Shares of the Indian Railway Catering and Tourism Corporation (IRCTC) could be the best play on normalizing activity after the coronavirus, according to national brokerage firm IIFL Securities. At the start of coverage of the script, IIFR analysts said the stock has the potential to jump 24% from current levels while estimating strong revenue growth to come. IRCTC, a subsidiary of the Ministry of Railways, operates as a monopoly working with Indian Railways. Since its IPO in 2019, the IRCTC share price has climbed 400% to date to now trade at Rs 1,753 each.
Ticket sales continue to grow
“Internet ticketing is the most cost-effective segment for IRCTC,” the IIFR said in the note. Although foodservice was the most important segment of the past year for IRCTC in terms of revenue, the brokerage firm estimates that ticketing will increase to 76% of revenue by FY23. Ticket office has several stages to develop over the coming year as Indian Railways does not authorize any other entity to provide an electronic rail reservation facility.
The brokerage firm stressed that the reinstatement of service charges by the Ministry of Railways in 2019 remains a positive for the IRCTC. The company now earns at least Rs 10 per non-AC ticket and at least Rs 20 per AC ticket with service charges reinstated. Online booking has grown steadily over the years, contributing to IRCTC’s revenue. In fiscal 2014, nearly 50% of all tickets were booked online, during the previous fiscal year, the same was true of 70%. IRCTC’s revenue from its restaurant service is also expected to increase CAGR by 6% in the second quarter of fiscal year 20-23.
Other sources of income to be strengthened
The IRCTC also remains the only authorized entity authorized to serve conditioned drinking water in all stations and trains. From its packaged drinking water, Rail Neer, IRCTC earned an income of Rs 222 crore last year, up from Rs 173 crore a year earlier. “We expect Rail Neer’s capacity to reach 1.86 million liters per day by the end of fiscal 22; we assume the same for FY23 and the built-in CU increases up to 70% by FY23. Assuming unchanged achievement per bottle, we estimate 21% Cagr revenue on FY20-23ii, ”said the IIFR.
Recently, the IRCTC has also embarked on train operations, putting three trains into service. IRCTC now operates – the Delhi Lucknow Tejas Express, the Mumbai-Ahmedabad Tejas and the Indore-Varanasi Mahakal. By the second quarter of FY23, the IIFR expects IRCTC to make 164 crore rupees from train operations.
24% expected increase
“The IRCTC is a play on the normalization of post-Covid activity. Its low fixed cost model and net cash position allow the company to navigate the coming quarters when activity remains subdued from pre-Covid levels, ”the note said. IRCTC is currently trading at 44x / 28x FY22ii / FY23ii PER. IIFL has a target price of Rs 2,174 per share on the share with a “Buy” rating.
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