here.

Overview

RailTel is an information and communications technology (“ICT”) infrastructure provider. It is one of the largest neutral telecom infrastructure providers in India. It’s completely owned by GoI as of now, and operated by the MoR (Ministry of Railways).

RailTel was incorporated in 2000 with the aim of modernizing the telecom system for train control and to generate additional revenues by creating nationwide broadband and multimedia network by laying optical fiber cable along railway tracks. [Right now, their optical fiber network covers 60,000 route kilometers].

Their net profit margin of 12.50% in F20 was the highest among the Key Telecom Companies and Key IT/ICT Companies in India.

Business Verticals

RailTel has presence in various sectors and provides multitude of services.

Telecom Network Services

• National Long Distance: Provides leased line for tele-services and VPN to enterprise customers.
• Internet Service Provider: Provides leased line for Internet to enterprise customers (B2B), and Broadband services to retail customers through “RailWire”.

Telecom Infrastructure Services (Passive Infrastructure)

• Provides storage, power, cooling, and physical security for servers and networking equipment of customers and connect them with a variety of telecommunications and network service providers.
• Provide space on their towers (for co-location BTS services) to other telecom operators.
• Provide fiber for transmission of digital video to cable distributors.

Managed Data Center and Hosting Services

• Data Center and Managed Hosting: IaaS, dedicated hosting, managed services, cloud computing, managed e-Office services, disaster recovery services, Aadhar authentication services and other IT related services.
• Telepresence Services (TPaas): End-to-end, high-definition, secure, hosted multi-tenant video conferencing facility.
• Security Operations Centre as a Services (“SOCaaS”).

Projects (Systems Integration Services)

• ICT Hardware, Software and Service System Integration Projects. [Eg: Creating state wide WAN, Wifi projects, city surveillance projects, etc].
• Digital Services.

In almost all the above verticals, the business is B2B. The only proper B2C section is RailWire services to broadband services.

Which Vertical Earns how much Revenue?

The following is the percentage breakdown for earnings of F20 and then for H21 for the four verticals.

• Telecom Network Services (51.4% and 59.4%).
• Telecom Infrastructure Services (12% and 15.2%).
• Managed Data Center and Hosting Services (2.5% and 2.54%).
• Projects (33.9% and 25.2%).

Analysis of P/L statements

Image source: Chittorgarh website

From F18 to F20,

• Revenues have had a decent growth (7% CAGR).
• The expenses have had similar magnitude of growth (5.6% CAGR).
• Taxes have been a little erratic.
• The bottom line (PAT) has been pretty stagnant (growth of just 2.5% CAGR).

When we consider H21, the percentages are even less encouraging. It’s because administrative and other expenses increased because of covid, along with significant increase in employee expenses and depreciation costs.

Analysis of the Balance Sheet

There’s not too much to look into here, but I did find one positive thing.

Their total assets are worth close to 2,480 crores. Out of this almost 1,400 is from equity capital and only 1,080 crores are from liabilities.

On further inspection, I found that since 2013, RailTel has been debt-free and completely funded by internal accruals. In times like these (as in, uncertain times), being self-funded can really help a company face more heat without having to give in.

So, apart from being backed by the GoI, bonus points here for some financial resilience.

Dividends

RailTel has been profitable since Fiscal 2007 and have consistently declared and paid dividends since Fiscal 2008.

The last two rows show dividend per share.

For the last three fiscals, they have paid dividends averaging ₹2.02 per share. For those very years, the EPS has averaged ₹4.25. So, since the last three years, they have been passing ~47% of their profits to the shareholders as dividends.

As the IPO is completely an OFS — so no new shares will be created hence there is no technical reason for the EPS to fall. Glancing at the financial figures of H21, I would say one can expect a dividend of ₹1.5 to ₹2 in the reminder of the fiscal.

At an issue price of ₹94 and dividend of ₹2, that would be a dividend yield of 2.1%.

If RailTel provides telecom services, then why didn’t they have to pay AGR dues?

The whole AGR fiasco was for companies who provide access networks. If I am interpreting it correctly, it refers to the companies selling us sim cards which provide us a way to connect to the internet. RailTel does not sell sim cards to people, they lease fiber — hence RailTel is not an “access service provider”.

So when the AGR issue happened, RailTel, along with the bunch of PSUs, filed petitions saying the same thing.

And well, nothing dramatic happened. The SC accepted the petition and relieved all such PSUs from AGR dues (because in the agreement for NLD and ISP licenses, the definition of AGR is different and does not contain the clause “any other miscellaneous revenue”).

Hence, RailTel does not have to worry about AGR dues.

Some cool (non-railway related) side projects of RailTel:

• Implementation Partner for building the National Knowledge Network (“NKN”), which will connect all higher education and research institutes across a common platform. [RailTel’s role is to provide high capacity bandwidth pipes].
• Installed and maintaining campus Wifi in 26 Central Universities
• Network Integrator for an Indian PSB.
• Implementing an HIMS for over 125 health establishments and 650 polyclinics of the Indian Railways. [HIMS is an integrated computerized clinical information system for improved hospital administration and patient health care.]
• Creating WAN for a Steel sector PSU. The final product will include support for video conferencing, online centralized business applications, ERP, e-mail, offline-data transfer, IP telephony and VoIP.
• Managing VPNs across various cities for coal sector PSUs.
• Network and System Integration Projects in Defense.
• An implementation partners for laying down optic fiber to 36,000 panchayats under “National Optical Fiber Network”.

There are many in the pipeline for which RailTel has submitted proposals.

Final Words

I did not do peer comparision here as RailTel has no proper peers. I did compare RailTel with core telecom and core IT/ICT companies (for the newsletter subscribers) as those two verticals that drive in are the biggest percentages of revenue.

Overall, my impression is that RailTel has a stable and steadily growing business model.

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