IRCTC Share price: Dolat Capital initiates coverage on IRCTC share with target of Rs 2650

IRCTC Share price: Indian Railway Catering and Tourism Corporation (IRCTC) offers highly scalable and unmatched opportunities to exclusively participate in the growth story of Indian Railway (IR) traffic growth, Train tourism and Hospitality (Catering+Packaged Drinking Water, Accommodation). IRCTC share price today is Rs 1820, up Rs 60 or 3.5%.

Robust adoption of online ticketing during pandemic, conversion of unreserved coaches into 2S category boosting TAM for Ticketing, multi-fold scale-up in PDW capacity, entry into passenger rail operations (3 trains, more to follow) and 60% jump in catering pricing are likely to act as a ‘profit windfall’ in coming quarters and should boost the financial growth, return ratios, and operating metrics for IRCTC.

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IRCTC is the offered a monopolistic opportunity in online rail ticketing, sale of Packaged Drinking Water (PDW) and catering services (in Train as well as 600 stations) for Indian Railways. Contrary to most other monopolistic plays, IRCTC assures low pricing and high quality experience for its customer base. The ticketing business operational prowess has been proven as it has achieved massive 73% penetration in FY20 on internet booking (during Pandemic 90%+). Its PDW brand (Rail-Neer) sells water cheaper by 33% compared to other branded alternatives. Catering business exclusivity ensures quality, pricing and availability to travelers.

The multiple levers for growth specifically conversion of unreserved coaches into 2S would be more than sufficient to cover up for growth loss due to COVID pandemic. Factoring in the opportunities across business segments and the huge scale/multitude opportunities that IR offers along-with gradual expansion in non-IR revenue stream (E-catering, air/bus ticketing, hotel booking); we expect a revenue/earnings CAGR of 16%/23% over FY20-25E, and initiate coverage on IRCTC with a target price of Rs 2650 valued at 40x PER on FY23E of Rs 66).

IRCTC is a Low risk business model:

As an administrative agency, IRCTC charges fixed mark-up or license fee to its third-party vendors in catering, PDW, hospitality segment and pass on IR their due share, based on predetermined ratio. In the Catering business, it clocked Revenue of about Rs 10.4Bn in FY20 with near zero-risk on demand or food inflation as it outsources it to contractors.

Rail-Neer profitability is healthy at 19% as IRCTC has confirmed demand; no marketing spends and scale advantage (lead distance on distribution to reduce). Tourism biz has a fixed mark-up on aggregation and leverages its IRCTC brand and portal for leads, saving on marketing spends. In the ticketing business there is complete exclusivity for IRCTC. The only risky business is that of being a Train Operator (13% of rev) that functions on occupancy risk.