The stock, which is a play on the growth
story of Indian Railways, has corrected 15 per cent from its 52-week high level
of Rs 2,072.95 scaled on March 9. Yet, this has not deterred brokerages from
holding a bullish view on the stock.
The
recent spike in Covid-19 cases in the country poses near-term risks to Indian
Railway Catering and Tourism Corporation's (IRCTC) growth, but the company's
monopolistic nature of business, low fixed-cost model and healthy net-cash
position have analysts hooked.
The stock, which is a play
on the growth story of Indian Railways, has corrected 15 per cent from its
52-week high level of Rs 2,072.95 scaled on March 9 amid worries over the
steady rise in Covid cases.
Yet, this has
not deterred brokerages from holding a bullish view on the stock.
Accelerated adoption of
online ticketing, conversion of unreserved coaches to 2S class, increase in
capacity in the packaged drinking water (PDW) business and resumption of
private trains will likely act as a ‘profit windfall’ in the coming quarters,
say analysts, and should boost IRCTC's growth.
It is due to these reasons,
the stock remains an outlier.
On a year-to-date (YTD)
basis, the shares of IRCTC have risen nearly 22 per cent as against a 4 per
cent gain in the Sensex.
Going ahead, brokerages are
pencilling in a further upside potential of 24-50 per cent from Wednesday's
close of Rs 1,756.20.
Multiple revenue levers
IRCTC has a monopolistic
opportunity in online rail ticketing, sale of PDW and catering services for
Indian Railways.
Share of online ticket
bookings, which is the most relevant segment from a profitability perspective
for IRCTC, had risen to 93 per cent during Q3FY21 due to the pandemic from 73
per cent in FY20.
Analysts at IIFL Securities
expect the share of online ticket bookings to moderate to 85 per cent over FY22
and FY23 as post-pandemic some customers could shift back to offline ticketing.
Nonetheless, the figure is still high.
Besides, the conversion of
unreserved coaches to the 2S category is another sustainable structural lever
for the company and could result in a volume delta of 35 per cent.
That apart, significant
capacity increase in PDW segment during FY19-22 should help IRCTC cater to 85
per cent of the railway water demand versus 40 per cent earlier, further
driving revenues.
Moreover, IRCTC has also
been awarded an opportunity to run the first three private trains by Indian
Railways.
On the back of these
developments, the company is poised for multi-year high double-digit growth in
revenues, said analysts at Dolat Capital who have a target price of Rs 2,650 on
IRCTC.
"Factoring in the
opportunities across business segments and the huge opportunities that Indian
Railways offers, we have built-in revenue CAGR of about 15 per cent over
FY20-FY23 and 16 per cent over FY20-FY25," they added.
Catering business in
flux?
Recently, Indian Railways
mandated that only ready-to-eat meals would be served in the trains, asking
IRCTC to terminate all existing contracts of mobile catering.
However, the management
highlighted that cancelled contracts were already in abeyance with no change in
catering policy so far.
"As these contracts
are not operational during FY21, there will be no financial impact.
"Once normal
operations resume, tenders would be issued based on the scope of work.
"One, however, cannot
rule out the possibility of some reduction in revenue," said IIFL
Securities as it projects a modest 6 per cent catering revenue CAGR during
FY20-23.
It has a target of Rs 2,174
on the stock.
Risks at play
While rising Covid cases
pose some near-term risks to revival in financials, analysts remain unfazed as
they see IRCTC as a long-term bet.
"Investors with a
long-term view can look to accumulate the stock on dips at Rs 1,650 levels as
the monopolistic nature of the business and return to normalcy would drive the
revenues for the company," said Ajit Mishra, VP-Research at Religare
Broking.
Analysts, however, say that
any adverse change in government policy can have a negative impact on IRCTC
stock.