IRCTC rallies 20% in July so far amid expectations of improved outlook

In the past three months, IRCTC has surged 50 per cent as against a 9 per cent gain in the S&P BSE Sensex

Shares of Indian Railway Catering and Tourism Corporation (IRCTC) rallied 8 per cent to Rs 2,458 on the BSE in intra-day trade on Friday in an otherwise subdued market amid expectations of improved outlook. 

The stock of the travel support services company has rallied 20 per cent so far this month after the company announced resumption of two Tejas Express trains from August 7. On July 9, the company said that the Lucknow-New Delhi and Ahmadabad-Mumbai Tejas Express train service will resume from August 7 for four days a week. In comparison, the S&P BSE Sensex was up 1 per cent in past 12 trading days of July month. In past three months, the scrip has surged 50 per cent, as against a 9 per cent gain in the benchmark index.

IRCTC is the only entity authorised by the Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India. It has a dominant position in online rail bookings and packaged drinking water with around 73 per cent and 45 per cent market share, respectively.

IRCTC is a play on the normalisation of activity post Covid, and analysts expect improvement in outlook driven by accelerated adoption of online ticketing, conversion of unreserved coaches to 2S class, increase in capacity in the PDW (packaged drinking water) segment and resumption of private trains. The key near-term risks are rising Covid cases and a delay in recovery but IRCTC’s low fixed-cost model and healthy net-cash position lend comfort, analysts said.

Analysts at Prabhudas Lilladher expect ticketing volumes to breach pre-Covid levels amid incremental delta coming in from conversion of certain unreserved coaches into the reserved category. Additional volume lever is not ruled out from rise in e-booking penetration (reached around 90 per cent plus amid Covid, up from 70-75 per cent levels prevailing pre-Covid) as it can be sticky in nature.

On the catering front, the brokerage firm believes even if complete migration happens towards ready-to-eat (RTE) meals post Covid, there may not be substantial business loss as ready-to-eat (RTE) menu has already been expanded.

“Earnings optionality arising from railway privatisation (IRCTC has qualified for 11 clusters), non-convenience income (especially pertaining to payment gateway) and potential in e-catering business (commission increased from 12 per cent to 15 per cent) gives us additional comfort,” analysts said in IRCTC March quarter result update. The stock was trading above the target price of Rs 2,329 per share.

At 2.25 pm, the scrip was trading 6.98 per cent higher at Rs 2427.35 per share as against a fall of 0.02 per cent in BSE Sensex.