Market Debut: Rites gains 21% on listing day; should you buy?

RITES Ltd, a wholly owned government company, made its market debut on stock exhanges today. The railway consulting firm listing at Rs 190 on the BSE, a 2.7% premium over the issue price of Rs 185. During the trading session, Rites has seen positive sentiments from investors. The company gained by 21.29% on debut day by touching a high of Rs 244.40 per piece. However, it finished at Rs 212.70 per piece which was up by Rs 27.70 or 14.97% as against issue price. 

RITES IPO was open during June 20-22 and was in a price band of Rs 180-185. RITES is the first state-owned firm to hit the IPO market in the current fiscal year.

The share sale of the state-owned firm to raise about Rs 466 crore received bids for over 169 crore shares against the total issue size of 2.52 crore shares, resulting in a total subscription of 67.12 times.

Government's objective of Rites IPO was to carry out the disinvestment of 24,000,000 Equity Shares held by the Selling Shareholder in the Company, equivalent to 12% of the issued. Also to enjoy the benefit listing the equity shares on the stock exchanges. 

Analysts were very optimistic on this IPO, however, Reliance Securities has highlighted a list of factors that need to be remembered while investing in the RITES. 

Pros

• Wide range of consultancy services and a diversified sector portfolio in transport infrastructure space. 
• Strong order book of Rs 48.2bn (3.6x FY17 revenue) 
• Preferred consultancy organisation of the Government of India including Indian Railways.
• Large order book with diversified clientele base across sectors. Consistent financial performance aided by robust internal control and risk management system. 
• Strong investment in infrastructure and expanding international operations

Cons

• Over dependence on Railway orders, any slowdown in Railway capex may impact order inflow and revenue.
• Slowdown in capex in infrastructure and energy sector.
• Any change in government policies or funding agencies for lines of credit.
• Aggressive bidding by existing or new player.

Rites market capitalisation stands at Rs 4,254 crore.