- Wealth PMS (50L+)
In our “House view” series, we publish summaries of discussions on Capitalmind slack forum. Think of them as short crowd-sourced primers about the business, before diving deep.
The last one was on Bajaj Finance and its prospects. This one is about IRCTC & why it is the best performing stock in the Indian Railway’s universe.
IRCTC was incorporated in 1999 as a ticketing and catering service provider for Indian railways. It is a PSU with Mini-Ratna (Category 1) status. It is the only authorised ticket booking portal for Indian Railways.
The company have 4 main revenue segments.
This segment constitute 45.8% of the total revenue. They maintain 293 Food plazas, 24 cell kitchens & 11 base kitchens across 353 stations.
IRCTC manages on-board catering services on 417 trains (24 Rajdhanis, 2 Tejas, 1 Gatiman, 2 Vande Bharat, 23 Shatabdis,18 Durontos and 347 Mail/ Express trains).
This rail catering industry is expected to reach 15,000 Cr size from current 12,000 Cr by FY24.
It is a new offering from the company. It allows passengers to book food from partner restaurants online. The food is then delivered directly to the passengers’ seat. This segment had grown 82% YoY (on low base).
Post Demonetisation, IRCTC had withdrawn its service charge to promote online ticketing. Prior to it IRCTC used to levy a service charge of Rs 20/- on every non-AC e-ticket and Rs 40/- for every AC e-ticket.
Packaged Drinking Water – Rail Neer
It has a monopoly on packaged drinking water across railway stations. It manufactures & distribute packaged water under the brand Rail Neer.
Travel & Tourism
This segment contributes 17.1% of total revenue (including State Teertha trains). They operate 81 chartered trains (Maharaja express). They have tie-ups with hotel chains & aggregators like Oyo, Fab hotels, Ginger etc.
The company forayed into airline ticketing with IRCTC Air. It is targeting 15% growth in air ticketing portal. They are planning to launch Bus booking portal soon.
Overall a decent company to buy for a long-term perspective.
A basic question: are there any specific return ratios or something that are allowed to make, beyond which they will be pressured to reduce prices by the govt?
CM View: No cap as such on service charge, rail neer or catering etc. However given the pro aam admi, they keep them affordable to everyone. Hence all the margins are mostly a reason of operating efficiency & volume driven than price increase.
Also as mentioned in the write-up, once in a while there is a risk of Service charge wave off or pause for some period of time. We had seen that during Demonetisation, where Govt waved off service charge to push digital payments. That kind of risk is always there.
Reader RG on privatisation of IRCTC
What’s the long-term plan of Govt for these companies? More stake sale? Fully privatize?
CM View: From a medium-term perspective, Govt had offloaded 20% via OFS just 2 months back bringing its stake to 67.4%. So no more stake sale possible anytime soon. But from the long-term perspective, Modi just said, Government has no business to be in business – So not sure of it.
Reader AN has a strong point of why private players may not be interested in railways
The current cost structure offered by Railways to private players in privatisation doesn’t give any room to private players to make money. Railway and even Mr Goyal is not even agreeing to the most basic need of a regulator. So I think that IRCTC would be running few routes in privatisation, as almost the entire IRCTC people are railways employee on, they may be able to negotiate few other things post getting shortlisted.
Reader AG on which is the best company in Indian Railway universe?
How do irctc, irfc and railtel compare from long term holding point of view? Or do you think it will not be correct to make such a comparison?
CM View: It is surely comparable because, everything depends on the growth prospects of Indian Railways. If we consider factors like Strong balance sheet, Cash conversion cycle, Margins & other growth areas – IRCTC, IRFC & Railtel are potential names for long term investing in that order.
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