Should you buy IRCTC share after the recent correction?

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Indian Railway Catering and Tourism Corporation better known as IRCTC saw a sharp fall in its stock price in the current week. Shares of the company tanked around 30% from its all-time high of Rs 6,396.30 that it hit on October 19 to the current levels of Rs 4,608.80 per share. So the moot question now is should the recent correction be bought into?

“The fundamentals are still strong but there is valuation concern after a steep run and there was a clear speculative move as it was easy to make money for the traders every day. So, we are seeing a technical correction and may head towards 20-DMA ((Daily Moving Average) which may coincide with Rs 4,500 level,” said Santosh Meena, Head of Research, Swastika Investmart.

In Sep’21, Indian Railways has witnessed total passenger bookings at 7.5 crore which is up 50% compared to pre-covid levels and up 7% even excluding 2S bookings. This month is the first month to mark passenger bookings higher than pre-covid volumes. For the quarter Q2FY22, bookings are higher by 100% on a QoQ basis and are up 15% higher than pre-covid volumes.

“Assuming a conservative level of 1.5x passenger per ticket and internet penetration of 80% for the quarter, IRCTC to clock ticketing sales of about 11.2 crore in Q2 (as against 7.8 crore in Q3FY20; 64 crore in Q1FY22). With EBIT margins of 85% and segmental EBIT of Rs 220 crore for the quarter (annualized Rs 1,100 crore in FY23),” said Rahul Jain, VP at Dolat Capital.

The brokerage firm expects IRCTC’s earnings to compound at 30% CAGR (Compounded Annual Growth Rate) over FY22-FY30E as it would gain from ticketing volume jump by induction of 2S in the reserved category, catering revenue normalization, pricing increase of 60%, RailNeer – doubling of capacity, and Tourism resumption/scale-up of Tours/air booking/train operations. Besides payment gateway is driving up ticketing realization, OTAs (Online Travel Agents) driving up agent fees and e-catering volume.

Given this high growth potential and monopolistic positioning across the business segments, the stock should command high earnings multiple. Dolat Capital continues to maintain its positive view on the stock with an accumulated rating and discounted cash flow-based price target of Rs 5,200 per share.

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