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Published on 30/09/2019 11:49:35 AM | Source: Reliance Securities Ltd

IPO Note - Indian Railway Catering and Tourism Corporation Ltd By Reliance Securities

Sole Authorised Entity by Indian Railways

Indian Railway Catering and Tourism Corporation (IRCTC) – the online ticketing, tourism and catering arm of the Indian Railways (IR) – operates one of the most transacted websites in the APAC region with an average monthly transaction volume of 25-28mn. The IR has restored convenience for e-ticket from Sept’19, which was discontinued for some time. With an average monthly 25mn ticket booking, this is likely to generate additional annual revenue of Rs4.5bn. It has also diversified into other businesses, including services such as e-catering, executive lounges, budget hotels and travel & tourism. During FY17-19, IRCTC’s revenue and PAT clocked 10% and 9% CAGR, respectively while the average EBITDA and net margin stood at ~20% and ~15%, respectively during FY17-19. It has healthy balance sheet with >Rs11bn cash to support capex. IRCTC has good dividend pay-out track record, as it made ~50% average payout in the last 3 years.

IRCTC is coming out with an Initial Public Offering (IPO) of 20.1mn (12.5%) equity shares to raise Rs6.43bn, the Price Band of which has been fixed at Rs315-320/equity share. The market cap is pegged at Rs51.2bn (at higher band). The objective of the issue is to carry out the disinvestment by the government and to achieve listing benefits.

 

Key Strengths

* Sole license holder for catering and online ticketing for the Indian Railways.

* Exclusively authorised to manufacture and supply packaged drinking water at stations/ trains.

* Wide range of services for tourism and hospitality service in India.

* Robust operating system and internal controls.

 

Key Risks

* As its operation is substantially dependent on the Indian Railways, any adverse change in policy by the Ministry of Railways may adversely affect the business and profitability.

* Travellers shifting to flight due to low fare and shorter travelling time.

* Failure to manage cyber security.

 

Outlook & Valuation

The Government of India is offloading 12.6% stake through OFS, which will reduce its stake to 87.5%. IRCTC is in steady business model, which is likely to grow at 12-15% in the next few years. The restoration of convenience charges for e-ticket fromSept’2019 is likely to generate additional annual revenue of Rs4.5bn. In FY19, its PAT grew by 24% YoY to Rs2.7bn led by 27% growth in revenue to Rs Rs18.7bn. Average EBITDA and net margin stood at ~20% and ~15%, respectively during FY17-19. The Company has healthy balance sheet with over Rs11bn cash to support capex. IRCTC has good dividend pay-out track record, as it paid ~50% average payout in the last 3 years. Assuming moderate revenue growth of 10% CAGR through FY19-21E, the Company is valued at 13x FY21E earnings, which appears to be justified considering its business model, steady growth and healthy return ratios. Hence, we recommend SUBSCRIBE to the Issue.

 

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