IRCTC IPO Review: Can you afford to miss this train?


Last updated on January 5, 2020

Incorporated in 1999, state-owned Indian Railway Catering and Tourism Corporation Limited (IRCTC) is a wholly-owned subsidiary of Indian Railways. IRCTC handles tourism, catering, online ticket booking services and provides packaged drinking water in trains and at railway stations in the country. Here is our IRCTC IPO Review to understand what works for the Mini Ratna PSU and if investors should subscribe or avoid the public offer.

The company was conferred a Mini-Ratna or Category-I Public Sector Enterprise status by the Indian Government in 2008. In the last three months ended on 30 June 2019, nearly 15 to 18 million transactions were placed per month through the IRCTC website.

IRCTC also provides non-railway services including budget hotels, e-catering and executive lounges to create a one-stop solution for customers. Currently, the company operates majorly in four segments which are:

1. Travel and Tourism

IRCTC is specialized in rail tourism. It offers travel and tourism services across diversified segments such as air, land, rail, & cruise tour packages, hotel bookings and air ticket bookings.

2. Packaged Drinking Water

It is an authorized manufacturer and distributor of packaged drinking water on trains and at railway stations. The company manufactures packaged drinking water under brand name Rail Neer.

3. Catering Services

The company provides food catering services including on-board catering (through mobile) on trains and static catering services at stations.

4. Internet Ticketing

IRCTC has a mobile app and a dedicated website that offer online railway ticket booking facility.

IRCTC IPO Review: Competitive Strengths

An authorized service provider by Indian Railways, Railway and non-railway tourism and hospitality services, Exclusively authorized by Indian Railways to provide packaged drinking water and a strong operating system across different segments.

IRCTC IPO Review: Issue Details

Dates – 30 Sep – 3 Oct 2019

Price – INR315 – 320 per equity share (retail discount – INR10 per share)

Minimum Lot Size – 40 Shares

Minimum Application Amount – INR12,600 – 12,800 (INR12,200 – 12,400 for retail investors)

Total Issue Size – INR645 crore (Pure OFS)

IRCTC IPO Review: Promoters of the Company

The President of India acting through the Ministry of Railways is the promoter of the company.

IRCTC IPO Analysis: Objects of Offer

To carry out the disinvestment of Equity Shares by the Selling Shareholder and to achieve the benefits of listing the Equity Shares on the Stock Exchanges.

IRCTC IPO Review: Risks

The business and revenues are substantially dependent on the policies of the Ministry of Railways and operations of Indian Railways. As a CPSE, wholly owned by the Government of India and under the administrative control of the Ministry of Railways, the scope of services, and the fees IRCTC charge, are primarily determined by the Ministry of Railways.

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Margins have been flat for the past 3 years (OPM and NPM)

License Fees on an uptrend with huge spikes in the cost, although this has been offset with a corresponding increase in its share of revenues through license fee.   

IRCTC License Fee

As a CPSE, it is often authorized by the government to offer various products and services to the public on behalf of Indian Railways, as well as receiving operative support from the Ministry of Railways from time to time.

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IRCTC is the sole provider of online railway ticketing, catering services, and packaged drinking water for trains and stations, and certain other services. If the government allows competition in any of these areas, it may adversely impact the company’s financial results. For instance, private train operators are being currently considered for operating Tejas trains.

Business can be negatively affected if the company is unable to maintain quality standards. This is especially true on the catering side which has emerged as the company’s biggest revenue contributor in recent years.

The company has no ability to pass on any increase in raw ingredient costs due to price regulation by Indian Railways; also it does not hedge risk against market fluctuations in commodities market.

As of 31 March 2019, the company had contingent liabilities of INR166.7 crore, which primarily relate to service tax, VAT and other taxes.

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IRCTC IPO Review: Income Statement Analysis 
IRCTC Income statement
IRCTC IPO Analysis: Key observations
  • Income on upward trend – Positive
  • Cost of materials consumed on a downward trend – Positive, although that’s not the true measure as its main costs are related to catering and tourism
  • Employee benefit expenses rising – Negative, IRCTC is at the mercy of its employees
  • Upward trend of EPS – Positive
  • Onboard catering and license fees have spiked – Positive as IRCTC gets 60% of all license fees after transferring 40% to Indian Railways
  • OPM and NPM stable for last 3 years – Neutral, not surprising for a company of this size

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IRCTC IPO Analysis: Cash Flow 
IRCTC Cash Flow
IRCTC IPO Review: Valuations & Conclusion
IRCTC Valuation

On the valuation front, at the upper end of the price band, IRCTC is valued at a 4.91x P/BV and 18.78x P/E. At the given valuations, its return ratios – RoE of 26.14% and RoCE of 55.13% – look attractive. At the same time, the company is available with a debt-free balance sheet.

With the ongoing volatility in the secondary markets, it appears the pricing of the company has been kept reasonable and the promoter is leaving some money on the table. It is to be noted that IRCTC’s revenues from ticketing suffered in the last couple of years after the government withdrew service charges on online bookings. As these charges now make a comeback with effect from 1 September 2019, we can expect better revenue growth for IRCTC. 

Another important factor is the government’s ownership and IRCTC’s dividend policy. Since IRCTC is a PSU with the government in driver’s seat, investors can look forward to consistent dividends. Buying stocks for dividends make sense at low valuations and IRCTC fits the bill here. The IPO has already attracted the fancy of the unorganized market and it is visible in the grey market premium currently quoting around INR120 per share. Please head to our discussion page on IRCTC IPO for more updates. 


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