Indian Railway Catering and Tourism Corporation Limited (IRCTC) is a Central Public Sector Enterprise wholly owned by the Government of India and under the administrative control of the Ministry of Railways. It operates in four business segments, namely, internet ticketing, catering, packaged drinking water under the "Rail Neer" brand, and travel and tourism.
Positives: (1) It is the only entity authorized by Indian Railways to provide catering services, online railway tickets and packaged drinking water at railway stations and trains in India. 2) From September 01, 2019 Ministry of railways have permitted Company to charge Rs. 15 for Non-AC & Rs. 30 for AC ticket booked online. If tickets are booked through BHIM or UPI charges are Rs. 10 & Rs. 20 for Non-AC and AC respectively. 3) Market share of packaged drinking water at railway premised and trains will increase to ~80% from ~45% as the number of plants will increase from 10 to 20 by CY21. 4) High dividend payout ratio (44.89% in F.Y.19).
Investment concerns: (1) Business and revenues are substantially dependent on Indian Railways. 2) Withdrawal of exclusivity of the Company for catering, online railway ticket and packaged drinking water at railway stations and trains in India by the Ministry of Railways. 3) Adverse claims, media speculation and other public statements relating to the food quality, catering facilities and service. 4) Removal or reduction of Service Charge by Ministry of Railways or instructing IRCTC to share part of revenue with them.
Outlook & Valuation: At the upper end of the price band, IRCTC demands PE multiple of 18.8x of FY19 EPS. Recent tax reduction by Government to 25.2% and increase in revenue from service charge for online ticketing will improve profitability substantially going forward. There is also significant opportunity for the Company to ramp up the catering business given a very large captive audience which is currently being underserved. Increasing business volumes from catering and Packaged drinking water businesses, along with service charge for online ticket booking will drive earnings growth for the company between FY19-21. We would therefore recommend to Subscribe to the issue.