Should I Invest or Not? | IRCTC SWOT Analysis

Introduction

In this article, we will discuss IRCTC IPO Analysis with Valuation Angle. The IRCTC IPO is an offer-for-sale and is a part of the government’s divestment programme for FY 2019-20 in which it is divesting 12.6% stake in the company.

IRCTC IPO Analysis with Valuation Angle

Company Profile – IRCTC

• Indian Railway Catering and Tourism Corporation (IRCTC) is a subsidiary of the Indian Railways IRCTC is a central public sector enterprise wholly-owned by the Government of India and under the administrative control of the Ministry of Railways.
• It is the only entity authorised by Indian Railways. It operates in 4 business segments :
  1. Internet ticketing
  2. Catering
  3. Packaging Drinking Water under the “Rail Neer” brand
  4. Travel and Tourism
• The website of the company, www.irctc.co.in, is among the most frequented website with about 25-28 million transactions per month. www.irctc.co.in is the most transacted websites in the Asia-Pacific region.
• It has also diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges and budget hotels, which are in line with its objective to build a “one-stop solution” for customers.

Objectives of IPO

• The issue is an offer for sale and is a part of the government’s divestment programme for FY 2019-20.
• Thus, the main objective of the IPO offer is :
  1. To carry out the disinvestment of 2.016 Crore equity shares by the selling shareholder constituting 12.6% of company’s paid-up equity share capital
  2. To achieve the benefits of listing the equity shares on the stock exchanges.
• The company will not receive any proceeds from the offer and the proceeds from the IPO will go to the promoter of the company.

IPO Details

• IRCTC has launched its initial public offering (IPO) on September 30, 2019 with a plan to raise up to Rs.645 crore. The IPO has a price band of Rs.315-320 per equity share with 2.01 crore shares on sale.
• % Allocation of total number of shares reserved under 3 heads :
  1. Qualified Institutional Investors (FIIs and DIIs) : 50%
  2. Retail Investors : 35%
  3. Non Institutional (High Net Worth) Investors : 15%

IRCTC Key Financials

• Total revenue of IRCTC grew at a CAGR of 10.4% since last two financial years to Rs.1,956 crore. In the same period, EBITDA grew at a CAGR of 9.1% to Rs.372 crore.
• The Net profit in the past two fiscals has grown at a CAGR of 9% to Rs.272 crore. As of FY2019, the company had an operating profit margin and net profit margin of close to 20% and 14% respectively.
• The company has no debt. It is completely a debt-free company. As of FY2019, IRCTC had cash and cash equivalent of close to Rs 1,140 crore.

Revenue Mix FY2019

• Currently, Catering business is the highest contributor in terms of revenue at 55%. Whereas, Travel & Tourism and Internet Booking contribute around 23.29% and 12.35% respectively.
• However, there is a very high growth opportunities for Internet Booking and Travel &Tourism businesses in near future. The revenue growth of these 2 segments is going to add a great value to the overall profitability and business portfolio of IRCTC.

SWOT Analysis

Valuation Angle

• The company is valued at Rs.5,120 crore at the upper price band and the valuation is pegged at Rs.5,040 crore at lower band.
• The company is commanding a price-to-earnings multiple of 18.8 times at the higher end of the price band.
• This is quite attractive considering the factors that work in favour of its business model and its strong return ratios. There is a clear 50% appreciation in market valuation of the company in coming years.
• So, it can be a great deal for a retail investor who can avail a discount of Rs.10 per share for such a big growth effect.

Should You Invest or Not?

• IRCTC has a unique business model and the company does not have any competition across business segments.
• Positive view on the issue based on various parameters such as strong earnings profile, diversified business segment, healthy return ratio, debt-free status, and most important monopoly business.
• Recent tax reduction by government to 25.2% and increase in revenue from service charge for online ticketing will improve profitability substantially going forward.
• 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 FY2019-21.
• IRCTC’s strong business model makes its IPO a good long-term investment.
• At the IPO price band, the stock is available at a price to earnings multiple of 10 times FY2021E EPS, which looks attractive from the perspective of future earnings growth.

Should I Invest in Polycab India IPO Or Not?

Polycab is engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods(FMCG). In this article, we will analyze the Polycab India IPO. Whether should we invest ot not?

Polycab India IPO Details

1. Subscription Dates : Polycab India’s IPO opened for subscription on Friday, 5^th April 2019. The subscription for this IPO will be open till 9^th April 2019.
2. Issue Price : A price band of Rs. 533 – Rs. 538 a piece has been set for the Polycab India IPO.
3. Lot Size : Shares under the Polycab IPO can be subscribed in the lots of 27 units. That is investors can subscribe to the IPO at a minimum of Rs. 14,391- Rs. 14,526 (27 x 533-538).
4. IPO Amount : The IPO is worth Rs. 1,350 Cr. From this the company will retain Rs. 500 Cr with them, will use Rs. 300 Cr for working capital requirements, will pay-off short-terms debt worth Rs. 100 Cr and will use the remaining amount for general corporate purposes.

