RITES buys 24% stake in IRSDC

RITES – the state owned engineering consulting firm – has received board approval to acquire a stake of 24% in Indian Railways Station Development Corporation (IRSDC) for total consideration of Rs 48 crore.

This investment is being done at face value of Rs 10 per share and will provide RITES an opportunity of growth in the emerging field of development of railway stations.

Interestingly, the acquisition of IRSDC stake is done at almost one-fifth of original value of Rs 250 crore (25% stake) which was approved by the board in 2018.

The latest deal values IRSDC at Rs 192 crore.

Indian Railways had planned to restructure IRSDC by allowing RLDA, IRCON, RITES and CONCOR, all under Indian Railways, to hold 25% stake each.

The Railway Board in 2017 entrusted the work of station re-development to IRSDC. It will redevelop 600 stations, out of which 50 will be taken up in first phase.

RITES, earlier known as Rail India Technical and Economic Service is an engineering consultancy company, specializing in the field of transport infrastructure.

Established in 1974 by the government of India, the company’s initial charter was to provide consultancy services in rail transport management to operators in India and abroad.

Standalone revenue of the company for the first half of FY20 has been Rs 1,423 crore and profit after tax has been Rs 325 crore.

It declared an interim dividend of Rs 6 per share of Rs 10 each (at a rate of 60% of paid up capital).

Net net we expect strong business momentum for RITES as it has a large order book if over Rs 4500 crs out of which the high margin consultancy business accounts for around 50%

Also more importantly Rites enjoys a low asset business model which has helped if generate a higher ROCE which in the absence of any debt on the books and high cash cash of over Rs 2000 crs had made this a very profitable enterprise operating in the Railway Infrastructure segment

The recent acquisition of IRSDC will add incremental top line and profits to RITES at a very low capital cost as this company has a large order book from the govt for development of railway stations which ensures strong revenue visibility ahead

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