Shares of Indian Railway Catering and Tourism Corp. (IRCTC) have zipped like a bullet train post the downtick during the second wave of the pandemic. The stock has surged nearly 70% in the past three months with ticket bookings showing a steady improvement. But the trend prices in much of the positives coming out of non-ticketing revenues and ticket sales.
One reason for the sharp rise is the premium some internet-based business models received lately, say analysts. Besides, IRCTC is looking to expand its operations to offer more services to passengers and third-party service providers. After the second wave, things have started looking better for the travel segment. There are about 2,750 trains in operation. This is about 700 trains short of pre-covid times. IRCTC sold about 34 million tickets in July.
Some of the optimism also stems from the fact that tourist trains, such as Tejas Express, are also seeing bookings. However, note that travelling is still based on necessity, while tourism travel and leisure travel has not yet fully resumed due to covid-19 restrictions in many states.
Another segment that is expected to see improved operations is Rail Neer, its water bottling business. IRCTC has 14 operational plants. Capacity utilization is expected to increase once full services resume on trains.
IRCTC has seen an increase in catering and vending services to nearly 600 trains from 430 trains in March. Besides, IRCTC is monetizing its assets and has expanded its non-convenience fee revenue. It is sprucing up its payment gateway, too. Besides, it’s also looking at expanding its advertising platforms. As such, IRCTC should see a recovery in its operational parameters. “Due to an improvement in its ticketing business, IRCTC is likely to surpass its pre-covid bookings in FY22. Earnings optionality arising from railway privatization and non-convenience income act as additional levers,” said Jinesh Joshi, research analyst, Prabhudas Liladhar.
But even as IRCTC seems well-placed post the second wave, the stock’s valuations have jumped considerably. For much in the recent past, the stock’s one-year forward multiple, according to Bloomberg, has been hovering at around 40 times earnings three months ago. But the stock’s relentless price rise has placed its PE on a high pedestal of about 68 times one-year forward earnings, as per Bloomberg. Besides, analysts have factored in a lot of the recovery in operations in the FY23 earnings numbers, which include growth kickers from catering and other operations post its Q1 numbers. Hence, only an earnings surprise could justify the price rise.
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