Published on 30/09/2019 3:46:36 PM | Source: Prabhudas Lilladher Ltd

IPO Note - Indian Railway Catering and Tourism Corporation Ltd By Prabhudas Lilladher

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A cash rich & debt free monopoly

We recommend a SUBSCRIBE on Indian Railway Catering & Tourism Corporation Ltd (IRCTC) given

1) monopoly position in providing packaged drinking water, catering, online ticket booking services to passengers travelling by Indian Railways (IRs)

2) strong business visibility amid reintroduction of service charge (Rs15 per ticket for non-AC and Rs30 per ticket for AC from 01 Sep 2019) for online ticket booking and plans to double the number of Rail Neer plants to 20 by FY21E

3) debt free & cash rich BS (Rs11.4bn of cash as of FY19; ~23% of post money market cap) with healthy return ratios (RoE/RoCE of 26%/33% respectively as of FY19) and

4) healthy dividend pay-outs (~41% over the last 3 years). Over FY17-19, IRCTC’s sales/EBITDA/PAT have grown at a CAGR of 10.3%/9.1%/9.1% respectively. At the upper end of the price band, the issue is priced at 19x FY19 EPS of Rs17 (no listed peer available to facilitate comparison), and looks attractive due to limited competitive risks, and expected margin swing from revenue windfall with re-introduction of service charge. 

A monopolistic business: IRCTC is the only entity authorized to provide packaged drinking water, catering, and online ticket booking services to passengers travelling by IRs. It has a dominant position in online rail bookings/packaged drinking water with ~73%/~45% market share respectively.

Re-introduction of service charge to drive ticketing revenue: IRCTC has decided to levy a service charge of Rs15 per ticket for non-AC and Rs30 per ticket for AC from 01 Sep 2019, for every ticket that is booked online. As per our internal calculations, this can provide additional revenue kicker of Rs3bn in FY20E and Rs4.5bn in FY21E. Since ticketing is a high margin business (~67% margin in FY19) we believe this will be a major profit lever. 

Doubling the plants to drive packaged drinking water sales: IRCTC has ten “Rail Neer” plants with an installed production capacity of ~215mn bottles with utilization of 83% as of FY19. Six new plants will be commissioned in FY20E while four are lined up for commissioning in FY21E. Doubling the number of plants is expected to increase IRCTC’s market share from 45% to 80%.

Catering to grow at a CAGR of 7.5-8.5% in the next 5 years: IRCTC’s catering revenue is expected to grow at a CAGR of 7.5-8.5% over FY19-24E driven by

1) increasing passenger traffic & variety of food items and

2) increase in number of base kitchens & static catering units.

Comprehensive tourism & hospitality service provider: IRCTC has been mandated by IRs to provide tourism and travel related services. It is a one stop shop for all travel and tourism related services, and operates its own tourism portal, through which it offers these products and services.


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