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Industry overview: Government of India (GOI) has been proactive and has brought in a variety of measures to step up public investments. This is reflected in the strong growth of the infrastructure sector since 2002. Investments across different sectors are listed below:

From independence to liberalization, India invested around 3% of its GDP in infrastructure which resulted in significant infrastructure gap. However, from the 10th Five Year Plan, the GOI started focusing on infrastructure investments in a big manner on a larger scale. The chart below compares the infrastructure spending across the last three five year plan periods.

OVERVIEW OF THE INDIAN RAILWAYS SECTOR: As per the Indian Railways Statistical Publications 2016; Indian Railways is one of world’s largest rail networks with 66,687 route kms of route lengths. It is a state-owned public utility of the GOI. The Ministry of Railways (MoR) oversees the Indian railway sector through the Railway Board, MoR (RB). The railway infrastructure and services are delivered by 16 geographically based Zonal Railways (ZRs). GOI identified ramping up investments in Indian Railways as the top priority area, realizing the lack of adequate carrying capacity and the resulting congestion that has accelerated Indian Railway’s loss of market share to other modal transports. Hence, in the last 3 years, GOI has made commendable progress in initiating infrastructure creation. The chart below indicates the amount of investments made since 2004:

SNAPSHOT

Issue Opens Wednesday, June 20, 2018

Issue Closes Friday, June 22, 2018

Price Band 180/185

Bid Lot 80 shares and multiples

thereafter

Face Value Rs10

Listing BSE & NSE

Type of Issue Offer for Sale

Offer Size (Rsmn)

Fresh Issue -

OFS 4,662

Total 4,662

*Implied Market Cap (Rsmn) 37,000

*PE

(Based on FY17 earnings)

10

*Note : Implied Market Cap & PE are calculated at higher price band of Rs185

Issue allocation

Reservations % of Net Issue

QIB 50%

NIP 15%

Retail 35%

Total 100%

Object of the offer

To carry out the divestment of equity shares

To achieve the benefits of listing the equity shares on the

Stock Exchanges

Last 3 year Summarized Financials

Rs(mn) FY15 FY16 FY17

Sales 10,127 10,905 13,534

EBITDA 3,470 3,564 3,583

EBITDA % 34.3% 32.7% 26.5%

Profit After Tax 3,122 2,829 3,618

Profit Margin % 30.8% 25.9% 26.7%

Earning Per Share 17.6 14.0 15.6

RoNW(%) 18.5 15.0 17.3

Details of Selling Shareholder & No of Shares

Government of India 25,200,000

Total 25,200,000

IPO UPDATE

RITES Limited

Source: RHP

IPO UPDATE

RITES Limited

Untapped opportunity: Under-investment in railways has led to overstretched infrastructure with more than 60% routes being more than 100% utilized leading to huge unmet passenger demand and decreasing modal share in freight. Further, due to passenger fares being low, the passenger trains utilized two-third of capacity and generated one-third of revenues, whereas high freight rates meant railway freight was getting out-priced in the market. Hence, in the last 3 years, GOI has made commendable progress in initiating infrastructure creation. As seen in chart below, the amount of investments made during the last 3 years is almost 75% of the total investments made in the railways during the past decade (FY04 – FY14).

About the company: Incorporated in 1974, Rail India Technical & Economic Services Ltd (RITES Ltd) is a Government of India Enterprise, under the aegis of Indian Railways. RITES Ltd, an ISO 9001:2008 company, is a multi-disciplinary consultancy organization in the fields of transport, infrastructure, and related technologies. It provides a comprehensive array of services under a single roof and believes n transfer of technology to client organizations. In overseas projects, RITES actively pursues and develops cooperative links with local consultants/firms, as means of maximum utilization of local resources and as an effective instrument of sharing its expertise The company has evolved from providing transport infrastructure consultancy and quality assurance services and has developed expertise in: 1. Design, engineering and consultancy services in transport infrastructure sector with a focus on railways, urban transport,

roads and highways, ports, inland waterways, airports, and ropeways 2. Leasing, export, maintenance, and rehabilitation of locomotives and rolling stock 3. Undertaking turnkey projects on engineering, procurement and construction basis for the railway line, track doubling, 3rd

line, railway electrification, up gradation works for railway transport systems and workshops, railway stations and construction of institutional/ residential/ commercial buildings, both with or without equity participation

4. Wagon manufacturing, renewable energy generation and power procurement for Indian Railways through collaborations by way of joint venture arrangements, subsidiaries or consortium arrangements.

