IRCTC is debt free with cash balance of Rs 1,160 crore as of December 2019. Thus, it can tide over current crisis without leveraging the balance sheet, the brokerage feels.
Indian Railway Catering & Tourism Corporation (IRCTC) was the real gem of 2019 as the stock has given a 192 percent return in just two-and-half-months after listing on bourses on October 14.
The rally further extended in 2020 as well. As on February 25, the stock was up 510 percent from the listing price at record closing high of Rs 1,951.95. But thereafter it fell 56 percent from highs.
The reason behind rally seen before correction was its monopolistic position in railway ticketing, drinking water and catering services to railways, whereas the fall in last one month was entirely due to novel coronavirus-led global turmoil and lockdown in country.
"IRCTC is bracing for a hit on operational profitability as Covid-19 has brought travel & tourism activity to a complete standstill. Pre-Covid, on an average around 8.5 lakh tickets were booked each day. However, the figure has declined to around 5.5 lakh tickets per day due to delay in travel plans," Prabhudas Lilladher said.
Given that passenger train services are completely suspended and leisure travel will take time to pick-up the figure can go down further, according to the brokerage.
"In addition, on-board catering and services of tourist trains including the newly launched Tejas Express have also been suspended for the time being. Sales of packaged drinking water will also take a hit given the lockdown type scenario," it said.
Its sensitivity analysis revealed revenue foregone/operational expenses burn (largely fixed in nature with some variable component) can be in the region of Rs 262.5 crore/Rs 45.9 crore if there is a complete lockdown for one month.
But despite near term challenges, Prabhudas Lilladher believes IRCTC is best placed to bounce back once Covid fear resides as structural levers remain intact. "The stock currently trades at 13.6x FY22 EPS and looks attractive with a long-term perspective. Retain buy."
However, the brokerage said it would advise staggered buying and did not rule out near term weakness given the constantly evolving situation over lockdown.
"Further, risk of reduction/abolishment in service charge has magnified as Covid is a black swan event and government can take a socialist approach to deal with the current situation," it added.
Prabhudas Lilladher estimated the impact on IRCTC's earnings if there is a 1-month complete lockdown. "In case of suspension, total revenue foregone can be in the region of Rs 262.5 crore per month and the operational expenses burn (largely fixed in nature with some variable component) could be in the region of Rs 45.9 crore per month."
"Total revenue and EBIT impact in ticketing business can be in the region of Rs 65-70 crore per month and Rs 55-60 crore while fixed cost that will hit P&L during the suspension of services will be around Rs 10 crore per month," it explained.
In case of catering segment, revenue forgone per month could be Rs 117 crore (simply divided full-year revenue by 12) as it is difficult to predict seasonality, and there could be Rs 27.2 crore per month impact on Rail Neer revenue, it said.
"Tourism revenue forgone per month will be Rs 48.3 crore (simply divided full-year revenue by 12); however, the figure could be higher as Q1FY21 is peak season for travel," it added.
IRCTC is debt-free with a cash balance of Rs 1,160 crore as of December 2019. Thus, it can tide over the current crisis without leveraging the balance sheet, the brokerage feels.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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