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State-owned Indian Railway Catering and Tourism Corp. Ltd’s (IRCTC) earnings for the June quarter (Q1FY23) were a mixed bag. In Q1FY23, revenue at almost 853 crore surpassed analysts’ estimates, aided by the solid performance of its catering business. Even so, the catering segment has a relatively lower margin profile and that weighed on Ebitda (earnings before interest, tax, depreciation and amortization) margin performance, which was down by 820 basis points (bps) year-on-year to 37.6%.

IRCTC operates in catering and tourism, packaged drinking water under Rail Neer, and internet ticketing segments.

Loosing steam
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Loosing steam

In FY23, the catering business is expected to clock revenue of 1,500 crore, the company told analysts. The performance of Rail Neer is also slated to improve. However, the ticketing business could see a slowdown in growth, the management said.

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“Ticketing volumes will be keenly watched in the near-term as reversal of the 2S sitting class to the unreserved category is applicable from July. This would weigh on ticketing volumes. This has kept the stock under pressure," said Jinesh Joshi, analyst at Prabhudas Lilladher. The contribution from 2S class used to be nearly 38% earlier and has reduced to 26.9% in Q1FY23, according to the IRCTC management. The declining trend can be expected to continue.

IRCTC is well poised to meet its FY23 catering revenue target, but with catering being a low-margin business, it won’t significantly aid the bottom-line, according to Joshi. “Ticketing has been a crucial Ebit (earnings before interest and tax) contributor for IRCTC, so only achieving higher revenue in the catering segment is not enough to move the needle on overall earnings," he said.

Measures such as price increase for packaged drinking water, moving to convenience fee per passenger from a per-ticket basis could lift IRCTC’s earnings per share trajectory, but the visibility on these remains low, analysts at IIFL Securities Ltd noted.

Little wonder then that the stock’s performance has been unimpressive. So far in CY22, the stock has declined by around 20% compared to the 1% gain in the Nifty500 index. From its 52-week high of 1,279.26 seen in October, the IRCTC stock is down as much as 48%.

The overall downbeat sentiment towards midcap stocks may have also accentuated the stock’s fall, analysts said. The stock trades at about 52 times estimated FY24 earnings, according to Bloomberg data. Valuations are pricey and don’t leave much room for an earnings surprise.

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