A passenger looks at reservation information displayed on the outside of a train at Mumbai Central Train Station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

A passenger looks at reservation information displayed on the outside of a train at Mumbai Central Train Station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

IRCTC Is Turning Heads: Here's All You Need To Know

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If a loss-making online platform like Zomato Ltd. could be valued at more than Rs 1.07 lakh crore in public markets, then why not India’s largest and profitable e-ticketing firm?

The opportunity is not lost on investors.

Shares of Indian Railway Catering and Tourism Corp. or IRCTC have surged more than threefold this year. The stock has more than doubled since June.

The company, 67.4% owned by the central government, got rerated during the quarter after new-age businesses like Zomato and Easy Trip Planners Ltd., the operator of EaseMyTrip portal, listed on the exchanges in blockbuster market debuts.

Shares of IRCTC started gaining after the government offloaded 20% of its stake in December last year as part of divestment at Rs 1,377.6 apiece. That not only allowed the firm to meet the minimum 25% public float requirement but also increased participation by retail and other investors.

The stock is now trading around Rs 5,000 apiece, giving the company a market cap of about Rs 80,000 crore as of Wednesday's close.

The state-owned firm also approved a 1:5 stock split at its September AGM. The record date is Oct. 29. The split will improve liquidity and provide more access to retail investors, Rajni Hasija, chairman and managing director at IRCTC, told shareholders.

That may prove to be another trigger.

New Tech Frenzy

Indian investors are warming up to internet companies. Demand for initial public offerings and listing gains for the parent of EaseMyTrip and Zomato only reiterate the frenzy in a market scaling new records regularly. That has rubbed off on IRCTC.

For the Indian Railways, the company is the only authorised online ticket seller, and provider of catering services and packaged drinking water at stations and on trains.

While catering has been the biggest business, a bar on rail travel during the pandemic hurt. That allowed ticketing to overtake and become the biggest revenue contributor in fiscal 2020-21.

IRCTC got more than two-thirds of its business from ticketing in FY21. These numbers explain the scale of its dominance in India’s rail travel market:

  • In FY21, 66% of all rail tickets booked in India were either through the website or mobile app of IRCTC. The rest came from online agents.

  • On an average, 4.8 lakh tickets are booked via IRCTC every day.

  • The company also offers air tickets but that’s a tiny fraction at 2,426 bookings a day in FY21, down from 5,688 in the previous year.

And with more than 6.7 crore active users, ticketing is the only profitable business for the state-controlled company.

BloomergQuint analysed financials and other disclosures of the IRCTC, Zomato and Easy Trip Planners.

Here’s how they fare:

The rail ticketing firm has the highest active user base among the three platforms.

While IRCTC has higher gross sales than Zomato and EaseMyTrip, all three platforms suffered during the pandemic as lockdowns curtailed travel and eating out.

Similar Unit Economics As Zomato

IRCTC collects Rs 15 a ticket for non-airconditioned reservations and Rs 30 a ticket for air-conditioned bookings.

  • It sold 17.4 crore tickets in the fiscal 2021, with the segment’s profit before tax at Rs 353.22 crore. Meaning, it earned Rs 20.3 a ticket.

  • Zomato earned Rs 89.8 as commission and delivery charge on every order, or a profit of about Rs 20.5 per order.

EaseMyTrip has a similar business like IRCTC’s ticketing unit. But it’s much smaller.

The opportunity in online travel is bigger for the likes of EaseMyTrip.

By 2025, the online train travel ticket market is expected to be worth $4 billion (Rs 30,000 crore at current exchange rate), according to Goldman Sachs and industry estimates cited by Easy Trip Planners in its IPO filing. By comparison, air travel is expected to hit $15 billion (Rs 1.13 lakh crore).

But the air travel market is crowded with multiple rivals.

IRCTC’S Other Businesses

Catering was the second biggest vertical after ticketing for IRCTC in FY21, having dropped from the first position in the previous fiscal. The company also competes with online travel portals and consumer goods makers.

The pandemic-led lockdowns also impacted other verticals.

Bottled Water: The company, which sells Rail Neer branded bottled water, operates 15 plants producing 14.08 lakh litres a day. It will soon commission four new plants.

Catering: IRCTC runs 287 food plazas, 176 refreshment rooms, 56 Jan Ahaars and 17 cell kitchens. It also delivers food on passenger trains at 252 stations from over 1,000 vendors.

The company will launch its own food delivery aggregator in association with other service providers. It already offers e-catering on Railofy, MakeMyTrip, and ixigo on a revenue-sharing basis.

The company’s margins from e-catering rose from 12% to 15% as of June after it increased rates.

It paid Rs 80 crore dividend to shareholders in FY21. Being a central public sector unit, most of that went to its parent, Indian Railways.

Key Competitors

The company operates in five segments, competing with some of the biggest peers in each.

Shareholders

While the government owns 67.4%, public shareholders held the rest as of September.

The number of foreign portfolio investors holding IRCTC shares rose to 141 as of September from 122 three months earlier. But their ownership fell marginally from 8.05% to 7.81% during the period.

The Government of Singapore is the largest overseas investor with a 1.36% stake, down from 1.55% in June.

Analyst Take

All eight brokerages tracking IRCTC having a 'buy' rating. The stock, however, has surpassed analyst expectations as the average of 12-month targets implies a potential downside of 36.6%.

According to brokerage Dalal and Broacha:

  • The resumption of fresh food services and price increase in the menus of Rajdhani, Shatabdi, Duronto and express/mail trains will be a key trigger.

  • Price trajectory of convenience fees in the internet ticketing space and scale-up of payment aggregation business will be other triggers.

  • The market, however, has already discounted these triggers with analyst targets lagging the current stock price.

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