What brokerages say about the IRCTC initial public offering

KS Badri Narayanan Chennai | Updated on September 30, 2019 Published on September 30, 2019

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The corporation’s monopolistic business make it attractive


Broking houses are advising investors to subscribe to the public issue of IRCTC.

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

The issue, which opened today for subscription, will close on October 3. The Centre is planning to sell 2.01 crore shares at a price band of Rs 315-320. The lot size is 40 shares. Through the issue, the Government is looking to raise up to Rs 645 crore.

According to Angel Broking, at the upper end of the price band, IRCTC demands a PE multiple of 18.8x on FY19 EPS. Recent tax reduction by the Government to 25.2 per cent and increase in revenue from service charge for online ticketing will substantially improve the profitability, going forward.

“We would therefore recommend to subscribe to the issue,” it said, and added that there is also significant opportunity for the company to ramp up the catering business given a very large captive audience which is currently being underserved. Increasing business volumes from catering and packaged drinking water businesses, along with service charge for online ticket booking will drive earnings growth for the company between FY19-21.

Another broking firm Anand Rathi said, “We have a positive outlook for the company and we recommend investors to subscribe to this issue.”

“IRCTC has a unique business model and the company does not have any competition across any business segment. Based on various parameters like strong earnings profile, diversified business segment, healthy return ratio, debt-free status and most importantly monopoly business, we have a positive view on the issue,” it added.

For IndiaNivesh Securities, strong fundamentals and debt-free balance sheet along with decent return ratios ― ROE being 26 per cent, operating margins of 20 per cent and PAT margin at 15 per cent ― augur well. “We expect revenue and PAT CAGR of 20 per cent plus for next couple of years,” it said, while recommending that investors subscribe.

ICICI Securities, which also advised investors to subscribe to the issue, said inclusion of a convenience fee on railway tickets, setting up of 10 water plants in the next two years and recent cut in corporate tax rate bode well for EPS growth.

“Coupled with healthy dividend payout (45 per cent in FY19) and RoE (26.1 per cent), we recommend subscribe to the issue at the offer price,” said ICICI Securities.

According to Cholamandalam Securities, the issue appears fully priced in considering historical financials and multiples. There are no direct comparable companies available for relative analysis. The unique business mode, with no direct competitors, is likely to attract investors’ attention and keep the shares in demand, it said. It added that investors can consider investment for the short to medium term, as it is the first mover in the sector and will see buying interest post listing too.

Published on September 30, 2019
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