Can the IRCTC stock hold the steam?

Our Bureau Chennai | Updated on February 05, 2020

IRCTC In the hot seat   -  The Hindu

It has jumped 5 times over the IPO price; unique biz model a challenge to valuation

The shares of Indian Railway Catering and Tourism Corporation (IRCTC), continue their bull run relentlessly, after making a strong debut at the bourses in October 2019. The IRCTC stock on Wednesday registered its yet another peak at ₹1,549 but closed slightly lower at ₹1,509.95, with a gain of 6.8 per cent, over the previous day’s close on the BSE.

The stock had a stellar start on October 14 after its blockbuster IPO, which saw the issue subscribing 112 times — the biggest response to a public issue of any PSU so far. As against the issue price of ₹320, the IRCTC stock debuted at ₹644 on the BSE and closed at ₹729 on Day-1 of listing.

While analysts are struggling to fix the right valuation for the stock (as peer comparison is not possible because of its unique business model), they are bullish on the company for the long-term. The entrance of the stock into mid-cap space from January 1 (classified by AMFI, as per SEBI norm) gave further momentum to the stock since New Year. SEBI had asked AMFI to come out with a set of stocks as large-, mid- and small-cap companies to ensure uniformity in respect of the investment universe for equity mutual fund schemes.

Besides the Competition Commission of India absolving the company’s allegations of unfair market practices and the prospect of launching more ‘lucrative’ Tejas trains retained investors interest in the stock, they added.

Prabhudas Lilladher said, “valuations at 20x/18x FY-21/FY-22 look compelling given sales/PAT CAGR of 22.5 per cent/48.7 per cent over FY19-22E and monopolistic position in ticket booking and catering.”

“IRCTC is a monopolistic conglomerate with no comparable listed peer set and limited valuation history (listed recently). Hence, we attempt to provide a segment-wise (internet ticketing, Rail Neer, catering and peer and travel and tourism) comparison to arrive at fair value multiple for the stock,” Prabhudas Lilladher, which recommended ‘buy’ on the stock last week with a target price of ₹1,339, said.

High day-trading

Though the stock is rising steeply, the deliverable ratio is around just 11-13 per cent, said analysts. “This indicates higher day-trading in the stock and investors could burn their fingers if they want to play a momentum game,” they warned.

Published on February 05, 2020

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