Indian Railway shares have been on the rise for the past year, and one company that’s been benefiting from this trend is the Indian Railway Catering and Tourism Corporation (IRCTC). It’s a Category I central public sector enterprise (CPSE) under the Ministry of Railways, Government of India.
IRCTC was set up as an extension of the Indian Railways to enhance, professionalize, and oversee catering and hospitality services at stations, on trains, and elsewhere. Additionally, it aims to promote both domestic and international tourism by developing budget hotels, special tour packages, providing information and commercial publicity, and establishing global reservation systems.
Segment Overview and Revenue Breakup
The company primarily operates in four different business segments: catering and hospitality, internet ticketing, travel and tourism, and packaged drinking water under the brand Rail Neer.
- Catering This segment, which contributes 43.2 per cent of the revenue, provides meals on trains. IRCTC offers mobile catering on Rajdhani Express, Shatabadi Express, Duronto Express, Gatiman Express, Tejas Express and Vande Bharat trains, as well as on express trains with or without pantry cars. In trains without pantry cars, meals are served through train-side vending services. A network of base kitchens supports the supply of meals on mobile trains.
- Internet Ticketing This segment contributes up to 32.8 per cent of the revenue. Currently, IRCTC is the sole administrator and exclusively manages the Indian Railway’s online ticketing services. The company runs one of the most heavily used and transacted websites in the Asia-Pacific area, with more than 359.42 million transactions per month and 6.12 million logins per day.
- Travel and Tourism Contributing 16.2 per cent of the revenue, this segment of the IRCTC offers customised hotel and tourism packages to meet the needs of a diverse customer base. The company has lounges, hotels and retiring rooms, all rated four stars and above, to provide maximum comfort and convenience. IRCTC has teamed up with OYO rooms and other hotels to fulfill the needs of their customers. With a diversified portfolio, IRCTC is planning to expand into other segments, such as helicopter travel, medical tourism, and others in the near future.
- Packaged Drinking Water Rail Neer, the branded bottled water, contributes 7.8 per cent of the revenue with IRCTC having an exclusive claim on the production and distribution of packaged drinking water at all the Indian railway stations.
Sector Overview
Indian Railways, the world’s fourth-largest rail network with over 68,031 route kilometres, is experiencing a surge in passenger traffic, surpassing 418.4 crore originating passengers by November 2022. The anticipated sustained growth is attributed to increased mobility and the demand for faster and more efficient trains. Simultaneously, India’s catering industry is evolving, dominated by unorganised firms, but facing competition from organised foreign players. Lifestyle changes and the rise of organised companies are expected to boost the sector, especially in B2B events and corporate catering.
The travel industry in India is undergoing significant changes driven by digital technologies, shifting consumer spending patterns and urbanisation. Online travel booking services are preferred by millennials and working professionals, contributing to the sector’s growth. Travel technology, userfriendly websites, peer reviews and 360-degree video tours enhance the travel planning experience, with expanding online marketplaces creating new opportunities for reliable global service providers.
In the bottled water market, valued at USD 22.72 billion in 2022, India anticipates reaching USD 36.21 billion by 2030. The increased demand, influenced by post-pandemic health consciousness, faces challenges in accessing clean water, leading to rising packaged water prices in major cities. Driving factors include growing disposable income, heightened hygiene awareness, affordability, easy access to packaged water and a scarcity of safe drinking water. India’s tourism sector is a major contributor to the economy, offering diverse experiences with 40 UNESCO World Heritage sites.
Projected to contribute nearly ₹15.9 trillion (USD 215 billion) in 2022, the tourism sector is expected to exceed the 2019 levels. Employment is set to reach almost 35 million jobs, growing by 8.3 per cent this year. Over the next decade, India’s travel and tourism GDP is forecasted to grow at an annual average rate of 7.8 per cent, outpacing the overall economy at 6.7 per cent, reaching nearly ₹33.8 trillion (USD 457 billion), and constituting 7.2 per cent of the total economy. One of the major contributors to the growth of this sector is the increasing disposable income that is leading to a spurt in travel and vacations.
