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IRCTC IPO oversubscribed by 111 times on last day of bidding

The shareholding of government in the railways' tourism and catering subsidiary will be reduced to 87.40 percent.

October 04, 2019 / 02:12 PM IST

The offer for sale issue of public sector company Indian Railway Catering and Tourism Corporation (IRCTC) has received healthy response from investors on the final day of the bidding process on October 3.

The Rs 645-crore public issue has been oversubscribed more than 111 times, the data available on exchanges show.

The initial public offering has received bids for 225,29,43,280 equity shares against the IPO size of 2.016 crore shares, data available on exchanges reveal.

The reserved portion of qualified institutional investors subscribed 108.79 times and non-institutional investors 354.51 times while that of retail investors 14.36 times and employees 5.74 times.

Here is all you need to know about IRCTC IPO


The issue comprised an offer for sale of 2,01,60,000 equity shares, and the price band for IPO has been fixed at Rs 315-320 per share. Out of the total issue size, 1,60,000 equity shares are reserved for eligible employees.

Employees of the company and retail investors will receive shares at a discount of Rs 10 to final offer price.

The shareholding of government in the railways' tourism and catering subsidiary will be reduced to 87.40 percent.

Given IRCTC's strong earnings, attractive valuations, asset light business model, big customer base and healthy dividend payouts, all brokerages recommended investors to subscribe to the IPO.

"Based on FY19 consolidated numbers, the issue is priced at a P/E of 19x. The company is likely to benefit from i) monopolistic nature of business, ii) significant growth over FY19-21 iii) an asset-light business model with healthy dividend payouts, and iv) strong parentage. Thus, investors can subscribe to the IPO," Motilal Oswal said in its note.

IRCTC, a Central Public Sector Enterprise, is the only entity authorized by Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India.

The result of an asset-light business model, the company has high return ratios with return on capital employed (RoCE) and return on equity of around 25 percent with dividend payouts of more than 40 percent of net profits, over the past two years, higher than the regulatory norm of 30 percent," Motilal Oswal said, adding healthy cash balances (more than the networth of the company) provides comfort against business uncertainties.

IIFL Securities also recommended to subscribe to the issue as, given the near term growth potential, it valued the company at 13x FY21E EPS translating in a potential target price of Rs 431 per share, and thus, expects it to witness a healthy listing gain.

"Levy of convenience fee on ticket bookings and commissioning of six new Rail Neer plants is expected to aid IRCTC's revenue CAGR at 16 percent over FY19-21E. Moreover, these segments enjoy high operating margins, and will thus, aid healthy EBITDA margin expansion of around 600bps and PAT CAGR of 40 percent over the same period. IRCTC is seeking 18.8x/13.6x/9.7x its FY19/FY20E/FY21E EPS," it added.

However, the company remains exposed to potential risk of any change in policies or allowing of open competition by government, the brokerage feels.

The state-owned entity operates in four business segments—internet ticketing, catering, packaged drinking water, under the Rail Neer brand, and travel and tourism.

The internet ticketing segment contributed 12.35 percent to its FY19 revenue against 13.63 percent the previous year. The catering business accounted for 55 percent of the revenue against 48.70 percent in 2018. Packaged drinking water counted for 9.28 percent revenue against previous year’s 11.13 percent, while travel and tourism 23.38 percent against 26.54 percent.

The book running lead managers to the issue are IDBI Capital Markets & Securities, SBI Capital Markets and YES Securities (India).

Note: The earlier version of the article mentioned the discount was 10 percent. The discount being offered in Rs 10. The error is regretted.
Rakesh Patil
ISO 27001 - BSI Assurance Mark