IRCTC takes off from train tracks to skies. What should investors do?

Indian Railways gave up on steam engines a long time ago but a company it spawned as an enabler for its humongous captive ticketing requirement has recorded a ten-fold jump in its value in the last two years.

Indian Railway Catering and Tourism Corporation (IRCTC) has emerged as arguably the best-performing PSU stock in recent years and a play on business interest beyond its core e-ticketing operations.

IRCTC has grabbed investors’ interest looking at a sharp revival in rail movement as the fast-accelerating vaccination programme in the country has arrested the arrival of the ‘third wave’ of the Covid-19 pandemic. The company now commands a market capitalisation of over $7 billion and is among the top 100 companies by valuation.

The company’s stock price is currently trading around Rs 3,300 apiece, more than 10 times the level at which it went public in 2019. It is reacting to multiple triggers, including a stock split that would add to liquidity in the stock, an expected surge in rail travel as pandemic concerns recede and its non-ticketing businesses that have become equally attractive.

IRCTC’s performance

In a report last month, IIFL Securities noted that IRCTC’s first-quarter performance was resilient and it remained profitable despite the 28% quarter-on-quarter revenue decline due to the lockdowns.

IRCTC management have said that ticketing volumes are now 30% above pre-Covid levels aided by movement from unreserved to second-class sitting segment of railways.

IIFL Securities said last month the stock was fairly valued at Rs 2,630 levels. It raised its earnings per share (EPS) estimate for 2021-22 by 46% on faster recovery from Covid-19 secondwave but maintained FY23 EPS. “We estimate 23% EPS CAGR over FY20-23 driven by healthy ticketing volumes and higher packaged drinking water capacity,” it said.

According to Jinesh Joshi of PrabhudasLiladhar, IRCTC is likely to surpass its pre-Covid bookings in 2021-22 due to an improvement in its ticketing business.“Earnings optionality arising from railway privatization and non-convenience income act as additional levers,” Joshi said.

IRCTC stock outlook

The heady valuations—thecompany is trading close to 177 times its trailing net profit—putsit in a sensitive zone. However, several analysts expect even more action in the counter. Some even expect it to rise another 50% by March-September 2023.

Sumeet Bagadia of Choice Broking said the stock has given fresh breakout at Rs 3,000 levels. “One can buy this Indian Railways’ PSU counter for immediate to short-term target of Rs 3,200 to Rs 3,400. However, one must maintain stop loss at Rs 2,800 while taking this position in IRCTC shares.”

Santosh Meena of Swastika Investmart says the stock has crossed the psychological level of Rs 3,000 and the correction due to Covid-19 was a great opportunity for portfolio investors to latch onto it.

“The reopening theme is getting momentum whereas it has a tailwind of stock split news. The railways’ asset monetization plan is another trigger for its re-rating. The bullish momentum may continue while Rs 3,070 to Rs 3,100 is an immediate resistance zone; above this, it is likely to head towards the Rs 3,300 level.”

Meena also said that if the stock witnesses any profit booking from the Rs 3,070-3,100 resistance zone, then Rs 2,775-2,700 will be a good buying zone.

Ravi Singhal of GCL Securities says the stock can move to Rs 5,000 in 18-24 months, and attributes the price rally to the company's aggressive focus on its hospitality business.

Singhal says the market feels that IRCTC is trying to emerge as an end-to-end solution provider in the hospitality business as it has been joining hands with aviation and surface transport service providers as well as hotels.

“It is also aggressively focusing on its food-supply business by inking deals with local food-chain players. So, IRCTC is no more going to remain just an e-ticket platform,” Singhal said.