Indian Railway Catering & Tourism Corporation (IRCTC) share price rallied 2 percent intraday on January 28 after Prabhudas Lilladher initiated coverage on the stock, with a buy rating and a price target of Rs 1,339, implying 33 percent potential upside.
The stock has rallied more than 16 percent in the last one month and shot up 221 percent since October 14, 2019, the day it was listed. It was quoting at Rs 1,024.10, up Rs 16.45, or 1.63 percent, on the BSE at 1110 hours.
"We initiate coverage on IRCTC with a buy rating given 1) monopoly position in providing online ticket booking and catering services for passengers travelling by Indian Railways (IRs) 2) high revenue visibility from packaged drinking water segment (Rail Neer brand) aided by 35 percent higher capacity 3) revenue kicker of Rs 670 crore/Rs 700 crore in FY21/FY22 from e-ticketing business post re-introduction of service charge (Rs 15 per ticket for non-AC and Rs 30 per ticket for AC from September 1, 2019) and 4) catering revenue CAGR of 14.5 percent over FY19-22 led by an average increase in mobile/static catering tariff's by around 70/61 percent respectively," the brokerage said.
"Strong balance sheet (net cash of Rs 1,150 crore as on September 2019), healthy return ratios (RoE/RoCE to expand from 27/34 percent in FY19 to 44/52 percent in FY22E) and 45 percent dividend pay-out gives us additional comfort," it added.
The brokerage says valuations at 20x/18x FY21E/FY22 look compelling, given sales/PAT CAGR of 22.5/48.7 percent over FY19-22 and monopolistic position in ticket booking and catering.
Prabhudas Lilladher expects tourism revenue/EBIT to grow at a CAGR of 9.1/2.9 percent over FY19-22. IRCTC has footprints across all major tourism segments such as hotel bookings, rail, land, cruise and air tour packages and air-ticket bookings. It has monopoly in rail tourism and operates various theme based trains.
Policy uncertainty in catering and reduction/abolishment of service charge are key risks to its buy call, it said.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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