IRCTC IPO Analysis with Valuation Angle

IRCTC IPO – Should I Invest or Not?

IRCTC IPO Analysis with Valuation Angle

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.
Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

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

IPO Details
IRCTC 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.
IRCTC Key Financials
IRCTC Key Financials
Revenue Mix FY2019
IRCTC Revenue Mix
IRCTC Revenue Mix
  • 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

IRCTC IPO SWOT Analysis
IRCTC IPO SWOT Analysis

Valuation Angle

IRCTC IPO – Valuation Angle
IRCTC IPO – 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.

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