Buy Indian Railway Catering and Tourism Corporation; target of Rs 1656: Prabhudas Lilladher

Prabhudas Lilladher's research report on Indian Railway Catering and Tourism Corporation

We upgrade our EPS estimates by 12.5%/12.6% for FY21E/FY22E given 1) strong traction and sustainability in non-service charge/convenience fee revenue (650mn in 3QFY20) amid pick up in income from advertisements, promotional mailers, targeted marketing, and RTSA fee 2) potential license fee margin delta that could accrue post tariff revision in mobile/static catering given the low cost structure (limited administrative cost after paying a share to IR's) of the business and 3) reduction in revenue share of IR's from 40% to 15% over a period of time once newly introduced pantry cars begin operations. Given the reintroduction of service charge (Rs15/Rs30 per ticket for non-AC/AC respectively) from 01 Sep 2019, capacity expansion in Rail Neer (aim is to increase the number of plants to 20 by FY21E) and average increase in mobile/static catering tariff's by ~70%/~61% respectively we expect sales/PAT to grow at a CAGR of 24.5%/54.7% over FY19-22E. Strong balance sheet (cash of Rs11.6bn as of Dec), healthy return ratios & dividend pay-out gives us additional comfort. While the stock has already appreciated by ~57% since our initiation report<https://www.plindia.com/ResReport/IRCTC-28-1-20-PL.pdf> we expect premium valuations to sustain (stock is trading at 28x/25x our EPS estimates of FY21E/FY22E respectively) given monopolistic nature of the business, scarcity premium (low float) and clear growth traction in three business segments (Rail neer, internet ticketing & catering).

Outlook

We maintain BUY with a revised TP of Rs1,656 (earlier Rs1,339) valuing the stock at 26x (earlier 24x) our EPS estimate of Rs63.