EQUITY RESEARCH REPORT(IPO)

RAILTEL CORPORATION OF INDIA

Company background
 RailTel is an information and communications technology (ICT) infrastructure
provider and is one of the largest neutral telecom infrastructure providers in India.
The company is a Mini Ratna (Category-I) central public sector enterprise (CPSE),
wholly-owned by the Government of India and under the administrative control of
the Ministry of Railways. It was incorporated on September 26, 2000 with the aim of
modernising the existing telecom system for train control, operation and safety and
to generate additional revenues by creating nationwide broadband and multimedia
network by laying optical fibre cable by using the right of way along railway tracks.
As of January 31, 2021, its optical fibre network covers 59,098 route kilometre and covers
5,929 railway stations across towns and cities in India. The transport network is built on high
capacity dense wavelength division multiplexing (DWDM) technology and an internet
protocol/multi-protocol label switching (MPLS) network over it to support mission critical
communication requirements of Indian Railways and other customers.
The company operates data centres in Gurugram, Haryana and Secunderabad, Telangana to
host and collocate critical applications for its customers including the Indian Railways. In
addition to strategic and critical network infrastructure services, it also undertakes various
ICT projects for the Indian Railways, central government and state governments, including
various train control system projects for Indian Railways.
The company’s portfolio of services can be broadly classified into a) telecom network
services, b) telecom infrastructure services, c) managed data centre and hosting services,
and d) projects (system integration services).

Telecom Network Services

 National Long Distance (NLD) Services: The company provides digital capacity to
carry long distance telecommunication services including various tele-services such
as voice, data, fax, text, video and multimedia. As part of its NLD services, it offers
the enterprise customers with: (i) leased line services; and (ii) MPLS based virtual
private network (VPN) facilities
 Internet service provider (ISP) services: As part of ISP services, it offers enterprise
customers internet leased line services with multiple bandwidth options ranging
from 2 MBPS and above across India. The company also offers retail broadband
services through its ‘RailWire’ platform.

Telecom Infrastructure Services

 Passive infrastructure (IP-1) services: The company provides storage, power, cooling
and physical security for servers and networking equipment of the customers and
connect them with a variety of telecommunications and network service providers.
In addition, it provides space on microwave towers for collocating base transceiver
stations (BTS) for telecom operators, small cell sites for extending their mobile
coverage and space for collocating mobile switching centres. The company also
provides single core dark fibre for transmission of digital video signals to multiple
system operators (MSOs) for cable distribution.

Managed Data Centre and Hosting Services

 Data centre and managed hosting services: It offers a variety of data centre services
including Infrastructure as a Service or IaaS, dedicated hosting, managed services,
cloud computing, managed e-Office services, disaster recovery services, Aadhaar
authentication services and other IT related services such as load balancing services,
application hosting, bandwidth services and advanced firewall services.
 Telepresence Services (TPaaS): It offers end-to-end, high-definition, secure, hosted
multitenant video conferencing facility bundled with required bandwidth as a service
 Security operations centre as a Services (SOCaaS): The security operations centre
(“SOC”) provides centralised and consolidated cyber security incident prevention and
security event monitoring services. It has detection response capabilities and
supports requirements of other business units. It is able to provide both offsite and
onsite security solutions.

Projects (system integration services

 ICT hardware, software and service system integration projects: The company
collaborates with partners and OEMs to undertake ICT hardware implementation,
 software delivery and digital transformation projects including creation of state
wide area network (WAN) and its maintenance, data centre and facility
management services, Wi-Fi projects, city surveillance projects, laying of statewide
fibre optic network and its maintenance, implementation and maintenance of end-
to-end IT applications of enterprises
 Digital services: The company also collaborates with partners who offer solutions/
applications that are hosted on its data centres. It offers digital services including
unified communications, Wi-Fi as a service, e-tendering/e-auction/smart payments
and disaster management services
 Other services: Other services offered include consultancy services for ICT services
and solutions and signalling services including signal design and design automation
software tools for the Indian Railways.

Competitive Strengths
Among largest neutral telecom infrastructure providers in India with pan-India optic fibre
network

 RailTel is one of the largest neutral telecom infrastructure providers in India. As of

January 31, 2021, the company had exclusive right of way along 67,415 route
kilometre connecting 7,321 railway stations for laying optical fibre cable. It has
59,098 route kilometre of optical fibre cable network and have connected 5,929
railway stations across towns and cities in India. Additionally, it has city wide access
 network that stands at over 18,000 kilometre and offers high capacity bandwidth of
up to 800G at 87 locations in India.
 RailTel offers leased line and VPN facilities and also provide IP-1 services. The
company believes this allows it to offer a unique proposition to telecom service
providers in India. Also, it provides strategic and critical network infrastructure to the
GoI and certain state governments. The company is also an implementing partner for
the Bharat Net project to create optical fibre cable based broadband infrastructure
in laying optical fibre cable across 36,000 gram panchayats in India. As of January 31,
2021, the company had completed laying over 25,000 kilometre of optical fibre
cables for 9,473 gram panchayats and 7,764 gram panchayats were service ready.
 RailTel has experience in providing managed ICT services to central and state
government agencies. Additionally, the company has developed a retail broadband
network and applications to retail customers across India through ‘RailWire’
platform. As of January 31, 2021, the company had 305,746 users of ‘RailWire’
service. Also, as part of operations, it has entered into arrangements with access
network providers to deliver the last mile connectivity services to customers. The
company believes this model enables them to better manage cash flows and helps
increase profitability

