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BL Research Bureau
IRCTC reported good profit numbers in the half-year ended in September 2019, with profits growing by 18 per cent over the same period last year to ₹172 crore. The surge in profits can be attributed to two main reasons.
One, the fillip to the profits of the internet ticketing segment (20 per cent of revenues) from service charges that were levied from September 1, 2019. Since the service charges are not required to be shared, unlike the erstwhile regime, margins from the internet ticketing segment skyrocketed. The segment reported a profit (PBT) margin of 74 per cent in 1HFY20, compared to 56 per cent in 1HFY19. Earnings from this segment more than doubled to ₹147 crore.
Two, the company adopted the lower tax rate of 25.17 per cent and hence the tax incidence (tax as a % of PBT) dropped to 28 per cent from 37 per cent in the corresponding period last year.
Though the bottom line got a boost from these two items, profits from its catering business which brings bulk of the revenues (55 per cent) declined by 25 per cent over April-September 2018 due to a 43 per cent spike in catering expenses.
The management however clarified that this sharp rise in catering expense is because the corresponding numbers of last year were not reported on a half-yearly basis. The figures for 1HFY19 were taken from internal MIS and hence didn’t depict a correct picture. This is thanks to the usual practice of accounting for most expenses in the fag end of the accounting year in March. According to the management, if the full year’s catering expenses for FY19 were to be considered as equally spread throughout the year, the spike in catering expenses of 1HFY20 comes to only 10 per cent.
Muted top-line growth
Compared to the 18 per cent growth in profits, top-line grew by a muted 4 per cent year-on-year to ₹973 crore. While the catering business revenues grew by 12 per cent, the re-introduction of service charges helped the internet ticketing segment post an 81 per cent growth in revenue. Other segments — Rail Neer and Tourism also grew by 26 and 22 per cent respectively in 1HFY20. However, State Teertha — a segment that contributes less than 2.5 per cent to the top line - saw a 86 per cent de-growth in 1HFY20.
Outlook & Valuations
With just one month of new levy (service charges), the company witnessed 20 per cent (Y-o-Y) growth in EBITDA levels. In the coming quarters, the bottom line is expected to get a further boost from the operations of Tejas Express.
At CMP, the stock trades at 47 times its trailing 12-month earnings. Considering the media reported profit figures of ₹70 lakh per month on Tejas Express alone (for 2HFY20), the estimated growth in profits comes to 14 per cent.
The expected uptick in profits still does not justify the premium valuations.
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