Home / Markets / Mark To Market /  IRCTC: A steep plunge after a dizzying rise

State-run Indian Railway Catering and Tourism Corporation (IRCTC) Ltd is back on investors’ radar screens after its recent profit booking, which was preceded by a rally in the stock.

Shares of the public-sector unit rose around 9% on 19 October on the National Stock Exchange, touching a record high of 6,396, achieving a market capitalization of 1 trillion. However, if the past five trading sessions are considered, the stock has fallen 14%.

Notwithstanding the latest correction, IRCTC has raked up gains of 171% so far in FY22, leaving the broad Nifty far behind in its dust. In fact, in the past two months itself, the stock has more than doubled. Investors would reckon that IRCTC made its debut on Indian stock exchanges in October 2019.

A runaway rally
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A runaway rally

The gains may look like irrational exuberance, but analysts believe there are some valid reasons behind it too. These include the gradual reopening of the economy and a positive sentiment around the monetization potential of IRCTC’s more than 65 million users. The 1:5 stock split by the company has also lifted sentiment as it bodes well for retail participation through higher liquidity.

That said, analysts at IIFL Securities Ltd note that post the recent surge, the risk-reward in the stock has turned unfavourable. Also, the stock’s current valuations do not adequately discount the risks, the brokerage said.

“The IRCTC stock has more than tripled since our coverage initiation in March 2021 versus 24% gains for Nifty. Consequently, its premium (on a one-year forward price-to-earnings ratio) to the high RoE peer group in the IIFL universe has widened to 100% from around 25% in the past two months," the IIFL report said. RoE is short for return on equity.

Another thing to note is that the stock’s surge is despite consensus estimates largely remaining unchanged. Even in the best-case scenario, the stock yields only 7% upside from the current market price, IIFL analysts added. It is hardly surprising then that IIFL has downgraded the stock’s rating to sell.

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