Subscribe to IRCTC: Prabhudas Lilladher

8

IRCTC is the only entity authorized to provide packaged drinking water, catering, and online ticket booking services to passengers travelling by IRs. It has a dominant position in online rail bookings/packaged drinking water with ~73%/~45% market share respectively.

Valuation and Outlook

We recommend a SUBSCRIBE on Indian Railway Catering & Tourism Corporation Ltd (IRCTC) given 1) monopoly position in providing packaged drinking water, catering, online ticket booking services to passengers travelling by Indian Railways (IRs) 2) strong business visibility amid reintroduction of service charge (Rs15 per ticket for non-AC and Rs30 per ticket for AC from 01 Sep 2019) for online ticket booking and plans to double the number of Rail Neer plants to 20 by FY21E 3) debt free & cash rich BS (Rs11.4bn of cash as of FY19; ~23% of post money market cap) with healthy return ratios (RoE/RoCE of 26%/33% respectively as of FY19) and 4) healthy dividend pay-outs (~41% over the last 3 years). Over FY17-19, IRCTC’s sales/EBITDA/PAT have grown at a CAGR of 10.3%/9.1%/9.1% respectively. At the upper end of the price band, the issue is priced at 19x FY19 EPS of Rs17 (no listed peer available to facilitate comparison), and looks attractive due to limited competitive risks, and expected margin swing from revenue windfall with re-introduction of service charge.

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