RailTel Q3 Results Review - Project Revenue Driven Growth: ICICI Securities

ICICI Securities Report

Railtel Corporation of India Ltd.'s Q3 FY24 revenue grew higher on favourable base, but consistent telecom business Ebit margin at greater then 20% is a positive surprise. The company continues to work along the Indian Railways for developing ecosystem for two key projects - LTE deployment and implementation on Kavach.

Railtel’s significant growth will likely be driven by lowmargin project business; ordering for these projects may optimistically start in next 12 months. We have increased our earning per share estimates by 7-16% factoring in higher margins in both the businesses.

However, our revenue estimate for project business stands at Rs 15 billion for FY25E, growing at 20% thereon. We raise our target price to Rs 250 (from Rs 140) as we roll over valuations to FY26E, and increase price earning multiple to 20 times (from 15 times).

This implies enterprise value/Ebitda multiple of 10 times for FY26E. We downgrade the stock to 'Sell' (from Buy) on stretched valuations.

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