RailTel grey market premium surges 50% ahead of IPO; should you book profit or hold for long-term?

State-owned RailTel Corporation of India share price surged in the grey market on Saturday. The shares of the largest neutral telecom infrastructure providers in India were seen trading at Rs 141, implying an upside of Rs 47 or 50 per cent over the issue price of Rs 94 apiece, in the grey market. In the last two days, RailTel grey market premium has jumped to Rs 47 from Rs 32 on Thursday. The issue will open for subscription on February 16 and close on February 18, 2021, in the price band of Rs 93-94 apiece. The company has no listed peers in India that engage in a business similar to that of RailTel Corporation of India Ltd. The equity shares are proposed to be listed on both BSE and NSE. In December 2018, the cabinet had approved IPO of RailTel Corporation of India by diluting up to 25 per cent government stake.

Also read: RailTel IPO opens Feb 16; check grey market premium, price band, lot size, other details

Subscribe to RailTel IPO for listing gains or long-term?

As of January 31, 2021, RailTel Corporation’s optical fiber network covered 59,098 route kilometres and 5,929 railway stations across towns and cities in India. The Mini-Ratna category company operates data centers in Gurugram, Haryana, Secunderabad, Telangana to host and collocate critical applications for customers including the Indian Railways.

In addition to strategic and critical network infrastructure services, they also undertake various ICT projects for the Indian Railways, central government, and state governments, including various train control system projects for Indian Railways, says Aditya Kondawar, Founder and COO, JST Investments. He told The Outlooker Online that at the upper price band of Rs 94, the issue is priced at a 33.1x P/E ratio and 2.2x P.BV which is very expensive for a government company. “The expensive valuations and the market froth make us wary of this IPO. For the long term, we have no view on the IPO,” he said. While for the short term, it seems that the company will list at a good premium given its grey market premium of 50 per cent.

Abhay Doshi, Founder, UnlistedArena.com, dealing in Pre-IPO & Unlisted Shares, told The Outlooker Online that the company has exclusive Right of Way (ROW) along railway tracks and is also focused on establishing connectivity in north-east regions. This telecom infrastructure provider should benefit on the arrival of 5G in India as fiberization of telecom towers is prerequisite to build 5G infrastructure. The company is looking forward to increase capex on its data centres which should yield good returns ahead. “Hence, as the digital theme is playing out and we are seeing traction in the PSU sector, Railtel looks a decent bet, both in short and long-term,” Doshi added.

Those at Angel Broking Ltd have also given a ‘subscribe’ rating to the issue for the long-term and as well as for listing gains. Keshav Lahoti, Associate Equity Analyst, Angel Broking Ltd, said that RailTel is going to play a key role in the digital transformation of Indian Railways. Company’s margins & return ratios are better compared to other telecom players in India. The company also has a strong financial position (debt-free) and has been consistently paying dividends since 2008. Company has priced its issue at 21.4x PE on an FY20 trailing basis, which is quite reasonable by looking at the strong future growth rates of the company. “We expect a good listing for the company. We are positive on the long term prospects of the industry as well the company,” Lahoti said.

(The recommendations in this story are by the respective research and brokerage firm. The Outlooker Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)