RITES Ltd – On the superfast track

RITES Ltd, incorporated in 1974, is a Miniratna (category–I) schedule ‘A’ public sector enterprise. It is a leading player in the transport consultancy and engineering sector in India with diversified services and geographical reach under one roof. RITES has an experience of over 44 years and have undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East. RITES is the only export arm of Indian Railways for providing rolling stock overseas.
RITES is the only exports arm of the Indian Railways that provides rolling stock overseas other than Thailand, Malaysia and Indonesia taken care by IRCON, which are produced by various arms of India Railways like Chittaranjan Locomotive Works, Diesel Locomotive Works and Integral Coach Factory. In FY18, the Company received the highest exports order of Rs.680 cr to supply 10 diesel electric locomotives and six diesel multiple units train sets of 13 coaches each from the Sri Lankan Railways.
RITES has multiple sources of revenue. It conducts techno-economic & feasibility studies and prepares detailed project reports, design engineering services, procurement, project management consultancy, quality assurance, and inspection, material systems management including commissioning support, operations & maintenance. The Company also leases locomotives to domestic & foreign clients. It operates and maintains railway systems of domestic clients & maintenance for locomotives. The Company also exports locomotives, passenger coaches, wagons, equipment & spare parts. RITES also undertakes construction projects such as railway line enhancement work, modernization of railway workshops and building works on cost plus basis in addition to turnkey construction projects on EPC basis by equity participation.
Breakup of revenue (FY19)

In the past five years, there has been a huge rise in capital expenditure by the Indian Railways. Cumulative capex stood at Rs.5.1 lakh cr over FY15-19 vs Rs.46,000 cr over FY09-14. Nirmala Sitharaman, in her budget speech, maintained railways’ capex at Rs.1.58 lakh cr. This exponential thrust on infrastructure spend will likely benefit RITES.
Rapid rise in urbanization and vehicular traffic have put significant pressure on existing urban infrastructure; hence, there is an urgent need to invest in urban rail transit systems. The working group on Urban Transport of the Planning Commission of India has recommended cities with population more than 20 lakh should initiate rail transit projects and cities exceeding 30 lakh people should construct metro rail systems.
RITES order book currently stands at Rs.6,097 cr and is expected to grow by over 15% this year which provides strong revenue visibility for next few years. With over 2.5 years revenue visibility we expect strong revenue growth over next few years.
RITES has paid dividends regularly and payout ratio has been in excess of 50% for last couple of years. Current dividend yield is hovering around~4.4%. The Company follows guidelines on Capital Restructuring of Central Public Sector Enterprises for distribution of dividend i.e. minimum dividend of 30% of PAT or 5% of net worth whichever is higher.
RITES revenue has grown at a CAGR of 13.3% from Rs.1,096 cr in FY14 to Rs.2,047 Cr in FY19. The Company has been consistently profitable and PAT has grown at a CAGR of 12.5% over FY14-19. The Company’s stable financial position enables it to satisfy the minimum financial eligibility criteria for bidding in projects. An asset light business model ensures healthy return ratios with RoE at 19% and RoCE at 28% for FY19.

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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 10 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’

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