Indian Railway and Tourism Corporation Limited – Connecting online

Indian Railway Catering and Tourism Corporation (IRCTC) was incorporated as ‘Indian Railway Catering and Tourism Corporation Limited’ on September 27, 1999, as a public limited company under the Companies Act, 1956. As a Central Public Sector Enterprise wholly owned by the Government of India and under the administrative control of the Ministry of Railways, the company 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.

Internet ticketing and Catering are IRCTC’s top-2 business segments with 27.2% and 45.9% respectively of FY20 revenue and 71.5% and 17.3% of FY20 segmental EBIT. IRCTC is the only entity authorized by Indian Railways to provide online booking of railway tickets and has ~73% market share. Further, IRCTC is the only entity authorized to manage the catering services on board trains and major static units at railway stations under the Catering Policy 2017.

IRCTC’s business is dependent on Indian Railways and the Covid-19 pandemic has had severe impact on operations of passenger trains. We expect passenger trains to attain normalized operations in FY22.

Indian Railways has initiated the process to get participation of private players in operations of 151 passenger trains across 12 clusters. IRCTC has participated in 11 of these 12 clusters in the RFQ invited by Indian Railways. Given that IRCTC is currently the only private train operator, through its 3 Tejas trains, we expect them to secure the bid for at least 1 cluster. Further, the Dedicated Freight Corridor project, once completed, is expected to significantly decongest the railway routes linking the four metropolitan cities of Delhi, Mumbai, Chennai and Howrah (~52% of passenger traffic). This would provide strong opportunity for increase in capacity of passenger trains which in-turn would benefit IRCTC across its business segments.

The increasing adoption of internet/smart phones has augured well for on-line booking of railway tickets. IRCTC is the only entity authorized by Indian Railways to offer railway tickets online which it does through its website www.irctc.co.in and mobile app – “Rail Connect” with ~73% market share.

Investments in railways are expected to continue as Government maintains focus on network decongestion, particularly on doubling and electrification works. Decongestion of routes augurs well for addition of more capacity and thus for growth in passenger traffic and in-turn for on-line booking of tickets.

In 2010, the mobile catering services were transferred to Indian Railways from IRCTC. In the 2017 catering policy, IRCTC was reassigned the responsibility for the entire catering services across Indian Railways. As per the policy, IRCTC was directed to unbundle catering services by creating a distinction primarily between food preparation and food distribution. The catering segment includes four sub-segments – Mobile catering (Trains and Train side vending), Static catering (food plazas, fast food units, refreshment rooms, Jan Ahars, cell kitchen and base kitchens), E-catering and other units (Executive lounge, Retiring room).

In 2014, IRCTC introduced E-catering services to provide many more options to passengers for ordering food of their choice. IRCTC has already partnered with 690 F&B vendors (either directly associated with IRCTC or are under 8 appointed food aggregators) and the service is available across 358 stations. IRCTC has already on-boarded number of brands like Dominos, Subway, Haldirams, Faasos, Biryani Blues, A2B, Sravana Bhawan, Nirulas etc. in addition to local/regional restaurants. IRCTC has a monopoly to manufacture and distribute packaged drinking water at all railway stations and in trains across India. The Company sells its packaged drinking water under the brand ‘Rail Neer’.

IRCTC has a diversified presence across mass tourism to luxury tourism services. It provides tourist trains, rail tour packages, international and domestic air packages, land tour packages, hotel booking, customized and LTC tours, amongst others. It has significant competitive advantage in case of tourist trains and rail tour packages.

Through its website www.air.irctc.co.in and mobile app – IRCTC AIR, IRCTC provides online booking for both domestic and international Air-tickets. While the fare is competitive to the online travel agents (OTA) it charges only Rs.50 + GST as the convenience fee which is the lowest.

IRCTC has generated free cash flow in excess of Rs1100 cr over FY17-20. Despite substantial net-cash of Rs.1300cr. IRCTC has a strong RoE profile (44% in FY20). After a blip in FY21, we forecast RoE to get back to 40%+ levels in FY22/23. IRCTC’s FCF profile and strong B/S augers well for its aggressive expansion plans in private trains segment.

The India Railways is targeting to get private participation in operations of passenger trains. This would involve 151 new trains on 140 pair routes across 12 clusters operated by private players and will run in addition to the trains which have already been functioning. The private operators will have the freedom on deciding the fare, operations of the train – seating, F&B, infotainment, etc. As per the current plan, Indian Railways targets to start 12 private-trains in FY23, 45 in FY24, 50 in FY26 and 44 in FY27.

We recommend a BUY on the stock on the back of renewed revenue and profitability in FY22/23. IRCTC is a debt free, asset light Company with net cash holdings and ROCE in excess of 50%.

MIDHANI – Mini ratna, Max strength

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 13 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.