State-owned Indian Railway Catering and Tourism Corporation (IRCTC) saw its shares more than double during their stock market debut on Monday. The stock ended at Rs 733, with a gain of Rs 413, or 129 per cent, over its initial public offering (IPO) price of Rs 320. This listing-day gain is the highest-ever for a state-owned company, surpassing the record set by Power Grid, shares of which had soared 94 per cent in its trading debut in 2007.
On an overall basis, the gains were the highest for an over Rs 500-crore IPO in a decade. The shares of Avenue Supermarts had climbed 114 per cent on its debut in 2017. Earlier this month, IRCTC’s Rs 640-crore IPO had become the most-subscribed maiden offering by a state-owned company, witnessing 111 times more demand than the shares on offer. Several investors, who lost out on the IPO allotment, aggressively bought its shares in the secondary market, where shares worth over Rs 3,500 crore changed hands.
IRCTC’s modest valuations, monopoly status in the online railway ticketing space, and untapped potential in the internet space attracted investors towards the stock, said market players. For 2018-19, the company had reported net profit of Rs 273 crore on revenues of Rs 1,868 crore. At the IPO price of Rs 320, the company was valued at nearly 19 times its 2018-19 earnings per share of Rs 17. However, at the current market rate, the trailing price-to-earnings multiple has crossed 40 times. Such valuations are fairly common for private companies operating in the internet space, but uncommon for a state-owned undertaking, said experts.
Currently, IRCTC has four core business verticals. Besides online ticketing, it does railway catering, tourism services, and sale of packaged drinking water under the brand name Rail Neer. The company is the only authorised firm by the Indian Railways to provide these services.
Analysts are betting that IRCTC will be able to generate high growth by scaling into new business areas. “The company enjoys significant barriers to entry for each business segment. The company is likely to reap future benefits of favourable regulations as it scales other products like e-wallets, train operations, and hotels,” said a note by Motilal Oswal. Analysts said investors need to be cautious about valuations and future stake sales by the government.
After the stellar debut, IRCTC is now valued at Rs 11,658 crore, up from its IPO valuation of just Rs 5,120 crore. Through the IPO, the government divested 12.6 per cent of its stake. The stellar debut will help the Centre, which is targeting to a mop-up over Rs 1 trillion through disinvestment this fiscal year, realise much more during future stake sales.
However, future disinvestments could only be possible after a year, given the one-year lock-in on promoter shares post IPO.