Fundamental Analysis of IRCTC: Indian Railway Catering & Tourism Corporation (IRCTC) stock had one of the best IPO listing debuts on Dalal Street closing at a premium of 127% over the issue price. It rallied a further 600% to touch Rs 1,100 levels in October of 2021.
However, it has fallen 45% since then begging the question, “Should I buy the dip?” We’ll attempt to answer this and other questions in this article by performing a fundamental analysis of IRCTC.
Fundamental Analysis of IRCTC
We’ll start our study by briefly getting ourselves acquainted with the company. After that, we’ll read in-depth about its businesses performing a segment analysis. Next, we’ll race through the industry overview and financials of the stock. A highlight of the future plans and a summary to conclude the article at the end.
Company Overview
Indian Railway Catering & Tourism Corporation (IRCTC) Ltd. has incorporated 24 years ago in 1999 as a government company under the Indan Railways to facilitate catering & hospitality services.
Over the years, it has become a prominent enterprise in the Indian railways industry offering various services to rail customers. It is engaged in providing catering, packaged drinking water, internet ticketing, and travel & tourism services.
The company had its IPO in September 2019 with the government of India selling its stake partially. Over the next quarters, it further reduced its shareholding bringing it to 62.4% as per the recent shareholding data for the quarter ending December 2022.
The ticketing company employs over 1970 people. Its overall traffic for e-ticketing applications (website and mobile combined) stood at 2289.66 million with 75.22 million app downloads as per the data from its FY22 annual report.
IRCTC is a monopoly stock as it has exclusive rights to sell rail tickets online. In addition to this, it also has a monopoly in the catering business as no other entity has the authorization to sell food and beverages on the train.
As a feather on its cap, IRCTC processed a whopping 80.43% of the total railway tickets booked in FY22. The balance was purchased via ticket counters at the railway stations.
We have a good understanding of the company in the study now. Let us learn more about its businesses in the next section on segment analysis.
Segment Analysis
IRCTC organizes its businesses across five segments:
- Internet ticketing: This is the largest division of IRCTC in terms of revenues and profits. It provides online booking services for train tickets through its mobile app and website.
- Catering: This segment houses food and hospitality services including onboard food & water catering through pantry cars in trains, food plazas & waiting rooms at railway stations, and fees charged from partner restaurants for e-catering.
- Tourism & train operations: Covers travel & trip packages, booking of hotels, flights, buses, etc., and operations of premium trains such as Maharaja Express and Golden Chariot.
- Railneer: This segment runs 15 manufacturing plants across India for the packaged drinking water sold under the ‘Railneer’ brand at railway stations and in trains.
- State Teertha: This service allows people to book pilgrimage trains across states.
The table below shows the share of different revenue segments of IRCTC over the last five years.
| Segment-wise Revenue Contr. | 2018 | 2019 | 2020 | 2021 | 2022 |
| Catering | 49 | 55 | 46 | 29 | 27 |
| Railneer | 11 | 9 | 10 | 7 | 9 |
| Internet Ticketing | 14 | 12 | 27 | 57 | 54 |
| Tourism & Train Operations | 12 | 13 | 13 | 7 | 8 |
| State Teertha | 14 | 10 | 4 | 0 | 2 |
The table below presents the segment-wise profit before tax (and exceptional items) of IRCTC.
| Segment-wise PBT | 2018 | 2019 | 2020 | 2021 | 2022 |
| Catering | 123 | 127 | 119 | -92 | 20 |
| Railneer | 37 | 29 | 52 | -7 | 10 |
| Internet Ticketing | 104 | 156 | 495 | 323 | 857 |
| Tourism & Train Operations | -12 | 23 | 10 | -74 | -48 |
| State Teertha | 50 | 49 | 15 | 0 | 3 |
We can conclude from our segment analysis that IRCTC’s stock has undergone a significant change in the business during the study period. In the next section on industry overview, let us learn about the railways’ sector and e-ticketing prospects in India.
Industry Overview
Managed by the Government of India, the Indian Railways network is the fourth largest globally. The growth of railway companies closely tracks the progress of the railway infrastructure in the nation.
In the Union Budget 2023-24, honorable Finance Minister Nirmala Sitharaman allocated Rs 2.4 lakh crore, the highest ever so far towards the development, degradation, and modernization of Indian railways. The gross capital outlay was Rs 1.37 lakh crore in FY 2022-23.
But that’s not it. A few other factors also are expected to drive the growth of e-ticketing, catering, and hospitality services in Indian railways. These are the core areas in which IRCTC operates.
Going forward, rising disposable income, higher penetration of the internet, changing consumer preferences, and demand for convenience are supposed to boost the growth of online ticket reservations and hospitality services in railways.
