Indian Railway Catering and Tourism Corporation (IRCTC) will have its initial public offering (IPO) on Monday. The IPO will remain open until October 3 at Rs 315-320 per share. IRCTC, an arm of the Indian Railways, is a monopoly business with a strong balance sheet offered at fair valuations but the biggest risk is the fact that the government owns 100 percent stake in the company, the government is its sole customer and all of the government’s policies impact the company’s business going forward.
IRCTC is the only company which is authorised by the Indian Railways to not only do catering services but also package drinking water and manage online ticketing. Every Indian at some point in their life has used the IRCTC website, making it among the most heavily transacted websites in the country. On average, around 1.5 to about 1.8 crore people book tickets on the website every month.
IRCTC's catering business contributes around 55 percent to its overall revenue. Packaged water contributes around 12 percent but ticketing business is the key growth driver, around 23 percent of its revenue comes from the ticketing vertical. The vertical has 60-65 percent margin which is a big positive.
As far as financials are concerned, for the last three years IRCTC's revenues have been hovering around between Rs 1,500-1,800 crore with margins between 18-20 percent as a whole and the return on net worth too is a healthy 25 percent. So over the last three years, there has been revenue growth of 11 percent as well as earnings before interest, taxes, depreciation, and amortisation (Ebitda) and net profit growth of about 9 percent.
It’s a zero-debt company, and for a firm that is expecting Rs 5,000 crore post-listing market capitalisation, it has around Rs 1,150 crore in cash. However, the key risk is the fact that there could be a change in the policy of the government at any given point in time. It has happened once in 2016 which impacted ticketing revenues.
Once the company is listed all the customer feedback tweets may impact its business as well. IRCTC uses pet bottles and single-use plastic for its packaging so if there is a ban on single-use plastic it could impact its cost structure as well.
The management was cognizant of the fact that it is going for IPO so they restarted the service charge and valuations at 19 times last year’s earnings, which is fair given the fact that the service charge will come in and net profit will only grow faster.