Indian Railway Catering and Tourism Corporation (IRCTC) IPO Subscribe Recommendation

Indian Railway Catering and Tourism Corporation (IRCTC)

Issue Opens: September 30, 2019; Issue Closes: October 3, 2019; Price Band: `315-320

Company Overview

Indian Railway Catering and Tourism Corporation Limited (IRCTC) is a Central Public Sector Enterprise wholly owned by the Government of India (GoI) under the administrative control of the Ministry of Railways. IRCTC is the only authorized entity by Indian Railways to provide online railway tickets, catering services to railways, and packaged drinking water at railway stations and trains in India.

Company currently operates in four business segments viz. internet ticketing (12% of revenue in FY19), catering (55%), packaged drinking water under Rail Neer brand (9%), and travel & tourism (24%). IRCTC operates one of the most transacted websites i.e. www.irctc.co.in, with transaction volume averaging 2.5cr-2.8cr transactions per month during the five months ended August 30, 2019.

Offer Details

The offer comprises of the Offer for Sale (OFS) of 2.0cr shares by the promoters to carry out the disinvestment. Company will not directly receive any proceeds from the offer.

Our view

Levy of convenience fee on ticket bookings and commissioning of six new Rail Neer plants is expected to aid IRCTC’s revenue CAGR at 16% over FY19-21E. Moreover, these segments enjoy high operating margins, and will thus, aid healthy EBITDA margin expansion of ~600bps and PAT CAGR of 40% over the same period. IRCTC is seeking 18.8x/13.6x/9.7x its FY19/FY20E/FY21E EPS.

Given the near term growth potential, we value the company at 13x FY21E EPS translating in a potential target price of Rs. 431/share, and thus, expect it to witness a healthy listing gain.

We recommend SUBSCRIBE to the issue. However, the company remains exposed to potential risk of any change in policies or allowing of open competition by government.