Financial Overview
IRCTC boasts a market capitalisation of ₹76,608 crore. The government, which is the primary promoter, currently holds about 62.40 per cent of the shares, while FIIs and DIIs possess around 7.34 per cent and 11.98 per cent of the shares, respectively. Additionally, the free float of the company is at 18.28 per cent. Looking at the quarterly financial performance of IRCTC in Q2FY24, the company reported revenue of ₹995 crore, which registered a growth of 23.5 per cent as compared to ₹806 crore in Q2FY23, while the EBITDA of the company surged by 20.3 per cent and stood at ₹367 crore in Q2FY24 as against ₹305 crore in Q2FY23.
The EBITDA margin showed improvement, reaching 36.8 per cent as compared to 37.8 per cent in Q2FY23, driven by changes in the revenue mix. Similarly, the net profit of the company jumped by 30.5 per cent and stood at ₹295 crore in Q2FY24 as compared to ₹226 crore in Q2FY23. Its largest segment of catering and tourism has been the main driver of the year-onyear (YoY) revenue growth. The consolidated EBITDA margin improved to 37.8 per cent YoY due to a change in the revenue mix. In Q2FY24, the catering segment reported 29 per cent YoY revenue growth.
The internet ticketing segment showed resilience with Q2 revenue at ₹327.5 crore, growing 9 per cent YoY. The EBITDA margin reached 83.7 per cent, slightly down to 84.2 per cent YoY. Tourism and state pilgrimage segments reported strong growth with revenue at ₹161.4 crore, posting a 63 per cent YoY increase. The segment achieved a positive EBITDA margin of 3.6 per cent. Rail Neer’s Q2FY24 revenue was ₹78 crore, up 4 per cent YoY. The EBITDA margin improved to 12.9 per cent, compared to 7.5 per cent YoY.
Additionally, as of Q2FY24, the company’s cash and bank balances amounted to ₹2,026 crore, indicating a healthy cash position. Looking at the half yearly performance of IRCTC, in H1FY24, the revenue of the company grew by 20.37 per cent to ₹1,997 crore as compared to ₹1,659 crore in H1FY23, while the EBITDA surged by 13.42 per cent and stood at ₹710 crore in H1FY24 as against ₹626 crore in H1FY23. Similarly, the net profit of the company jumped 11.65 per cent to ₹527 crore in H1FY24 as compared to ₹472 crore in H1FY23.
Analysing the company from the perspective of liquidity and solvency, IRCTC has an interest coverage ratio of 84.6 times, current ratio of 1.9 and a debt-to-equity level of 0.02, indicating a healthy liquidity and solvency position. Additionally, the company has robust ROE and ROCE of 45.4 per cent and 59.2 per cent, respectively. IRCTC is currently trading at a PE multiple of 70.3 times, which is close to its five-year median historical PE multiple of 70.2 times, suggesting that the company is fairly valued. As such, the overall financial position of IRCTC is in the green while pointing toward greater potential for growth.
Outlook
The company is poised to sustain its momentum, anticipating enhanced performance in the latter half of FY24. Notably, 38 per cent of the tickets are now booked using UPI, reflecting a growing trend. Its future plans include the exploration of new features and products aligned with market trends. The potential growth in revenue and margins for the catering and internet ticketing segments is contingent upon the introduction of additional trains and services by Indian Railways. Operational enhancements include the addition of 11 pairs of Vande Bharat trains and 18 new static catering units.
While the license renegotiation for catering has been concluded, realisation is pending due to ongoing court cases. Rail Neer production stands at approximately 12 lakh litres per day, with a capacity of 16 lakh litres per day. Anticipated operational milestones include the launch of the Bhubaneswar and NTPC-Simhadri Rail Neer plants in Q3FY24. Additionally, ongoing discussions with the Ministry of Railways regarding Tejas Express online charges are in progress. A recent update is that IRCTC will be the biggest beneficiary from the establishment of the Ram Mandir at Ayodhya.
A collaborative venture with Zomato is in its nascent stages, and a clearer understanding of volume and earnings patterns is expected in the upcoming quarter. Moreover, IRCTC is preparing to provide 24-hour catering services to meet the needs of the large number of pilgrims visiting Ayodhya. Multiple food stalls will be set up to meet the demand. IRCTC also stands to benefit from the increased demand for rail travel and pilgrimage packages to Ayodhya. Given the overall scenario that comprises all the segments of IRCTC, it does seem that the growing demand will benefit the company in the long run.
Hence, we recommend to closely look this stock for possible up move.
Disclaimer: This content is purely for informational purposes and does not constitute a recommendation for stock investment. Any decision related to investments should be made in consultation with a qualified financial advisor.
