Railtel Corporation of India expecting 25% revenue growth in FY22, ICICI Securities

Railtel’s Q2FY22 net profit at Rs675mn was much better with 29% YoY revenue growth in telecom services and reversal of ECL provisioning. Consistent delivery of 25-30% EBIT margin in telecom services is key to watch. Project revenues did not accelerate during H1FY22 due to lack of execution, but Raitel is hopeful for H2FY22. Railtel has guided for at least 25% higher revenues in FY22 as growth momentum is expected to continue even on the high base of H2FY21 with a strong pipeline of projects. Orderbook remains healthy at Rs50bn and has grown by 25% since listing. Company is also eyeing projects worth Rs70bn-100bn from the Railways for implementing high-speed data connectivity on 700MHz band, and expansion of towers to 5,000 from the current 1,100. We have increased our EPS estimates by 5.3% / 4% for FY22E / FY23E and target price to Rs162 (from Rs156).

· EBITDA grew 52% YoY on low base. Railtel revenues rose 26.7% YoY (16.9% QoQ) to Rs3.6bn driven by 29.3% growth in telecom services to Rs2.7bn. Project revenues grew 19.9% YoY to Rs927mn on gradual recovery in execution. However, EBITDA staged a strong 52% YoY growth to Rs1bn on low base due to ECL impact in Q2FY21 while Q2FY22 had reversal of ECL. The ECL reversal has been captured in ‘other income’, which rose to Rs226mn from Rs85mn in Q1FY22; thus the existing EBITDA run-rate is sustainable. Company sees steady-state admin cost of Rs200mn-250mn in the future vs Rs1.15bn in FY21 on Rs831mn ECL provisioning. EBIT rose 122% YoY to Rs698mn on 75% growth in telecom services’ EBIT. Net profit rose 131% YoY to Rs675mn.

· Telecom revenues benefited from strong growth in ISP. Telecom revenues were up 29.3% YoY to Rs2.7bn after subdued performance in past few quarters. This was driven by a surge in the ISP segment (up 57% YoY in H1FY22) and 26% revenue growth in infrastructure segment. NLD rose at a lower run-rate of 5% YoY. ISP benefitted from strong addition of Railwire subs at 422k (vs 318k in FY21) with ARPU of Rs500, which has marginally dipped on price cut from peers. Railtel sees strong revenue growth even in H2FY22 due to execution of certain projects from the Railways and coal companies. Telecom services EBIT grew 75% YoY to Rs707mn. EBIT margin normalised to 26.6% as it was hurt from ECL provisioning in the past few quarters.

· Project segment EBIT margins were low at 5.7%. Project revenues grew 20% YoY to Rs927mn. Though the orderbook remains strong at Rs50bn, execution was impacted from lockdown despite gradual recovery. However, Railtel expects strong recovery in H2FY22 as it starts executing some of the projects. Company expects the COD project to be awarded to a new operator, which should help recognise revenues in future.

· Company has guided for 25% revenue growth in FY22. Railtel expects H2FY22 revenue growth to be strong with significant acceleration in the project segment. This compares with the 23.8% growth in H1FY22 on a low base. Telecom services revenues should continue to grow with completion of projects, particularly in the coal sector. Absence of ECL provisioning implies much better profitability for Railtel in H2FY22.

Financial Summary
CT Bureau