Global brokerage Macquarie initiated coverage on Indian Railway Catering and Tourism Corporation (IRCTC) with an “Outperform” rating and a target price of ₹900, indicating a potential upside of 15.5 per cent from its previous close of ₹779.55.
The bullish view comes despite IRCTC delivering negative returns for nine consecutive months, reflecting the brokerage’s confidence in the company’s long-term growth potential.
Monopoly Advantage and Growth Prospects
Macquarie emphasised IRCTC’s unparalleled monopoly in Indian Railways’ e-ticketing and catering services as a cornerstone of its business strength. The company is well-positioned to benefit from India’s ongoing railway modernisation efforts and the accelerated rollout of premium trains. These developments, according to Macquarie, could act as significant growth catalysts, potentially doubling IRCTC’s stock value over the coming years.
“IRCTC operates one of the Asia-Pacific region’s most heavily trafficked websites, complemented by its diversification into non-railway services such as e-catering, executive lounges, and budget hotels. These initiatives aim to enhance customer experience and broaden revenue streams,” the brokerage said.
Strong Financial Metrics
The brokerage highlighted IRCTC’s robust financial profile, which includes 1) An 80 per cent direct market share in railway e-ticketing; 2) Free cash flow margins of 30 per cent; 3) Returns of over 30 per cent on both invested capital (ROIC) and equity (ROE); 4) Minimal capital expenditure requirements.
IRCTC earns a fixed commission per ticket based on factors like air-conditioned or non-air-conditioned seating and payment methods. It also secures additional revenue from a 20 per cent indirect share via third-party online travel agents.
Macquarie projects IRCTC’s EBIT margins for its e-ticketing vertical to remain between 80 per cent and 85 per cent, while its catering segment margins are expected to range between 12 per cent and 15 per cent.
Stock Price Trend
In the nine months since May 2024, the railway stock has crashed by over 27 per cent. Meanwhile, in the last one year, the stock has lost 18 per cent. Currently, the stock is over 32 per cent away from its 52-week high of ₹1,148.30. It fell over 3 per cent in intra-day deals today to hit its 52-week low of ₹755.15.
Recent Financial Performance
IRCTC reported a 4.5 per cent year-on-year (YoY) increase in consolidated net profit, which stood at ₹307.9 crore for Q2FY25, compared to ₹294.7 crore in Q2FY24. Revenue from operations rose by over 7 per cent YoY to ₹1,064 crore, up from ₹992.4 crore in the same quarter the previous year.
Total expenses increased by 9.8 per cent YoY to ₹707.4 crore, driven by a rise in catering service costs, which surged 18.9 per cent YoY to ₹346.5 crore. However, tourism expenses fell by 23.7 per cent YoY to ₹105 crore.
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