IRCTC stock’s upward journey factors in optimism adequately
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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IRCTC share: Should you buy after stock split?
IRCTC share price: While announcing its Q1 FY2021-22 results, the Indian Railway Catering and Tourism Corporation (IRCTC) management announced to split IRCTC shares into 1:5. If the approval gets nod from the Ministry of Railways and the existing share holders, the IRCTC share price face value would become ₹2 instead of existing ₹10 per equity share. Similarly, IRCTC stock price would come down at around ₹500 to ₹550 from existing ₹2666 share levels. According to experts, this sub-division of IRCTS shares won’t impact company valuations but it would become easy for small investors to invest in IRCTC stocks after the split. They advised small investors to take advantage of this IRCTC stock split and add this counter in one’s portfolio.
Speaking on the impact of IRCTC stock split Saurabh Jain, AVP — Research at SMC Global Securities said, “This split won’t impact the company valuations. It is not going to impact the existing share holders as well as IRCTC share price will also come down in sync with share split after share price adjustment. But, it will make possible for the small investors to invest in IRCTC stocks as IRCTC share price will come down at around ₹500 to ₹550. So, those who can’t afford to invest in stock priced at ₹2500 or above, can now invest in IRCTC.”
On how it will help IRCTC as a listed company; Ravi Singhal, Vice Chairman at GCL Securities said, “Once small investors will be able to invest in IRCTC stocks, some extra volume in the stock trade is expected as existing investors will continue to invest in the stock after the share price adjustment. So, after the sub-division of IRCTC shares, some more liquidity is expected in the IRCTC share trade.”
Whether one should buy IRCTC shares after stock split; Ravi Singhal of GCL Securities said, “Small investors who can now afford to invest in IRCTC shares are advised to buy IRCTC shares at around ₹450 to ₹470 maintaining stop loss at ₹370. The stock is expected to regain its pre-split price in next four to five years.”
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IRCTC announces stock split, share price surges to new high
The board of Indian Railway Catering and Tourism Corporation (IRCTC) today recommended the proposal for sub-division or split of company’s one (1) equity share of face value of ₹10/- each into five (5) equity shares of face value of ₹2 each, subject to the approval of Ministry of Railways, shareholders and other approvals.
Shares of IRCTC today surged to a new high of ₹2,727, up over 5% on the BSE. IRCTC said the stock split will help enhance liquidity in the capital market, widen shareholder base and make the shares affordable to the small investors.
IRCTC expects the process to be completed within three months from the date of receipt of approval of from Ministry of Railways, Government of India.
The authorised share capital will remain the same at ₹250 crore while post-split the number of shares will increase to 125,00,00,000 ( face value of ₹2-each), from 25,00,00,000.
IRCTC had hit the capital market in October 2019 and its IPO was a huge hit among retail investors. The issue price of the multi-bagger stock was ₹320 per share and investors have been rewarded handsomely. The government holds 67.40% stake in this Railway company.
IRCTC is the only entity authorised by the Indian Railways to provide catering services, online railway tickets and packaged drinking water at railway stations and trains in India.
IRCTC also said in the June quarter its net profit from continuing operations was at ₹82.5 crore against loss of ₹24.6 crore from the year-earlier quarter. Revenue from operations rose to ₹257 crore as compared to ₹156 crore a year ago. Internet ticketing revenue witnessed a sharp rise of over 300% to ₹149 crore, and from the tourism category, the revenue more than doubled to ₹7 crore.
IRCTC shares are up 18% over the past one month with investors betting that the company will benefits as restrictions on movement are lifted.
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