Buy IRCTC; target of Rs 1645: Prabhudas Lilladher

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Prabhudas Lilladher's research repor on IRCTC

IRCTC’s performance was marred by COVID-19 during 1QFY21 with EBITDA/PAT loss of Rs439mn (PLe of Rs522mn)/Rs246mn (PLe of Rs308mn) respectively. With gradual relaxation in lock down restrictions (80 additional trains have resumed operations from Sep 12, in addition to the 230 trains which are already operational), we expect staggered resumption of rail services in next six months. While FY21E is expected to be a complete wash out (online bookings to fall by 74.3% YoY to 77.5mn) we expect sharp bounce back in FY22E as 1) capacity expansion of Rail Neer (bottling capacity to rise to ~586mn in FY22E) 2) impact of price hike taken in mobile/static catering by ~70%/60% respectively and 3) revenue boost from levy of service charge will completely play out by then. Thus, we keep our FY22/FY23 EPS estimates broadly intact (a minor cut of 2%/5% respectively) and expect sales/PAT CAGR of 12%/20% respectively over next 3 years. We believe IRCTC is a perfect play on the unlocking theme as lockdown restrictions are gradually being relaxed.

Outlook

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 thus upgrade our rating to BUY (earlier ACCUMULATE) with a TP of Rs1,645 and raise our target P/E multiple to 28.5x (earlier 26.5x) as we roll forward to FY23E estimates.

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