IRCTC share price: IDBI Capital has initiated coverage on Indian Railway Catering and Tourism Corporation (IRCTC) with Target price of Rs 1,800. They believe that IRCTC in its top 2 segments, internet ticketing booking and catering services (combined 89% of FY20 EBIT) is the sole service provider. IRCTC Internet ticketing as a digital platform business has seen 302 mn bookings in FY20 with 73% share in total railway tickets booked in India. In its packaged drinking water business it’s pricing provides a competitive edge. While Covid-19 pandemic will impact FY21 performance, IDBI Capital expects strong pick-up in FY22/23E. They forecast revenue/EBIT/EPS CAGR of 9.2%/14.4%/15.9% over FY20-23E. Further, net cash Balance sheet and RoE 40%+ over FY22-23 is impressive. Over the long-term, private trains and indirect benefit from DFC (Dedicated Freight Corridors) would aid IRCTC’s growth.

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IRCTC share price: Key Highlights and Investment Rationale:

Strong entry barriers in its top-2 business segments (89%/73% EBIT/revenue)

Internet ticketing and Catering are IRCTC’s top 2 business segments with 27.2% and 45.9% respectively of FY20 revenue and 71.5% and 17.3% of FY20 segmental EBIT. IRCTC is the only entity authorized by Indian Railways to provide online booking of railway tickets and has 73% market share. Further, IRCTC is the only entity authorized to manage the catering services on board trains and major static units at railway stations under the Catering Policy 2017.

FY21 dip in IRCTC revenue and profitability to be more than overcome in FY22 itself

IRCTC’s business is dependent on Indian Railways and the Covid-19 pandemic has had severe impact on operations of passenger trains. While IDBI Capital expects passenger trains to attain normalized operations in FY22, consumer confidence to resume travel might take time. However, IRCTC has regained part of the lost growth and has reached a volume of 3.2 lakh tickets/day vs 8.27 lakh tickets/day in FY20. IDBI Capital expects volume of 6.75 lakh IRCTC tickets/day in FY22 and 8.24 lakh tickets/day in FY23, at this run-rate the number of tickets booked in FY22 will be 18% lower than that in FY20 (Q4 had impact of the pandemic). However, with service charge being there for the full-year, they forecast FY22 revenue/EBIT for the segment to grow by 27.2%/28.9% vs FY20.

IRCTC share price: Investment Rationale

Strong entry barriers in its top-2 business segments (89%/73% of segmental EBIT/revenue)

IRCTC is the only entity authorized by Indian Railways to offer railway tickets online which it does through its website irctc.co.in and mobile app - "Rail Connect" with 73% market share as regards railway tickets booked in FY20. 

Significant long-term opportunity from private trains operations and benefits from DFC (Dedicated Freight Corridor)

Indian Railways has initiated the process to get participation of private players in operations of 151 passenger trains across 12 clusters. IRCTC has participated in 11 of these 12 clusters in the RFQ (Request for Quote) invited by Indian Railways. Given that IRCTC is currently the only private train operator, through its 3 Tejas trains, IDBI Capital expects them to secure the bid for at least 1 cluster. Further, the Dedicated Freight Corridor project, once completed, is expected to significantly decongest the railway routes linking the four metropolitan cities of Delhi, Mumbai, Chennai and Howrah (52% of passenger traffic). This would provide a strong opportunity for increase in capacity of passenger trains which in-turn would benefit IRCTC across its business segments.

Indian Railways has strong focus on modernization

Investments in railways are expected to continue as the Government maintains focus on network decongestion, particularly on doubling and electrification works. Allocation to decongestion projects is estimated to be way above that for expansion projects, as the former is bankable/amenable to external financing (provide a rate of return greater than 12% based on detailed project reports prepared by the railway zones) and likely to be completed and monetized quickly. Decongestion of routes augurs well for addition of more capacity and thus for growth in passenger traffic and in-turn for on-line booking of tickets vs. that been projected.

Dedicated Freight Corridor project is one of the key projects for driving Indian Railways decongestion drive

The Dedicated Freight Corridor (DFC) project is Indian Railways' quadrilateral linking the four metropolitan cities of Delhi, Mumbai, Chennai and Howrah, commonly known as the Golden Quadrilateral; and its two diagonals (Delhi-Chennai and Mumbai-Howrah). This route’s total length is 10,122 km and comprises 16% of Indian Railways total route and carries more than 52% of the passenger traffic and 58% of revenue earning freight traffic of Indian railways. The Ministry of Railways has established a SPV (Special Purpose Vehicle) for construction, operation and maintenance of the dedicated freight corridors. This led to the establishment of ‘Dedicated Freight Corridor Corporation of India Limited (DFCCIL), to undertake planning & development, mobilization of financial resources and construction, maintenance and operation of the dedicated freight corridors. The Eastern and western DFCs are expected to be completed in 2022. IDBI Capital believes this project and such projects in the future, which are likely, could potentially result in a much higher growth in passenger traffic and thus on-line booking of tickets vs. that been projected.

(Authored by Rahul Kamdar)