Diversified portfolio of services and solutions

 RailTel offers a diversified portfolio of ICT services and solutions including MPLS-VPN,
leased lines services, TPaaS, eOffice services and data centre services, large network
hardware system integration, software and digital services. In addition to laying
optical fibre cable network, the transport network is built on high capacity DWDM
and an IP/ MPLS network over it to support communication requirements of the
Indian Railways and other key customers. Also, the company has built optical fibre
cable network across cities and towns in India to provide end-to-end bandwidth
services through leased circuits, MPLS-VPN ports or Internet bandwidth ports. As of
December 31, 2020, it had connected 5,034 MPLS-VPN ports and 895 Internet
bandwidth ports for the customers.
 RailTel has entered into agreements with telecom companies and MSOs to lease
bandwidth and offer last mile optical fibre cable network connectivity across cities
and towns in India. In addition, the company provides NLD connectivity for Indian
Railways exchanges on NGN technology handling over 0.89 million minutes per
month. It also offers digital subscriber line access multiplexer for broadband at
railway colonies and provide Wi-Fi in various offices of the Indian Railways. The
provisioned bandwidth for railway applications grew from 38.12 Gbps as of March
31, 2020 to 54.82 Gbps as of December 31, 2020 reflecting a growth 1.4 times.

Key partner to Indian Railways in digital transformation

 RailTel serves as a key network for Indian Railways. It provides a variety of services to
the Indian Railways and has implemented MPLS data network for integrated payroll
and accounting system, unreserved ticketing system, freight operations information
 system and coaching operations information systems. As of December 31, 2020, its
MPLS-VPN for railways intranet aggregated to over 74.7 Gbps capacity and Internet
to over 25.06 Gbps capacity. The company is also working with the Indian Railways
to transform railway stations into digital hubs by providing public Wi-Fi at railway
stations across India. As of January 31, 2021, 5,929 railway stations were live with
‘RailWire’ Wi-Fi and recorded 16.04 million unique users in FY20.
 RailTel has implemented the ‘e-Office’ project for the Indian Railways. Other projects
with Indian Railways include implementing CoD services to passengers and the
railway display network to provide contextual railway related information, public
awareness messages and entertainment content to rail users using digital
technologies. These projects are expected to have a fixed minimum guarantee and
will work on a recurring revenue share model for providing these services over a 10-
year period. VSS is another project being implemented for the Indian Railways. In
October 2020, the MoR has assigned the task of implementation of hospital
management information system for over 125 health establishments and 650
polyclinics of the Indian Railways. RailTel believes the technical capabilities it has
developed over the years and the relationship with the Indian Railways serve as
entry barriers for other entities that seek to provide similar services to the Indian
Railways and its associate enterprises. Additionally, it believes strategic relationship
with the Indian Railways and capability to provide a diverse range of ICT services and
solutions has enabled them to grow the business.

Strong track record of financial performance

 RailTel has established a consistent track record of financial performance and
growth. It has been profitable since FY07 and has consistently declared and paid
dividends since FY08. In FY18, FY19 and FY20 and H1FY21, the company has paid
dividend of | 51.53 crore, | 62.47 crore, | 46.2 crore and | 20.0 crore, respectively.
Its net worth has been positive since incorporation and has been consistently
growing and was | 1,229.17 crore, | 1,289.08 crore, | 1,369.35 crore and | 1,394.63
crore in FY18, FY19 and FY20 and H1FY21, respectively. The operations have been
funded entirely by internal accruals since FY13 and are a debt-free company. In FY20,
its gearing ratio was the lowest among key telecom companies and key IT/ICT
companies in India.
 Revenue from operations have grown at a CAGR of 7.47% from | 976.77 crore in
FY18 to | 1,128.05 crore in FY20 and were | 537.4 crore in H1FY21. EBITDA for FY18,
FY19 and FY20 and H1FY21 was | 282.05 crore, | 337.15 crore, | 322.46 crore and |
146.44 crore, respectively. In FY20, the company had the highest RoCE among key
telecom companies and key IT/ICT companies in India, with a RoCE of 14.00% and
was 4.64% in H1FY21. In FY20, the company reported the highest net profit margin
among key telecom companies and key IT/ICT companies in India, with a net profit
margin of 12.50% while net profit margin was 8.48% in H1FY21. It is ranked first in
terms of operating profit margin among the key IT/ICT Companies in India in FY21.
Strategies
Continues to expand telecom services, deploy latest technologies
 RailTel believe that its extensive network is a key differentiator in the market and a
key value proposition in delivering services to the customers. To build 5G
infrastructure in India, fibreisation of telecom towers is a prerequisite. Therefore,
the company intends to create open radio access networks, small cell and tower
infrastructure at railways stations for hosting telecom players to assist with their
preparation for the 5G network, plan to continue to invest in expanding network and
deploying latest technologies to enable a high capacity next generation network in
order to deliver sustained value to customers. The company intends to create
neutral telecom infrastructure to allow them to host telecom players at railway
stations in India. It also intends to work with banks and financial institutions to
create an integrated network and build capabilities of managing NOC operations of
such institutions. RailTel has submitted a proposal and detailed project report for a
sustainable services led model to provide connectivity in villages using its network in
rural areas as well as leveraging network of certain partners to access the gram
panchayat network. The detailed project report for Jharkhand and Maharashtra has
been submitted, which are under consideration by the Department of Telecom.
 While RailTel utilises a number of advanced technologies, it intends to continue to
invest in network and technology infrastructure, to improve existing technology
systems or implement new, more advanced technology systems that may be
developed. Its endeavour is to focus on MPLS and software defined WAN by
evaluating and empanelling multiple OEMs to create a collaborative service delivery
model. It believes that this will enable them to continue to deliver high quality,
market leading and competitive service offerings, which will drive growth.

