RITES to hit capital market in September

RITES, the technical wing of the Indian Railways, are all set to hit the market in September. The public sector unit would mop up Rs 500 crore through an initial public offering (IPO), which would be 10% of the company’s paid-up capital. The intention is for various arms of the Railways to raise fresh capital through public issues that would generate funds for mega projects such as the dedicated rail freight corridor. Also in the works is a proposal to mop up another Rs 300-350 crore through an IPO by Ircon — Railways’ in-house construction company — that is also likely to be floated this year. A Cabinet note pertaining to the proposed RITES IPO has been sent to various ministries. According to sources, the proposal has been approved by the disinvestment department. Once approved by the Cabinet, it would pave the way for RITES going in for a public issue. Earlier, there was a proposal to disinvest the government’s stakes in the Railways-owned PSUs. However, after Prime Minister Manmohan Singh put a freeze on disinvestment proposals following a ruckus over the Neyveli Lignite Corp selloff, the Railways have decided to go the Power Finance Corp way. The power PSU, instead of divesting its stake, raised Rs 1,000 crore through a public issue. A similar move to disinvest the government stake in both the rail PSUs was also initiated by the disinvestment minister Arun Shourie in 2002, but it was turned down by the then-railways minister Nitish Kumar on the ground that the PSU was a profit-making one and self-reliant. “RITES need funds to finance growth and expansion. Therefore, the best way to mop up funds by not violating the UPA government’s agenda is the IPO route,” a senior Rail Bhawan official told ET. Experts in the Railways are of the view that the IPOs from the rail PSUs could be a huge success riding on the back of enormous profits shown by the Railways for two successive years. RITES registered a quantum increase of 78% and 95% respectively in turnover and profits during the year ended March 31, 2006. Turnover and pre-tax profit was at Rs 426 crore (previous year: Rs 240 crore) and Rs 133 crore (Rs 68 crore) respectively, the highest achieved by the company. Domestic business has grown 51% from Rs 170 crore in the previous year to Rs 257 crore. The overseas business achieved a turnover of Rs 137 crore, registering a growth of 163%. Ircon’s IPO is at a less advanced stage. It is understood that a formal Cabinet note is yet to be prepared. However, officials say a Rs 300-350 crore IPO is likely this year after the RITES IPO goes through, reports The Economic Times. source: moneycontrol.com