IRCTC – Financials
Revenue and Net Profit Growth
At first glance, it seems that the operating revenues of IRCTC grew at a slow pace of 5.03% from Rs 1,470 crore in FY18 to Rs 1,879 crore in FY22.
However, following our segment analysis above we can note that during the period, the company saw a shift in business from being a catering company to becoming an internet ticketing company.
This is reflected in the sharp growth of operating profit and net profit which grew at a CAGR of 21.49% and 24.64% to Rs 954 crore and Rs 664 crore in FY22.
The table below presents the growth of revenues, operating profit, and net profit of IRCTC over the last five years.
| Fiscal Year | Operating Revenue | Operating Profit | Net Profit |
| 2022 | 1,879 | 954 | 664 |
| 2021 | 777 | 273 | 187 |
| 2020 | 2,275 | 778 | 529 |
| 2019 | 1,870 | 472 | 309 |
| 2018 | 1,470 | 360 | 221 |
| 5-yr CAGR | 5.03% | 21.52% | 24.64% |
Operating and Net Profit Margins
Taking forward our fundamental analysis of IRCTC to study margins, the change of business aided the stock to post higher profit margins in recent years.
The operating profit margin doubled and the net profit margin more than doubled in the last five years as the share of the internet ticketing division increased. This transformed IRCTC into a technology-focused enterprise with higher profit margins than the traditional catering business.
The table below highlights the growth in operating profit margins and net profit margins of IRCTC over the last five fiscals.
| Fiscal Year | Operating Profit Margin | Net Profit Margin |
| 2022 | 50.7% | 35.3% |
| 2021 | 35.1% | 24.1% |
| 2020 | 34.2% | 23.2% |
| 2019 | 25.2% | 16.5% |
| 2018 | 24.5% | 15.0% |
In the next section, let us see how the change in segment profits has impacted profitability and efficiency by analyzing the return ratios: return on capital employed (RoCE) and return on equity (RoE) of IRCTC.
Return Ratios: RoCE and RoE
The return ratios of IRCTC have increased in the previous five financial years because of higher profitability and a reduction in capital deployed as the earnings share of the capital-light internet ticketing division increased.
The RoCE and RoE were down to 47% and 40% in FY22 respectively from their highs in FY20 on account of the impact of Covid-19 on travel.
The table below highlights the return ratios: RoCE and RoE of IRCTC over the past few years.
| Fiscal Year | RoCE | RoE |
| 2022 | 47 | 40 |
| 2021 | 18 | 14 |
| 2020 | 56 | 40 |
| 2019 | 45 | 29 |
| 2018 | 36 | 23 |
Debt/Equity and Interest Coverage
We’ll keep the debt analysis of IRCTC short as it is largely a debt-free stock with a debt-to-equity ratio of 0.06 and a high-interest coverage ratio of 27.8.
Future Plans of IRCTC
So far we looked at the previous fiscals data for our fundamental analysis of IRCTC. In this section, we’ll try to get a sense of the future plans of the company.
- The catering division is gradually pivoting from a product business to a service business further strengthening IRCTC’s position as a tech player. Previously, only IRCTC food was served on trains. Now, the e-catering feature allows customers to order from partner restaurants charging a fee for the transaction. This provides the customers with menu diversity and greater choices.
- The share of Railneer in the profits of FY22 was comparatively lower as the division worked at only 42% capacity utilization because of lesser travel (impact of Covid-19 led pandemic). The segment is expected to perform better in the quarters ahead with higher utilization and increased consumption of packaged drinking water.
- In addition to the 15 plants for drinking water bottles at present, four more production facilities are under construction.
- Recently, the management notified that the company is planning to build and operate budget hotels across the country. For this first-of-a-kind initiative, it has estimated an investment of Rs 500 crore for the first phase.
Key Metrics Of IRCTC
We are almost at the end of our fundamental analysis of IRCTC. The table below presents the key metrics of the railway stock.
| CMP | ₹607 | Market Cap (Cr.) | ₹48,500 |
| EPS | ₹11.8 | Stock P/E | 52 |
| RoCE | 47% | RoE | 40% |
| Promoter Holding | 62% | Book Value | ₹28 |
| Debt to Equity | 0.06 | Price to Book Value | 22 |
| Net Profit Margin | 35% | Operating Profit Margin | 51% |
In Conclusion
As we arrive at the end of our fundamental analysis of IRCTC, we can definitely say that the business has ample room for growth in the next few quarters as travel resumes and its different businesses start working at higher capacity utilization. However, the concern is the high P/E of 52 which gives the impression that much of this growth has already been captured in the stock price.
Thus, do you think IRCTC at present valuations is an undervalued stock? What can be growth opportunities for the company? How about you enlighten us with your input in the comments below?
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