IRCTC: Should investors book profits or it is still a multibagger opportunity?

Indian Railway Catering and Tourism Corporation Ltd (IRCTC), which provides ticketing, catering, and tourism services for the Indian Railways, halted momentum after the government demanded the state-run company to share half of the convenience fee it charges to customers which was later rolled back.

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The foreign institutional investors and Mutual Fund houses have been trimming the stake in the state-run company Indian Railway Catering and Tourism Corporation (IRCTC). The former has reduced around a quarter per cent holding, while the latter has slashed nearly 2.5 per cent holding in the company.

“Overall fundamentals are still strong for this counter, but the market will hesitate to give valuations that it was enjoying before this event because such kind of risk will remain in the mind of investors. Long-term investors should remain invested without worrying about term volatility,” Parth Nyati, Founder, Tradingo, said.    

Impact Of Convenience Fee:

The convenience fee was reintroduced by the government for IRCTC in Sep’19 just before its IPO; however, this time the government did not take any sharing.

Last week when the government announced the reintroduction of revenue-sharing effective from Nov’21 it was not taken well by minority shareholders, and we saw the stock correct by almost 30 per cent.

The government withdrew its decision that led to a recovery in the stock, but experts feel that convenience fee will continue to pose a risk.

“This (convenience fee) will always remain as a key overhang until there is a clear policy from the government on the sharing ratio. Convenience fees revenue formed ~17% of FY20 total revenue and 75% of EBIT,” Hemang Jani, Head Equity Strategy, Broking and Distribution, Motilal Oswal Financial Services, said.

“If the IRCTC share 50% revenue with the railways then the net impact of it on IRCTC earnings would be ~23-25%. Also, one of the biggest risks for IRCTC is that the government controls the fees charged by it to the public and has the authority to change it which could lead to its resultant impact on IRCTC financials,” he said.

IRCTC enjoys a monopoly business in Indian online train ticket booking services. The sharp rise in railway ticket bookings in 2QFY22 was one of the major reasons for the strong outperformance from the stock, suggest experts.

“The stock price multiplied 3.5x since start of this year touching high of Rs983 post-split (Rs6400 pre-split). It has entered in newer segments like running private train, travel & tourism and catering, which provides diversification,” says Jani.

He further added that investors are currently liking platform-oriented business models and thus rewarded IRCTC well.

Technical Take:

The stock is trading below its 30-DMA, but above 50, 100, and 200-DMA which is a positive sign. IRCTC has turned extremely volatile at the moment and corrected 50% from its recent peak of 1280.

“The stock can remain volatile ahead of its results and any sharp dip can be used as an opportunity to buy the stock,” Aditya Agarwala, Senior Technical Analyst, YES SECURITIES, said.

“On the downside, the recent low of 639 will be a key support to watch out and on the upside 985 is a stiff resistance area. Investors who have bought at higher levels can look to average the stock once it stabilises at current levels,” he said.

(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.)