IRCTC's shares pick up speed on marked revival in travel activity

The stock has advanced nearly 30 per cent since February this year

Shares of Indian Railway Catering and Tourism Corporation (IRCTC) are up almost 30 per cent since the start of February as investors are betting on the easing of Covid-19 related restrictions and a pickup in vaccination drive to boost travel activity. The stock made a 52-week of Rs 1,989 on Tuesday, and last traded at Rs 1,884.35 on Wednesday on the BSE.

The government-owned railways' catering and ticketing company had seen business come to a halt as train operations were severely impacted in the first half of the ongoing fiscal due to the outbreak of Covid-19 and lockdowns. However, worst of the disruption is believed to behind and the earnings outlook is seen steadily improving for the company.

Currently, IRCTC is booking approximately 8 lakh tickets per day as compared to about 9 lakh to 9.5 lakh tickets per day before the pandemic, aided by increased adoption of online booking. In fact, the pandemic has acted as boon for the company’s ticketing business as adoption of online ticketing remains high (roughly 90 per cent) as compared to 73 per cent in FY20.

“This adoption itself would drive revenue growth of about 25 per cent from its peak revenue run rate in Q3'FY20,” said Rahul Jain, research analyst at Dolat Capital. In another event, the government initiated the process of converting several unreserved coaches into reserved class (2S – seating) across trains and as a result has increased the potential ticketing market by up to 30-40 per cent based on current capacity base, added Jain.

With more trains slated to become operational (currently 400 trains are plying representing 35-40 per cent of total capacity) and cooked food being allowed to be sold, IRCTC’s bread-and butter-business of catering, which accounts for 46 per cent of its overall sales, is also benefiting. Additionally, the upward revision in pricing in the catering segment is also seen boosting average realisation, say analysts.

Due to the pandemic, the company's revenue had plunged 74 per cent to Rs 444 crore while net profit was down 77 per cent to Rs 86 crore in the nine-months ended December 2020, compared to the year ago period. However, as the business outlook is improving, the performance is also expected to improve. Analysts at Dolat Capital estimate IRCTC's FY22 revenue at Rs 2,095 crore and net profit at Rs 657 crore, which compares well with its FY20 revenue of Rs 2,276 crore and net profit of Rs 527 crore.

IRCTC enjoys a monopoly status as it’s the only entity authorised by Indian Railways to provide online booking of railway tickets and manage the catering services on board trains and major static units at railway stations.

The company’s entry into passenger rail operations, huge potential in e-catering business and superior balance sheet quality provide ample confidence about the long-term growth prospects of the business. Investors with a long-term horizon, thus, can accumulate on dips.