IRCTC surges 7%, hits fresh record high as board to consider stock split

The board of directors of the Company is scheduled to meet on August 12, 2021 to consider stock split

Shares of Indian Railway Catering and Tourism Corporation (IRCTC) hit a new high of Rs 2,490 on the BSE as they rallied 7 per cent in the intra-day trade on Monday after the company announced stock split plan. The stock surpassed its previous high of Rs 2,479.45, touched on July 20, 2021.

"The board of directors of the Company is scheduled to meet on August 12, 2021 to recommend the proposal for sub-division of Company's equity shares of face value of Rs 10 each and matters related thereto, subject to the approval of Ministry of Railways, Government of lndia and shareholders," IRCTC said in an exchange filing on Friday, post market hours.

The company further said the board will also consider and approve the unaudited financial results of the Company for the quarter ended on June 30, 2021 (Q1FY22).

A stock split is generally done to make the stock more affordable for the small retail investors and increase liquidity. It refers to splitting the face value of the shares of companies, where in the number of shares of that company increases but the market cap remains the same. Existing shares split, but the underlying value remains the same. As the number of shares increases, the price per share goes down.

In the past three months, the stock of the travel support services company has outperformed the market and has rallied nearly 40 per cent as compared to a 8.5 per cent rise in the S&P BSE Sensex. Besides, it has zoomed 93 per cent from its 52-week low of Rs 1,291, touched on November 4, 2020.

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. 

Analysts at Prabhudas Lilladher, for instance, 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.

"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," the brokerage said in a March quarter result update report.

That said, 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, experts say.