IRCTC enjoys an envious position in the domestic travel and tourism industry, with its monopoly in railway ticketing, catering and packaged water business, and its affordable tourism packages.
Highlights
- Stock has underperformed despite a good show
- Q3FY25 was a strong quarter, overall
- Revenue got a lift from Rail Neer and Tourism
- Strong margin performance from internet ticketing, Rail Neer and Tourism
- We expect a good Q4, with added boost from Mahakumbh
- Steady mid-teens earnings growth likely
- Valuation offers upside, after steep correction
Indian Railway Catering and Tourism Corporation (IRCTC; CMP: Rs 694; Market Cap: Rs 55,548 crore; Rating: Overweight) got upgraded by us, after its Q2FY25 earnings, but the market mayhem completely took the sheen off the stock, despite posting a decent show in Q3.
With Mahakumbh acting as a booster for Q4 earnings and with a much reasonable valuation, is it a safe journey to embark upon?
Q3FY25 a good quarter
Q3 is usually a seasonally strong quarter, and the company saw a 9.5 percent year on year (YoY) increase in its revenue, with a YoY improvement in its EBIDTA (earnings before interest depreciation and tax) margin.
The blue-sky sum-of-the-parts valuation has been arrived at after giving a 75 percent premium to valuation multiples of similar listed peers, like MakeMy trip for internet ticketing, 50 percent premium multiple to Varun Beverage for packaged drinking water and Jubilant Foodworks for catering. This shows that the stock has a decent upside.
IRCTC has a steady and predictable mid-teens earnings trajectory. Given the predictability in earnings, and a more reasonable valuation, we see limited downside in the stock.
