Boarding into this monopoly business can grow your wealth by 50%
Experts believe IRCTC to be a long-term compounder and expect consolidated EBIT margins to expand from 30% in FY20 to 37% in FY23e on the back of a higher proportion of tickets booked online
The classic board game Monopoly very easily taught us the economic concept of monopoly — the domination of a market by a single entity. Having played the game we all know that how a monopoly can help in improving income & profit. The same logic works in investing where you can earn big dividends by investing in a company that has a monopoly in a particular business segment.
Take the case of Indian Railway Catering & Tourism Corp, a central public sector enterprise operating in four segments, namely Internet Ticketing, Catering, Packaged Drinking Water (Rail Neer) and travel and tourism. The company is managed in a quasi-private method and is a pure monopoly business in 2 out of its 4 operating segments, namely Internet Ticketing and Rail Neer.
Despite the company witnessing reduced volumes due to localized lockdowns and travel restrictions domestic brokerage house Dalal & Broacha is upbeat on the stock and has a price target of Rs 2,676 implying a potential return of 49%.
“Tickets booked per day will bounce-back and surpass its pre-COVID normal (8 lacs per day) as unreserved Geseral class is converted to reserved and travellers go into “Revenge Travel Mode” after COVID. Realisations improved from INR 17.3 to INR 21.5 in FY23e as travel pattern shifts from ‘necessity’ to ‘leisure’, and travellers will book more AC coaches,” said Mayank Babla, Senior Analyst at Dalal & Broacha.
IRCTC has massive inventory in the form of website space, app space, inside trains, infotainment systems (on Tejas trains), Food plazas, etc, which it can monetise aggressively and potentially double its revenue from ads (Rs 100 Mn as of Q3FY21) over the next 2 years, added Babla.
On the catering front also, the management is planning to double its e-catering business with more Food brand partnerships and higher coverage of stations. On the mobile catering front, it plans to improve its reach of catering through Train Side Vending, more trains with pantry cars and base kitchens. It will also double ‘Rail Neer’ production from 1.4 Mn bottles per day (bpd) to 2.8 Mn bpd by FY22 end.
Babla strongly believes IRCTC to be a long-term compounder and expect consolidated EBIT margins to expand from 30% in FY20 to 37% in FY23e on the back of a higher proportion of tickets booked online (72% as of FY20 and 92% in COVID times) in a post COVID world, the disproportionate rise in non-Convenience income, better pricing in Catering and operating leverage playing out in Rail Neer.
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