IRCTC IPO (Apply)

Review By Rudra Shares & Stock Brokers Ltd on September 29, 2019

VALUATION

IRCTC enjoys a monopoly position in many of the services that it provides. In particular, the exclusive provider of online railway ticketing, catering services and packaged drinking water for trains and stations. Moreover, in the two years span it is in the process of setting up water plants and 10 new pantry cars by FY20. Also, the levy of service charge from sep.2019 would significantly contribute to Revenues.

Having a unique business model, it enjoys monopoly & thus, have no competition. Company has strong financials, diversified business segments, and is a debt free company. Which attracts the stock.

On a upper price band of ` 320, with EPS at ` 17.04 for FY 19, the stock is available at a p/E ratio of 18.8x which looks attractive. We recommend to subscribe the IPO.

THE OFFER

Issue Open : 30 Sep. 2019 to 03 Oct 2019

»» Issue Type: Book Built Issue IPO

»» Total Issue Size: ` 645 cr

Offer for Sale: 20,160,000 Equity Shares @ 10 aggregating up to ` 2.02cr

»» Face Value: ` 10 Per Equity Share

»» Issue Price: ` 315 - ` 320 Per Equity Share

»» Market Lot: 40 Shares

»» Minimum Order Quantity: 40 Shares

»» Listing At: NSE & BSE

CAPITAL STRUCTURE

The share capital of Company, is set forth below:- (Amount in ` except share data)

Authorized Share Capital :-

250,000,000 Equity Shares @10 Aggregate value ` 2,500,000,000

Issued, subscribed and paid up capital before the Offer :-

160,000,000 Equity Shares @10 Aggregate value ` 1,600,000,000

OBJECT OF THE OFFER

The objects of the Offer are:

To carry out the disinvestment of Equity Shares by the Selling Shareholder

To achieve the benefit of listing the equity shares on the Stock Exchanges

COMPANY OVERVIEW

Conferred the status of Mini Ratna by Government of India on May,2008, a Central Public Sector Enterprise wholly owned by the Government of India and under the administrative control of the Ministry of Railways, it is the only entity authorized by Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India .

IRCTC enjoys monopoly and operates one of the most transacted websites, www.irctc.co.in, in the Asia-Pacific region with transaction volume averaging 15 to 18 million transactions per month during Q1FY20. Has also diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges and budget hotels.

BUSINESS SEGMENTS

Internet Ticketing: It is the only entity authorized by Indian Railways to offer railway tickets online through website and mobile application. As on June19, more than 1.40 million passengers travelled on Indian Railways on a daily basis, which consisted of approximately 71.42% of Indian Railways' tickets booked online. There are more than 0.80 million tickets booked through www.irctc.co.in and 'Rail Connect' on a daily basis. During Q1, the average new user registrations stood at approximately 28,000 per day. Between fiscal 2014 and fiscal 2019, online rail bookings have registered a CAGR growth of 12.5%, reaching 284 million annually with e-booking penetration hitting 70 % in FY 2019.

Also, as they have upgraded NGeT infrastructure from 2014 onwards with 150 servers the capacity to issue internet - ticketing has increased from 7,200 tickets per minute to 24,000 tickets per minute as on June 30, 2019. In 2019, have launched a new user NGeT interface that features a more passenger-friendly, clutter-free experience with easier log-in, easier navigation and more security.

Catering: The company initiated to take over their catering operations from Indian Railways in a phased manner from September, 2017. It is the highest contributing revenue segment with 55% share in FY19. It provides catering services for approximately 350 pre-paid and post-paid trains and 530 static units through mobile catering units, base kitchens, cell kitchens, refreshment rooms, food plazas, food courts, train side vending, and Jan Ahaars over the Indian Railways network. Moreover, they offer e-catering services to passengers through mobile application 'Food on Track' and e-catering website, www.ecatering.irctc.co.in.

Also, are planning to roll out at least 10 new pantry cars in Fiscal 2020 once the design is approved by Indian Railways

Packaged drinking water (Rail Neer): Manufactures and distribute packaged drinking water under brand 'Rail Neer', it is the only entity authorized by the Ministry of Railways to manufacture and distribute packaged drinking water at all railway stations and on trains, according to CRISIL. Currently, operate 10 Rail Neer plants located at Nangloi, Danapur, Palur, Ambernath, Amethi, Parassala, Bilaspur, Hapur, Ahmedabad and Bhopal, with an installed production capacity of approx. 1.09 million litres per day, which caters to approximately 45% of the current demand of packaged drinking water at railway premises and in trains.

To increase presence in the packaged drinking water market at railway stations, and to meet the growing demand, it is setting up new Rail Neer plants at Sankrail, Jagi Road, Nagpur, Bhusawal, Jabalpur, and Una which when completed, are expected to deliver up to approx. 80% of the total market demand of packaged drinking water at railway premises and trains. Four additional plants, at Vijaywada Ranchi, Vishakhapatnam, and Bhubneshwar, have been approved by the BOD of the Company and will be set up by 2021. Have also installed water vending machines ('WVMs') at railway stations to provide purified, chilled and portable drinking water to railway passengers at an affordable price.

Travel and Tourism

Contributing 23.28% to the revenue, have footprints in across all major tourism segments such as hotel bookings, rail, land, cruise and air tour packages and air ticket bookings, and are known as one of India's leading travel and tourism companies catering to the needs of diverse tourist segments. With the strength of being a CPSE under the administrative control of the Ministry of Railways, it specialize in rail tourism.

Travel and Tourism

STRATEGIES AHEAD

ØDiversify and offer new services to the passengers of Indian Railways and others

ØContinue to leverage the Government's policy

Ø Strengthen products and services offering online

Ø Strengthen operational efficiencies

STRENGTHS

ØAuthorised by the Ministry of Railways to offer Indian Railway tickets online

Ø Authorised catering service provider to passengers traveling by Indian Railways

ØComprehensive tourism and hospitality service provider in India

Ø Exclusively authorized for manufacturing and supplying packaged drinking water at railway station and trains

Ø Robust operating system and internal controls

FINANCIAL HIGHLIGHTS

IRCTC'S revenues for the FY19 increased 25 % to ` 1,956.7 cr from ` 1,569.56 cr in the previous fiscal primarily due to increased catering services revenues. In particular, it generated 54.99% of income from railway catering in FY19. Driven by increase in profit, Return ratios increased too. ROE & ROA for the FY19 increased to 27.3% & 11.1%.

Net profit grew 23.6 % to ` 272.6 cr in FY2019 as against ` 220.62cr in FY18. EPS stood at ` 17.04, an increase of 23.57% as against PY. It is in the process of introducing various new products and services. For instance, is in process of introducing IRCTC iMudra, i-Pay and developing the payment services.

IRCTC has been a profitable and debt free company since incorporation and its return on equity has exceeded 23 per cent for each fiscal year since 2017. From Sept. 1, the company started levying a service charge of ` 15 on tickets booked for non-air conditioned coaches and `30 for air-conditioned ones. That would add a substantial portion to the company' earnings.

RISK FACTORS

Business and revenues are substantially dependent on Indian Railways.

Ø Competition from others (in case Government allows to open up catering services, online railway tickets to others)

Ø Changes in consumer tastes and purchasing habits

Ø Failure to adopt technological developments.

Ø Security breach regarding online security may materially & adversely impact business. Also, failure to manage these risks may expose to liability and damage to reputation and brand image.

Ø Change in haulage charge principles by Ministry of Railways

Ø Changing laws, rules and regulations and legal uncertainties

Reviewer recommends Subscribing to the issue.