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Published on 30/09/2019 3:36:29 PM | Source: Geojit Financial Services Ltd

IPO Note - Indian Railway Catering and Tourism Corporation Ltd By Geojit Financial

A good bet on India’s growing tourism & travel market…

IRCTC is the only entity authorized by the Indian Railways to provide services like catering, travel & tourism, online ticket booking, and packaged drinking water. The company fully enjoys virtual monopoly offering major tourism related services under one roof. The company was conferred the status of Mini-ratna (Category -1 Public Sector Enterprise) by the Govt. of India, on May 01, 2008. IRCTC operates one of the most transacted websites, www.irctc.co.in, in the AsiaPacific region. 

*  IRCTC restored convenience fee on e-tickets booked through its website from September 1, 2019 with Rs. 15 for Non-AC and Rs. 30 for AC tickets booked online, boost in revenue and profitability.

*  Catering service is the major revenue generator of IRCTC with 55% of sales as of FY19. “New catering policy 2017", which reassigned IRCTC with the responsibility of entire catering services is positive for the company.

*  Exclusively authorized for manufacturing and supplying packaged drinking water, IRCTC has taken expansion plans to meet the growing demand. “Rail Neer” sales are expected to increase as 10 new plants are in the pipeline.

*  The company posted stable financial performance in FY17-19 with revenue and EBITDA growing at a CAGR of 10% and 9% respectively while PAT grew at a CAGR of 6% due to increased revenue from catering business.

*  On the valuation front, at an upper price band of Rs 320, IRCTC is available at a P/E and P/BV of 18.8x and 4.9x respectively on FY19 earnings which appear fully priced in the given market conditions.

*  With strong cash generation, higher entry barrier to business, we recommend “Subscribe” to the issue with a long-term perspective.

Purpose of IPO

At the upper price band, total issue size stands at Rs 645cr comprising an offer for sale of 4.03cr equity shares. The company will not directly receive any offer proceeds and all the proceeds will be received by the Govt.

Key Risks...

*  Company’s business and revenue heavily dependent on railway ministry’s policies.

*  IRCTC enjoys monopoly position in many of the services offered and subject to higher competition if the govt. were to allow more players in this field.

 

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