Further diversify services and solutions with a focus on Indian Railways

 RailTel plans to enhance its focus on provision of services that have high market
attractiveness and in particular work with the Indian Railways. The Indian Railways
currently uses GSM-R based network and intends to migrate to the LTE network. The
company intends to work with the Indian Railways to develop and manage their
proposed LTE network that will create a private network along a railway tracks. The
company also intends to work with the Indian Railways to meet their current and
emerging communication infrastructure requirements by implementing the High
Speed Mobile Communications Corridor. The proposed HSMCC will cater to current
and future voice and data needs of train-ground and train-train communication of
rail assets, automatic train operations and on-board passenger services. Additionally,
the company have been managing IP-MPLS infrastructure for several years and it
believes that they are well positioned to execute this project.
Expand services outside India
 Given RailTel’s expertise in handling a range of ICT infrastructure projects and ability
to provide diversified service and solutions, it intends to offer its services selectively
in jurisdictions outside India. It is currently in the process of bidding for project in
Africa that include supply, delivery, installation, testing and commissioning of goods
and service for digital literacy in public primary schools in Kenya. RailTel will look to
leverage its expertise of working and developing projects for the Indian Railways,
particularly modernising and digitising the existing networks, to other projects in
Bangladesh. In addition, it is exploring business opportunities in Mauritius and in
particular in the healthcare segment. It intends to become a platform for regulators
and fintech 131 providers and implement these applications in other developing
countries.

Key Risks & Concerns

 RailTel’s operations are subject to governmental regulation regarding licensing,
competition, and costs and arrangements pertaining to interconnection and leased
lines. Licenses are heavily administered and interpreted by regulators and decisions
by regulators, including the fees payable, amendment or revocation of any existing
licenses. Changes in laws, regulations or governmental policy affecting company’s
business activities could adversely affect business, prospects, financial condition,
cash flows and results of operations
 RailTel’s business is substantially dependent on projects awarded by government
establishments, including central, state and local authorities and agencies and public
sector undertakings. Any adverse changes in government policies and budgetary
allocation resulting from a change in government policies or priorities, could
materially and adversely affect company’s financing, capital expenditure, revenues,
or operations relating to its existing and proposed projects as well as its ability to
participate in competitive bidding or negotiations for the future projects
 RailTel relies on third parties for certain services, including empanelled partners and
OEMS for ICT hardware implementation, software delivery and digital
transformation. The company also enter into arrangements with access network
providers to deliver last mile connectivity services to customers. Additionally, it
engages with third-parties for the supply of network equipment, including fibre optic
cables, IT software and other products, and for the supply of services to operate and
maintain network and to deliver services to customers. The loss of key suppliers or
their failure to deliver equipment or perform services in a timely or satisfactory
manner could adversely affect company
 As of January 31, 2021, RailTel have access to right of way for optical fibre cable
network along 67,415 route kilometre over railway tracks and have high capacity
optical fibre cable network along 59,098 route kilometre. In addition, the company
has optical fibre cable network along 8,852 route kilometre over land and building
owned by third-parties. The company intends to continue to expand network, which
may involve building new network infrastructure over new land or connecting its
network to or installing its network devices in new locations and buildings. However,
its ability to further expand the coverage of network or to maintain the coverage of
existing network may be limited by the ability to obtain or renew access rights on
land or buildings owned by third-parties.

Financial summary
CHANDER MAULI TRIPATHI(2K18/BBA/26)
DHERANDRA KHOLIYA(2K18/BBA/132)