Buy IRCTC; target of Rs 2179: Prabhudas Lilladher

Prabhudas Lilladher's research report on IRCTC

We increase our EPS estimates by 5.9%/5.7% for FY22E/FY23E respectively as conversion of certain unreserved coaches to reserved category can result in volume delta of ~35%. Except for the first 10 days of Jan, non-suburban PRS traffic registered growth in every subsequent 10-day bucket period, indicating that conversion factor is driving traffic growth in 4QFY21. As a result, we have increased our e-ticketing volume estimates to 369.7mn/401.7mn for FY22E/FY23E respectively; a ~13% odd upgrade for both the years. On catering front, management highlighted that cancelled contracts were already in abeyance with no change in catering policy so far. Even with complete migration towards ready-to-eat (RTE) meals post-COVID, there may not be a substantial business loss as RTE menu has already been expanded. Thus, we have not tinkered our catering revenue estimates, meaningfully.

Outlook

We increase our target P/E multiple to 35x (earlier 28x) and arrive at a revised TP of Rs2,179 (earlier Rs1,639) as conversion of unreserved coaches to reserved category is a sustainable structural lever. Further, we do not rule out earnings optionality arising from 1) railway privatization 2) non-convenience income and 3) potential in e-catering business which gives us additional comfort. Retain BUY.