ICICI Direct has come out with its report on IRCTC. The research firm has recommended to "Subscribe'' the IPO in its research report as on September 27, 2019
IRCTC is the only entity authorized by Indian Railways to offer railway tickets online through its website www.irctc.co.in and mobile application, "Rail Connect". Approximately 72.60% of railways' tickets are booked online with an average of more than 0.84 million tickets booked online on daily basis. According to CRISIL, online rail bookings are expected to grow at ~8% CAGR to reach ~425-435 million in FY24E, with e-booking penetration rising approximately 81–83% during the same period. With a surge in e-commerce driven by increasing internet penetration in India, it eventually aids in creating leads for online businesses such as air tickets, hotels and tour package bookings, and opportunities to generate revenue by cross-selling services and products.
IRCTC is the only entity authorized to manage the catering services on board trains and major static units at railway stations under the Catering Policy 2017. Company has continuously strived on improving the standard of catering services through various measures including third party audits. Additionally, with the mandate from the Ministry of Railways to transfer catering services in their entirety to IRCTC, has further expanded the company’s scale of operations. Company’s understanding of the market has enabled it to grow its business with improved passenger satisfaction.
Valuation and Outlook
Inclusion of convenience fee on railway tickets, setting up of 10 water plants in next 2 years and recent tax reduction of corporate tax bodes well for EPS growth. Coupled with healthy dividend payout (45% in FY19) and RoE (26.1%), we recommend SUBSCRIBE to the issue at the offer price. Further, at the IPO price band of | 315-320, the stock is available at a price to earnings multiple of ~10x (FY21E EPS), which we believe looks attractive from the perspective of future earnings growth.
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