Published on 30/09/2019 3:17:10 PM | Source: SPA Securities Ltd

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

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Indian Railway Catering And Tourism Corporation Ltd (IRCTC) is a central Public Sector Enterprise (CPSE) wholly owned by the Government of India and under the administrative control of the Ministry of Railways ("MoR"). It is the only entity authorized by Indian Railways to provide Catering Services to railways, Online railway tickets and Packaged drinking water at railway stations and trains in India. In line with plans to provide a "one stop solution" to customers, has diversified into other businesses, including services such as e-catering, executive lounges, budget hotels and travel & tourism. It operates one of the most transacted websites,, in the Asia-Pacific region with transaction volume averaging ~ 28 milliontransactions per month and 7.2 million logins per day as per latest data. At Aug'19 end, there were ~ 54 million active registered users on IRCTC website. IRCTC has been conferred the status of Mini - ratna(Category-I Public Sector Enterprise) by the GOI. IRCTC is mandated with 2 trains under the haulage concept, with ticketing & on-board services. It has full freedom to determine the trains' fares under this concept. Currently It is in the process of finalising the modalities of this concept. Currently, IRCTC derives revenue from four business segments (1) Catering (55% of revenue in FY'19) (2) Travel and Tourism (24%) (3) Internet Ticketing (12%) and (4) Packaged Drinking water under the "Rail Neer" brand (9%).

Investment Rationale

Exclusive Provider of Catering Services & Packaged Drinking Water (PDW) to Indian Railways

IRCTC provides catering services to Indian Railway passengers on trains and at stations and is the exclusive player in this business. Pursuant to the "Catering Policy 2017", issued by Ministry of Railways, it provides catering services through mobile catering units as well as static units. IRCTC also offers e-catering services to passengers through its mobile application "Food on Track" and e catering website, Catering segment revenue are projected to grow at 7.5-8.5% CAGR over next 5 years. IRCTC is the only entity authorized by the "MoR" to manufacture and distribute PDW at all railway stations and on trains. It manufactures and distributes packaged drinking water under brand "Rail Neer". Currently, It operates ten "Rail Neer" plants with an installed production capacity of approximately 1.1 million litres per day, which caters to approximately 45% of the current demand of packaged drinking water at railway premises and in trains & is projected to increase to 80% once operational plants double to 20 post planned expansion.

Sole player authorised by the"MoR" to offer tickets online

IRCTC is the only entity authorized by "MoR" to offer tickets online through its website and mobile application "Rail Connect". At Q1FY'20 end, more than 1.4 million passengers booked tickets online and travelled on Indian Railways with an average of more than 0.84 million booking tickets through and "Rail Connect" daily.Online rail bookings are expected to grow at 8-9% CAGR to reach 425-435 million in fiscal 2024, with ebooking penetration rising to 81 - 83% for the year as per CRISIL. Recent Development: With effect from Sep 1 of 2019, service charges @ INR 15/ticket for Non-AC berths & INR 30/ticket for AC berths booked online have been implemented as Indian Railways has decided to restore the same (from Nov'16 service charges were discontinued) &is estimated to garner additional profits (at PBT level) of ~ INR 3,500million on annual basis for FY'21.

Outlook & Valuation Being the only entity authorized to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India and a comprehensive tourism and hospitality service provider in India, IRCTC is in a sweet spot serving to travellers in India.It has enviable track record of delivering strong return ratios (ROAEs of 26% (FY'17-'19) &debt free BS since incorporation. Its dividend pay-out stood at a strong 45% in FY'19. At the higher price band of INR 320, the issue is priced at a P/E of 18.8x based on FY'19 EPS & we recommend SUBSCRIBE to the issue.

Key Risks

* Substantial portion of EBIT (42%) is contributed by e-ticketing segment in FY'19.Any adverse change in policy of MoR may impact IRCTC's earnings.

* Increasing regulatory requirements for use of plastic to protect environment may adversely impact its packaged drinking water business.


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