Buy Railway Catering and Tourism Corporation; target of Rs 1629: Prabhudas Lilladher
Prabhudas Lilladher is bullish on Railway Catering and Tourism Corporation has recommended buy rating on the stock with a target price of Rs 1629 in its research report dated November 13, 2020.
November 18, 2020 / 01:09 PM IST
Prabhudas Lilladher's research report on Railway Catering and Tourism Corporation
We cut our FY21E EPS estimates by 50% given the uncertainty in timeline regarding complete resumption of rail services. However, our FY22E/FY23E estimates are broadly intact as 1) resumption of Tejas Express from 17th Oct and 2) increase in convenience revenue to ~25% of the pre-COVID levels in 2QFY21 signal that normalcy is expected to resume within next 6-8 months. We thus expect sharp bounce back in FY22E as capacity expansion of Rail Neer and the impact of price hike announced in catering will play out by then. However, given the current situation we expect IT & pantry car modernization capex plan to get delayed and have tweaked our assumptions accordingly. We now expect IT capex outgo of Rs2bn odd to be spread over 3 years versus 2 years in the earlier case, with no spends whatsoever in FY21E. We believe IRCTC is a perfect play on the unlocking theme with gradual relaxations in travel restrictions. Valuations at 27x FY22E and 24x FY23E look challenging but will sustain given 1) monopolistic nature of the business 2) clear growth traction (20% PAT CAGR over 3 years) and 3) strong return ratios & healthy BS.
We maintain BUY with revised TP of Rs1,629 (earlier Rs1,647) by valuing the stock at a P/E multiple 28.5x (no change) our estimated FY23E EPS of Rs57.
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