Stock at Stake: Should you board the IRCTC train?

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In the news:

IRCTC shared ended Wednesday at Rs 650. It has come up with strong results. The market also anticipated strong results and as a result the share would be strong the share price increased before the results were announced and after the results profit booking was witnessed in the stock and it fell in the early seesion after the results were announced. The company’s standalone profit increased 30.4% (YoY) to Rs 279 crore while revenue from operations saw an increase of 40% (YOY) to reach Rs 965 crore for Q4FY23.

External Environment: Service sector in Indian economy is reviving. Services PMI has continuously stayed above 50% and people are traveling. This is 1st year after the pandemic so people are eager to travel in the summers, various international events like G20 meeting, ICC Cricket World Cup will bring an influx of foreign tourists. Rs 1.40 lakh crore is allocated to the Ministry of Railways by the government. 67 Vande Bharat Express would be available to railways by 2024.

Company Profile: “Mini Ratna (Category-1)” central PSE under Minstry of railways is established to manage hospitality activities on stations and trains while also promoting tourism.

Involved in:

1) Catering & Hospitality (42.8%)

2) Internet Ticketing (32.6%)

3) Travel &Tourism (13.3%)

4) State Teertha (2.8%)

5) Rail Neer (8.6%)

Shareholding Pattern (As on March 31)

Growth Triggers: 1) Management has focus on ancillary revenue which it expects to remain strong 2) Management expects good growth in catering business 3) Boom in tourism will be positive for company 4) Company is looking to improve payment terms from trains such as Duronto, Rajdhani, Shatabdi. Analysts feel this would improve working capital 5) Catering penetrated to 1200 trains 6) Tejas Train operations were profitable in FY23

Competitive Advantage 1) Monopoly in online railway ticket businesses 2) Monopoly in packaged water distribution across railway stations and trains in country 3) Monopoly in catering service in trains 4) Monopoly in setting up Executive Lounges at Railway Stations 5) Long-term experience of managing hospitality related segments of Indian Railways

Risks 1) Internet ticket margin remained flat 2) Disruption in the travel and hospitality sector 3) Rail Neer’s production cost increased 4) RBI is yet to give Payment aggregator’s license 5) Volatility in raw material prices

Financials (Stand Alone):

Valuation:

Company has a monopoly in various services related to the hospitality segment of Indian railways. As the Indian economy will grow so does the Indian railways and the growth of IRCTC is connected with it. However, due to monopoly, the company won’t have much incentive to innovate and focus on efficiency.

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