Business Details of Polycab India

1. Business Segments

• Polycab India is in the business of wires and cables. They earn 90% of their revenue from their business of wires and cables, which is their major business. In March 2019, the company’s overall revenue is expected to be around Rs. 7,200 Cr.
• The other business segment is Engineering, Procurement and Construction (EPC). Their EPC division provides electrical turnkey solutions comprising project management, onsite execution and resource management. 3%-4% of the revenue is earned from this business segment.
• The rest of revenue (6%-7%) is earned from Fast Moving Electrical Goods (FMEG). Its FMEG products include electric fans, LED lights, switches, switchgears, solar goods, conducts and accessories. This business segment has a lot of potential and can grow huge just like that of Havells.

2. Presence

• The company has a presence in almost 1 lakh retail stores. Thus, they already have a very strong distributor network.
• This network will also help them grow their FMEG business.

Wires & Cables – Indian Market

• India has a wires & cables market of around Rs. 50,000 Cr to Rs. 55,000 Cr.
• Polycab India earns 90% revenue from wires and cables. Thus, 90% of Rs. 7,200 Cr will amount close to Rs. 6,400 Cr.
• This means that Polycab India has a market share of around 12% to 13%. This is very healthy number. Compared to other organised players such as Havells, the market share of Polycab India is almost twice. Thus, this is very advantageous to the company. Among only organised players, that is leaving all the unorganised players (local brands) aside, Polycab India has a market share of 18%, which is definitely very healthy.
• But the wires and cables business of Polycab has become and general business segment with very less opportunities to do something new.

Financial Numbers of Polycab India

1. Net Profit

A healthy growth in net profit numbers can be observed. In 9MFY18-19 (April 2019 – December 2019), the company has already earned net profit worth Rs. 351 Cr. From this point forward, if maintain the same expectations, the company can report net profits of Rs. 480 Cr.

2. Market Capitalization

• When the IPO gets listed as per the specified prices then the company will have a market capitalization of around Rs. 8,000 Cr.
• This means that Polycab India will be a small cap company. But as the market is already euphoric and along with some listing gains, this stock can also move to the mid-cap category. This is just an assumption and nothing concrete can be said. But according to the current details, it is a small cap company.

3. Price-to-Earnings (PE) Ratio

• If we divide the market capitalization of Polycab India (Rs. 8,000 Cr) with their net profit (Rs. 480 Cr), then the PE ratio of Polycab India comes out to be around 16-17.
• This PE doesn’t look very high and the IPO definitely doesn’t look overvalued, in fact it looks like a fairly valued IPO.

Investors Exit from Polycab India

• Some existing private equity investors are also exiting from the company. This might be because they don’t thing the company will continue to give phenomenal or exponential as it has been until now.
• So, a selling of Rs. 1,150 Cr is being done by some investor. Thus, this will provide the company with extra equity.
• This is nothing to worry about and is a normal part of any company.

Summary

1. There are many other similar fairly valued stocks in the market.
2. There is nothing unique to gain from the IPO of Polycab India, but also nothing negative.
3. As it is involved in wires & cables business, it requires aluminium and copper as raw material, and the prices of these commodities can always vary, which can be problematic. The company is looking for tie-ups with copper production houses to set up their own copper production house. Th company is going through all of this right now.
4. Polycab India fits perfectly in the typical consumption theme.
5. The FEMG business segment of Polycab India can have a lot of scope and opportunities in the coming future.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are not in any way saying that this is a bad company, or the stock of this company is bad.
• We are also not suggesting anyone to immediately go and subscribe to the IPO of this stock or invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.

Bandhan Bank IPO Details :

• Price band: Rs 370 – Rs 375
• IPO size: Rs 4,413 crore – Rs 4,473 crore
• Subscription dates: 15 -19 March 2018
• Post-IPO valuation: Rs 44,134 crore to Rs 44,730 crore
• Net Profit (FY 17): Rs 1,112 crore
• Return On Equity (FY 17): 28.6 %
• CASA (Dec 31,2017): 33.2 %
• Capital adequacy ratio (Dec 31,2017): 24.85 %
• Total deposits ( Dec 31,2017) – Rs 25,293 crore
• Loan Book (December 31,2017) : Rs 24,364 crore
• Gross NPA (Non Performing Assets) – As of Dec 31,2017 its Gross NPA stands at 1.67 %
• Net NPA – As of December 31,2017 its Net NPA stands at 0.8 %
• Net interest income (FY17): Rs 2,403 crore