IRCTC down 4% in February after rising 10% in January; Prabhudas Lilladher sees another 13% potential downside

Shares of Indian Railway Catering and Tourism Corporation (IRCTC) have been on a downward in February (so far) after jumping over 10 percent in January. The stock has already surged over 47 percent in the last 1 year and with the general elections coming up as well as the robust outlook for Indian Railways, most experts see a strong potential for this rail stock.

However, domestic brokerage house Prabhudas Lilladher sees the stock declining in the next 1 year. The brokerage has a hold call on the stock with a target price of ₹825, indicating a downside of over 13 percent. However, it has raised its target price from ₹749 earlier post the firm's December quarter results. While the brokerage remains positive on the long-term prospects of the stock and overall sector, higher valuations have kept the brokerage cautious.

IRCTC is the catering and ticketing arm of the Indian Railways, which manages food services on trains and offers online ticket booking services.

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In the December quarter (Q3FY24), IRCTC reported an over 17 percent year-on-year (YoY) jump in its net profit to ₹300 crore from ₹255.5 crore in the year-ago period. Its revenue increased 21.8 percent YoY to ₹1,118.3 crore versus ₹918.1 crore it had posted in Q3FY23. Earnings before interest, tax, depreciation and amortization (EBITDA) for the quarter came in at ₹394 crore, up 20.9 percent YoY and EBITDA margin declined slightly to 35.2 percent in Q3FY24 compared to 35.5 percent in Q3FY23.

"Indian Railway Catering & Tourism Corporation (IRCTC IN) reported better than expected top-line performance led by a beat in the catering division. However, the bottom line was impacted by a one-off charge of ₹14.5 crore amid provisioning pertaining to share in Rail Neer profits with Indian Railways," noted PL.

Given strong performance from the catering division led by the introduction of Vande Bharat trains, rising FTR bookings and expansion of business outside of Railways the brokerage re-aligned its growth and EBIT margin assumptions resulting in an EPS upgrade of 3-4 percent over FY24E-FY26E.

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It expects PAT CAGR of 12 percent over FY23-FY26E and retains a HOLD on the stock with a revised TP of ₹825 (earlier Rs749) as it increased target multiple to 47.5x (earlier 45x; escalation of 5 percent odd) to account for optionality arising from catering business.

Meanwhile, another domestic brokerage firm Shriram Way2Wealth expects IRCTC to be one of the biggest beneficeries of the upcoming elections. The brokerage has a buy call on the stock with a target price of ₹1,080, indicating an upside potential of 13.5 percent.

"IRCTC has stated that it is eyeing pan-India non-railway catering business which should auger well during this time period. Vande Bharat trains (along with Amrit Bharat Express) during this time will also add revenues to the rail Neer, catering and tourism business also. Tracking the weekly chart, IRCTC has given a bullish breakout from the symmetrical triangle pattern on the weekly chart suggesting positive bias and it can move towards 992/1,120 levels. Technically the chart structure on IRCTC is likely to remain strong in the medium to long term and a move over the above-mentioned level could lead to a fresh uptrend as it can test 1,280. Based on the above-mentioned observations, Investors are advised to buy/accumulate IRCTC for medium-term to long-term gains," recommended the brokerage.

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The stock has hit its 52-week high of ₹1,049 on January 20, 2024 and is now a little over 10 percent away from that peak. Meanwhile, it has surged 71 percent from its 52-week low of ₹557.10, hit on March 29, 2023.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.