IRCTC shares available at 48% discount over 52-week high; should you buy post strong q4 earnings? Experts, brokerage decode

Indian Railway Catering and Tourism Corporation Ltd reported 104% jump in net profit at Rs 214 crore for the quarter ending March 31, 2022, against Rs 104 crore in Q4FY21. The growth in PAT was attributed to swift recovery from the Omicron wave and healthy ticketing volumes. The board of directors of IRCTC has also declared a final dividend of Rs 1.5 per share.  

Meanwhile, shares of IRCTC have corrected 48% on their 52-week high. On Thursday, around 1.30 pm, shares of IRCTC were trading lower by around one and half per cent on its previous closing price to Rs 677.80 per share on the BSE. IRCTC stock traded on 52-week high value of Rs 1,278.60 a share October 19 last year. 

As shares have seen a huge correction in the past seven months and the company's net profit has even more than doubled in the quarter ended March 2022, are these triggers enough to bet on the railway stock? 

Here is what brokerages and experts suggest investors should do: 

Expensive valuations 

Brokerage house IIFL Securities maintained a 'sell' rating on the counter with a revised target price of Rs 536 per share (Rs 566 earlier), a 23% downside on May 31 closing price of Rs 693. 

The stock is expensive, considering the high single-digit EPS growth from the 4QFY22 annualised level, said the brokerage firm.  

"The recent disclosure − that IRCTC has to share 15% of PBT from the packaged drinking water (PDW) segment with the Indian Railways (IR) − would impact EPS only by around 1%, nonetheless highlights regulatory risks," it observed. 

Across the world, investors have become wary of investing in tech-related companies, said Sunil Damania, Chief Investment officer, MarketsMojo.  

"Take for instance, Nasdaq companies that have corrected significantly in the US compared to S&P 500 or Dow. This is a clear indication that the market is not in a mood to pay a super-rich premium to such companies," said Damania.  

As for IRCTC, the company is commanding a very rich valuation in terms of a price-to-earnings ratio of 83 times and a market cap to sales of 29.5 times, highlighted the expert.  

"This kind of valuation does not leave much scope for investors to make money. Hence, we believe that IRCTC may continue to underperform going forward. Therefore, we will advise investors to stay away from IRCTC," added MarketsMojo CIO.  

A good buy for long term post recent correction 

Santosh Meena, Head of Research, Swastika Investmart Ltd, said IRCTC is the only authorized entity by Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India.  

Further, IRCTC has been mandated by the Indian Railways to provide tourism and travel related services, said Meena.  

"India’s per capita income is one of the lowest in the world, so railways are considered as the lifeline in India due to its connectivity and affordability. The diversified services provided by the company, rising tourism & travelling demand, post covid open up opportunity & wide moats make this stock a good buy for the long term, especially post the recent correction," he said.  

However, investors must keep in mind the risks arising due to the change in government regulations, added the expert.  

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)