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Company Background

Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) is a wholly-owned subsidiary of Indian Railways, Government of India. It is a Mini Ratna (Category-I Central Public Sector Enterprise), incorporated in 1999 as an extended arm of the Indian Railways with the objective to upgrade, modernise, professionalise and manage the catering and hospitality services at stations, on trains and other locations, online ticket booking services, packaged drinking water and to promote domestic and international tourism through development of budget hotels, special tour packages, information & commercial publicity and global reservation systems.

Investment Rationale

1. Presently, it operates majorly in four business segments:

a) Catering Services - The company provides food catering services including on-board catering (through mobile) on trains and static catering services at stations. Its planning to roll out at least 10 new pantry cars in Fiscal 2020.

b) Internet Ticketing - It operates one of the most transacted websites, ‘www.irctc.co.in,’ in the Asia-Pacific region with transaction volume averaging 25 to 28 million transactions per month during the five months ended August 31, 2019.

l Currently IRCTC has nearly 72.60% online railway ticket booking business volume with a transaction volume of more than 25 million per month and 7.2 million logins per day. Such web traffic provides IRCTC with opportunities for cross-selling and possibility to generate revenue through value added services.

l IRCTC launched ‘i-Pay’ payment gateway to manage domestic debit/credit transactions in October 2018. The company is working on technical capabilities and operational utility of the gateway to use it in additional market segments.

c) Travel and Tourism - IRCTC is specialised in rail tourism. It offers travel and tourism services across diversified segments such as air, land, rail & cruise tour packages, hotel bookings and air ticket bookings.

d) Packaged Drinking Water - It is an authorised manufacturer and distributor of packaged drinking water on trains and at railway stations. The company manufactures packaged drinking water under brand name ‘Rail Neer.’ It has ten operational Rail Neer plants and four additional plants will be set up by 2021.

2. It has also diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges, refreshment rooms, retiring rooms and budget hotels, which are in line with its objective to build a “one stop solution” for its customers.

3. The Company reported 12% YoY rise in the net profit at Rs 169 crore for H1FY20 helped by sharp rise inrevenue from e-ticketing segment. IRCTCʼs net sales from operations grew 4% YoY to `973 crore as against RS 937 crore in H1FY19.

4. The Railway Board has decided to hike prices of meals on board Rajdhani, Shatabdi and Duronto trains, resulting in slight increase in their fares which couldbenefit in IRCTC’s revenue.

5. IRCTC’s Lucknow-Delhi Tejas Express has made aprofit of around Rs 70 lakh till October this year and is the national transporterʼs first step towards privatising operations. The Railways has provisionally selected50 key routes on which trains by private operators can be run on payment of applicable charges.

Recommendation – Company is enjoying virtual monopoly with its business model offering major tourism related services on all aspects under one roof. Considering, the company’s strong earnings profile, diversified business segment, healthy return ratio, debt free status and most importantly high entry barrier to the business with reasonable valuation, we recommend a BUY on the stock with a Target Price of Rs 1,200 with an upside potential of ~37% from the current level with an investment horizon of 9-12 months.