In its latest earnings update dated May 5, 2025, ICICI Securities has maintained a SELL rating on RailTel Corporation of India, slashing the 12-month target price to Rs 270 (down from Rs 280), implying a 16% downside from the current market price of Rs 323. While the company reported robust revenue and profit growth for Q4FY25, margin pressures and slower-than-expected telecom momentum have led to trimmed EPS estimates for FY26–27. RailTel’s focus remains on scaling its project business and rolling out data centers, but softer profitability guidance casts a shadow on valuation multiples.

1. Quarterly Profit Soars, But Margin Guidance Disappoints

Net profit surged 46.3% YoY in Q4FY25 to Rs 1.1 billion, driven by exceptional project execution. However, the EBIT margin fell short of expectations at the consolidated level. While the revenue spiked 57.1% YoY to Rs 13.1 billion, RailTel now forecasts a lower EBIT margin of 11–12%, dampening investor sentiment.

2. Telecom Segment Shows Tepid Growth, Faces Competition

Telecom services grew a modest 6.6% YoY to Rs 3.6 billion in Q4FY25. ISP revenue dropped 2.7% YoY, dragged down by lower ARPU (Rs 479) amid intense rural competition. The segment EBIT grew 11.5% YoY to Rs 843 million, with EBIT margin at 23.5%, improving 100bps QoQ. Despite these gains, guidance of 9–10% annual growth in telecom revenue looks increasingly ambitious.

3. Projects Segment Delivers Stellar Execution

Revenue from the projects business jumped 91.3% YoY to Rs 9.5 billion in Q4FY25. This lumpy quarter execution was backed by a robust order book of Rs 60.2 billion, up 27% YoY. About 62% of this order flow comes through tenders, ensuring competitive wins. EBIT for the segment rose 4x YoY to Rs 466 million, with EBIT margin improving to 4.9%.

4. Data Center Rollout Gains Traction for FY26

RailTel is nearing the launch of its edge data center strategy with seven to eight facilities expected to go live in FY26. While the projected revenue from this vertical is Rs 100 million initially, the segment is expected to offer scalability in FY27 and beyond. The capital-light model, with partners funding capex, reduces financial risk for RailTel while offering infrastructure play potential.

5. EPS and Valuation Metrics Revised Downward

ICICI has trimmed FY26–27 EPS estimates by 2.5–4.3% owing to lower telecom revenue visibility and softer margins. As a result, the firm assigns a revised target P/E of 20x FY27E EPS, with the new price target now at Rs 270. The FY27 EPS estimate stands at Rs 13.4, translating into a forward P/E of 24.1x, which appears stretched amid execution risks.

6. MoU With Quadrant Strengthens Entry Into Kavach Space

RailTel signed an MoU with Quadrant Future Tek to deliver Kavach (anti-collision system) technology. The company has bagged its first order worth Rs 2.44 billion, execution for which begins in Q3FY26. Notably, Quadrant’s exclusivity as a hardware supplier may give RailTel a competitive edge, although full-scale rollout depends on clearance of Kavach v4.0.

7. Financial Table Snapshot

8. Order Book Momentum Provides Visibility

Order inflow for FY25 stood at Rs 31.46 billion, with expectations to cross Rs 40 billion in FY26. Projects under execution are valued at Rs 26 billion, providing strong revenue visibility. However, the margin outlook at just 4–5% for projects is underwhelming given the rising input and execution costs.

9. Capital Expenditure and Working Capital Concerns

FY25 capex stood at Rs 3.2 billion, including Rs 860 million for data centers. Working capital remains a drag, with net working capital rising to 27.8% of total assets. RailTel also reported a drop in free cash flow to negative Rs 3.2 billion for FY25.

10. Investment Verdict

Maintain SELL with a target of Rs 270. While RailTel shows promise in projects and digital infra segments, margin compression, muted telecom performance, and valuation concerns weigh heavy. Investors should await better margin visibility and telecom recovery before re-rating the stock.