Prima facie, the Indian Railway Catering and Tourism Corp Ltd’s Ebitda margin of 27.3% in the March quarter (Q4FY26) seems like a big disappointment because it was the lowest in at least the past 12 quarters. The management clarified on the earnings call that the Q4 margin was affected due to a steep jump in some expenses that did not pertain to the quarter.
These expenses included corporate social responsibility (CSR) spending of ₹31 crore (Q4FY25: ₹7 crore) and expected credit loss from debtors of ₹16 crore (Q4FY25: ₹8 crore). Adjusted for this, the Q4FY26 Ebitda margin would have been 30%, flattish year-on-year. CSR tends to be lumpy across quarters as projects take time to be approved and implemented, said the management. So, the quarterly margin can be volatile.
The management anticipates an annual Ebitda margin of 30% in the future vis-à-vis 32% in FY26. What explains the lower margin expectations? Internet ticketing, which has an Ebit margin of about 80%, is unlikely to grow faster in IRCTC’s total revenue. Internet ticketing revenue increased by 7.7% year-on-year in FY26, slower than the 11.5% growth in IRCTC’s total revenue to ₹5,215 crore.
With online ticketing accounting for almost 90% of the booking system, there is limited scope for volumes to rise significantly further. IRCTC’s ticket booking volume grew 5% to 531 million in FY26. The government may not increase the booking fee of about ₹20 per ticket in a hurry due to the public utility nature of the service.
While internet ticketing contributed 30% of IRCTC’s revenue in FY26, the remaining revenue came from relatively less profitable segments such as catering, tourism and the Rail Neer bottled water business, where the Ebit margins range from 10% to 15%. IRCTC’s revenue growth will be driven by these low-margin segments.
Catering margin
When analysts on the call asked about the possibility of margin improvement in the catering segment from price hikes, the management said this was an “administered item and is decided by the ministry of railways.” There was no update on catering prices, which were previously revised in 2019.
Notwithstanding the Ebitda margin drop that is bound to happen when a company expands into lower margin segments, investors must focus on absolute Ebitda growth. Valuation parameters such as EV/Ebitda can become attractive if absolute Ebitda increases at a faster pace. IRCTC’s FY26 Ebitda growth of 7.5% to ₹1,666 crore does not justify its steep valuation of 20x EV/Ebitda based on FY27 Bloomberg consensus estimates.
So, can Ebitda growth accelerate? IRCTC has an asset-light business model and had a cash pile of about ₹2,800 crore at the end of March. Despite a high dividend payout ratio of almost 50%, annual cash accretion remained high at ₹700 crore in FY26.
When asked about future plans, the IRCTC management disclosed its intention to get into the hotel business, besides beefing up the internet ticketing infrastructure and adding Rail Neer manufacturing plants.
It remains to be seen if IRCTC ventures into hotels on its own or enters into tie-ups with established companies. Any announcement in this regard could have a material impact on the IRCTC stock, which had already lost about 20% of its value in 2026 before the Q4 results were declared on 26 May. The stock fell another 3% to ₹523 after the results were declared.