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Shares of Indian Railway Catering and Tourism Corp. Ltd (IRCTC) have been on the fast track for a while now. The stock scaled a new 52-week high of ₹2,750 apiece on Wednesday on the National Stock Exchange. As things stand, IRCTC’s shares are 39% above their pre-covid highs of February 2020. This is despite the fact that IRCTC’s FY21 performance took a beating owing to the impact of the pandemic.
Valuations are pricey with IRCTC’s shares trading at nearly 44 times estimated earnings for fiscal 2023, based on Bloomberg data.
Prithvish Uppal, analyst at IDBI Capital Markets & Securities Ltd, said, “While IRCTC valuations aren’t cheap, the premium is justified. We expect higher volumes both on account of tickets booked and a higher number of trains. This would bode well for other lines of business, too.”
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“Having said that, how the next six months shape up would be crucial as there is still uncertainty around the pandemic and progress thereon,” he added.
IRCTC’s board has recently approved a share split of 1:5. While this doesn’t alter the fundamentals of the company, it increases the affordability of the stock.
IRCTC’s June quarter (Q1FY22) results are healthy, given the tough business circumstances it operated in due to the second wave’s impact. Revenues increased by as much as 85% year-on-year to ₹243 crore, helped by a favourable base. However, revenues were 28% lower vis-à-vis the March quarter, mainly owing to a sharp drop in internet ticketing. Last quarter, the internet ticketing segment accounted for almost 62% of the revenues.
IRCTC’s total tickets booked stood at 63.7 million in Q1 and it is encouraging that there has been a strong recovery in this measure after the quarter. Further, the catering and Rail Neer segments performed relatively better. Overall, IRCTC’s earnings before interest, tax, depreciation and amortization (Ebitda) in Q1 stood at ₹111 crore, comparing favourably with a loss in the year-ago period. Though, it should be noted that Ebitda is lower sequentially.
Going ahead, investors should closely watch the pace of recovery in IRCTC’s other segments as well, apart from internet ticketing. In general, the risk of a third covid wave remains for all companies and IRCTC is not immune.
IIFL Securities Ltd estimates 23% earnings per share (EPS) CAGR over FY20-23 driven by healthy ticketing volumes and higher packaged drinking water capacity. CAGR is short for compound annual growth rate.
“Though private trains and better monetization of user data could yield upsides, we also note the risks around: uncertainty related to new catering policy; and potential loss of monopoly of ticket booking engine,” the broker added.
To be sure, the IRCTC stock’s meaningful outperformance could well limit significant gains in the near future.
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