IRCTC's market capitalisation also increased from Rs 5,000 crore to Rs 15,000 crore.
Indian Railway Catering and Tourism Corporation (IRCTC) was the real multibagger of Samvat 2075, as it delivered 181 percent return on its issue price of Rs 320 in just nine trading sessions.
And, no one saw it coming. On the listing day, October 14, it climbed 128 percent to close at Rs 728.60, way above expectations and followed it up by 23 percent gains in the remaining eight days of Samvat 2075.
Its market capitalisation increased from Rs 5,000 crore to Rs 15,000 crore, backed by its healthy fundamentals and monopoly it enjoyed in its space.
The reason behind the performance was IRCTC’s monopoly, by being the sole service provider to Indian Railways, and exclusivity, in onboard catering and sale of packaged drinking water, which ensure that it generates a fairly predictable decent cash flow for the long term, Prashanth Tapse, AVP research at Mehta Equities told Moneycontrol.
“We think government has taken the right step to create good valuation for PSU jewels for future dilution of equity to meet the SEBI minimum 75 percent shareholding after listing, wherein government can raise more to meet FY20 disinvestment target," Tapse said.
Does it mean that government did not value it correctly with a market cap of Rs 5,000 crore at the time of IPO?
Experts agree but say it was expected considering the market environment.
"At Rs 5,000 crore, IRCTC was grossly undervalued," Amit Gupta, co-founder and CEO TradingBells, said.
Tapse said, "We believe market works on dynamic price discovery mechanism and hence we assume market discovered it right in IRCTC case. We assume merchant bankers did it very conservatively considering the equity market scenario."
Experts say the stock has a long way to go, as it has a strong long-term cash-generating business, which can create huge wealth for investors.
"IRCTC gives investor a unique opportunity to own leading Mini–Ratna (Cat-I), with dominant market share of 72 percent in railway e-ticketing. Hence considering new revenue streams with new private train routes under its banner, where it has freedom on pricing, adds feather in the jewel cap, strong long-term cash-generating business, high return on capital employed (RoCE) and healthy dividend yield, IRCTC should definitely be on the radar of long-term investors," Tapse said.
The market was valuing IRCTC at a PE multiple of 42.50 times, which may seem appropriate for its current earnings, according to Gupta. However, there were many avenues where IRCTC’s revenues could spike with a little tweaking in its revenue structure, he said.
"For example, from September 1, IRCTC has started levying a convenience fee of Rs 15 for non-A/c and Rs 30 for A/c tickets; roughly turning out to be Rs 16.5 per ticket. Based on its current rate of tickets booked approximately Rs 50 crore per year, this can add a staggering Rs 825 crore to its revenue alone per year, practically more than doubling its total revenue. These are some avenues where IRCTC can monetize its monopolistic situation, thereby tremendously increasing its market value in the future," he said.
So, experts see IRCTC doubling by Samvat 2076, which could amount to 400-500 percent return for investors over its issue price of Rs 320.
"Based on my comments above, we feel the stock can cross Rs 1,000 very soon and even approach Rs 2,000 per share by Diwali next year. We are generally very optimistic about this stock and have been recommending to our investors at TradingBells," Amit Gupta said.
Gaurav Garg, Head of Research at CapitalVia Global Research - Investment Advisor, described IRCTC a Warren Buffet buy with a moat stock type.
"Based on parameters such as strong earnings profile, diversified business segment, healthy return ratios, debt-free status and monopoly business, we are strongly bullish on this without any bias," he said.Tapse said while on valuation parse IRCTC was trading at 15 x price to earnings for FY21E with EPS Rs 47, he was positive with a target of Rs 1,000-1,100 in the next 12-18 months.
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