IRCTC IPO Review: Here’s All You Need To Know

Indian Railway Catering & Tourism Corporation Ltd. will on Monday launch a three-day initial public offering—the largest of the four IPOs from the railways’ stable so far—as its promoter, the central government, plans to offload a part of its stake.

The government plans to raise close to Rs 638 crore by selling 2 crore shares, or 12.6 percent stake, at Rs 315-320 apiece through the IRCTC IPO, according to a red herring prospectus. After the listing, the company will be valued at nearly Rs 5,120 crore, BloombergQuint’s calculations showed.

Business

Only IRCTC is authorised by Indian Railways to offer catering services, online tickets and packaged drinking water—under the brand name Rail Neer—at stations and trains. The ‘Miniratna’ PSU also provides rail tour, holiday and customised tour packages.

Nearly 1.4 million passengers travelled with Indian Railways daily in the first five months of the ongoing financial year, and around 73 percent tickets were booked online through IRCTC, according to the red herring prospectus.

The company has been operating 10 water bottling plants at a capacity utilisation of more than 80 percent for the last three years. It’s also in the process of commissioning six new units and proposed to add four.

Catering service is the largest contributor to IRCTC’s revenue. But profit margin from the business is less. Revenue from online ticket booking too fell over previous years after the Ministry of Railways in November 2016 removed the charges levied on passengers for booking tickets online.

Still, internet ticketing continues to contribute the most to IRCTC’s bottom line.

However, starting Sept. 1, the company started levying a service charge of Rs 15 on tickets booked for non-air conditioned coaches and Rs 30 for air-conditioned ones. That would add a substantial portion to the company’ earnings.

Financials

IRCTC’s net worth was close to Rs 1,043 crore as of March, translating into a book value of Rs 65 apiece. It’s a debt-free company with a cash balance of nearly Rs 1,140 crore—a cash value of Rs 71 a share.

Its revenue grew at an annualised rate of 10 percent over the last three fiscals, while net profit grew at 9.1 percent. The company’s earnings before interest, tax and depreciation and amortisation had a compounded annual growth rate of 9.1 percent during the period. Its Ebitda margin averaged around 19.6 percent over FY17-19.

In 2018-19, the company recorded Rs 46.1 crore as “doubtful debts”, which it expects to recover in 2019-20, its management said in an analyst meet.

IRCTC has been consistently paying dividends to shareholders over the last three years. The dividend rate has increased to 45 percent in FY19 from 37 percent in FY17.

Its return ratios for the fiscal ended March 2019 were higher than the previous year, driven by increase in profits.

Valuations

IRCTC’s earnings per share as of March comes to Rs 17. At the upper end of the IPO price band, price-to-earnings ratio stands at 18.8 times its FY19 estimates, according to BloombergQuint’s calculations.

“Based on parameters such as strong earnings profile, diversified business segment, healthy return ratios, debt-free status and monopoly business, we have a positive view on the issue,” brokerage Anand Rathi said in a note. “We have a positive outlook for the company and we recommend investors to subscribe to this issue.”

ICICI Direct, too, recommended subscribe to the issue at offer price. Inclusion of convenience fee on railway tickets, setting up of 10 water plants in the next two years and reduction of corporate tax bodes well for the company’s EPS growth, along with a healthy dividend payout and return-on-equity. “The stock is available at a price to earnings multiple of about 10 times on FY21 estimated EPS, which we believe looks attractive from the perspective of future earnings growth.”