Rail Vikas Nigam OFS offers ‘great’ value

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Rail Vikas Nigam OFS offers ‘great’ value


Mumbai: A strong track record, robust order book, recovery of funds from railways, improved working capital cycle and decent dividend yield make Rail Vikas Nigam (RVNL) a good bet for retail investors at an offer for sale (OFS) price of Rs 27.50. The OFS will open for retail investors on Thursday.

The stock with a dividend yield of 3.7 per cent is currently trading at 1.05 times its book value or 7.2 times its trailing 12 months earnings, the cheapest among its peers in the similar business.

The government is selling a 10 per cent stake in the company with a green shoe option of 5 per cent at a floor price of Rs 27.50 per share. The non-retail portion of the OFS was fully subscribed on Wednesday. Shares of RVNL have declined 8.88 per cent to Rs 27.70.

“At the OFS price, the stock offers a great value to the investors as the company is a key beneficiary of the increase in railway capex and freight growth,” said Ankita Shah, analyst, Elara Capital. “Its order book provides strong book-to-bill visibility of 5.7x, with 70 per cent of projects under execution and order finalisation stage. This is likely to drive healthy execution over the next three years, with revenue CAGR of 18 per cent.”

The company, which reported revenue CAGR of 36 per cent and earnings CAGR of 31 per cent over FY15-20, has an order book of Rs 82,000 crore. The company has an asset-light, debt-free business model with a cash balance of Rs 1,300 crore, nearly 23 per cent of the current market capitalisation.

The company has witnessed an increase in the working capital cycle in H1FY21 to 142 days from 127 days in FY20, due to a delay in receipt of payment from the Ministry of Railways (MoR).

However, management expects faster recovery in the March quarter, leading to improvement in the working capital cycle. Its return on equity (ROE) on investments in SPV is higher than ROE of the company. “Efficient capital allocation to profitable SPVs with long concession tail of an average of 19 years provides potential annuity income linked to EXIM cargo growth in India,” said Ankita Shah of Elara Capital.



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