5. Has a significant presence as a transport infrastructure consultancy organization in the railway sector. 6. It is the only export arm of Indian railway for locomotives, Rolling stock, equipment and spares.

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IPO UPDATE

RITES Limited

Client's of the company: In India, its clients include various central and state government ministries, departments, instrumentalities as well as local government bodies and public sector undertakings. These include Indian Railways, NTPC, Dedicated Freight Corridor Corporation of India Limited, High Speed Rail Corporation of India Limited, Public Works Department, DMRC, Steel Authority of India Limited, Rashtriya Ispat Nigam Limited, Hindustan Petroleum Corporation Limited, Bharat Coking Coal Limited, Metro Link Express for Gandhinagar and Ahmedabad (MEGA) Company Limited, Indian Port Rail Corporation Limited, Airports Authority of India, among others. We also engage with various large private sector corporations including L&T Metro Rail (Hyderabad) Limited, Kanti Bijlee Utpadan Nigam Limited (KBUNL), Cimmco Limited, Titagrah Wagons Limited, Snowmex Engineers Limited, Unity Infraprojects Limited, Rajdeep Buildcon Private Limited, Mahalsa Constructions Private Limited, Marymatha Constructions Limited, AFCON Infrastructure Limited, INCAP, ARK Services, MNEC Consultants Private Limited, Indian Geotechnical Services Limited, Geokno India Private Limited and NATRIP Implementation Society among others. Key Investment Rationale:

1) Diversified revenue stream:

2) Technical expertise and business divisions with specialized domain knowledge and stringent quality controls: The company has a strong technical expertise across the different business divisions. To serve its clients and customers with tailored solutions; the organization is streamlined (different divisions like Rail infra, Quality assurance, Technical services, Urban Infratech to mention a few) in order to meet the specific requirements of each such market segment. It has evolved from primarily being a railway consultancy services provider to a diversified multi-disciplinary transport infrastructure consultancy and engineering organization undertaking a wide gamut of services. 3) Large order book with diversified clientele base across sectors:

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Source: RHP

Source: RHP Source: RHP

IPO UPDATE

RITES Limited

4) Preferred consultancy organization of the Government of India including the Indian Railways: The company was incorporated by the MoR and has been contributing to the development of transport infrastructure in India for the last 44 years. It occupies a key position in the growth plans of the Government of India with respect to the infrastructure and energy space. The status of a public sector undertaking and with the established relationships with governments, governmental instrumentalities and other public sector enterprises in India as well as across various countries where the company has undertaken projects in the past, can be effectively leveraged to increase its presence and participation in the new emerging infrastructure sectors and in developing new business relationships with governments and government instrumentalities as well as private sector corporations both in India as well as internationally.

SWOT ANALYSIS:

Financials: The company has been debt free for more than 10 years and has been dividend paying since the last 5 years. The company has clocked revenue growth of 8% and 24% in FY16 and FY17 respectively. On the other hand, there has been a drop in the core PBT which indicates lack of pricing power of the company. On the net profits, there has been growth of -9.4% and 28% respectively. On a consolidated basis, the company has posted growth of CARG 15.62% in the topline and CAGR 7.73% in PAT for last three fiscals (FY15 to FY17). The debtors of the company have also been high. The company has been a mixed bag of financials in spite of being debt free and asset light.

Outlook and valuations:

At the price of Rs185, the company is trading at 11x its FY17 EPS. The company has valuations which do not appear to be stretched. The decent order book and revenue visibility, it is complimented with regular dividend payouts. However, one should not ignore the fact that the recent PSU listings have not being that great. (Going forward, for FY19, the government has set a divestment target of Rs80,000cr. The other railway firms which are likely to hit primary market include Rail Vikas Nigam (RVNL), Indian Railway Finance and IRCON International). Also with the subdued secondary market conditions, one may or may not get any listing gains. One can invest in the IPO with a long term perspective.

Particulars (Rs. mn) FY13 FY15 FY16 FY17 9MFY18 FY14

Revenue from Operation 9,556 10,127 10,905 13,534 9,362 10,965

Sales Growth -8% 8% 24% -31% 15%

EBITDA 2,177 3,470 3,564 3,583 2,997 2,811

EBITDA % 22.8% 34.3% 32.7% 26.5% 32.0% 25.6%

Profit After Tax 2,332 3,122 2,829 3,618 2,525 2,606

Profit Margin % 24.4% 30.8% 25.9% 26.7% 27.0% 23.8%

Source: RHP

Source: RHP

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IPO UPDATE

RITES Limited

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