IRCTC Listing: What investors should do after the stronger-than-expected debut?

A blockbuster market debut for Indian Railway Catering and Tourism Corporation (IRCTC) on October 14 helped investors more than double their money in a single day.

The stock listed with a premium of 101 percent at Rs 644 on the Bombay Stock Exchange. It gained more than 127 percent ended at Rs 728.60 after touching an intraday high of Rs 743.80.

On the National Stock Exchange, IRCTC shares ended at Rs 727.75.

As the traded price is far higher than what the street had expected, there is little room left for further upside and it is better to book partial profits now and keep the rest for the long term, say analysts.

Analysts Moneycontrol spoke to expected the stock to return 80-90 percent in the long term, but it was achieved on debut itself. Analysts still feel that the stock will give consistent returns in the long run.

“If investors got allotment in IPO, (they) can opt for ‘add more’ strategy. Otherwise, new investors can buy from the open market up to the level of Rs 500-525, as we expect it will give consistent returns in the long run and could well be a multi-bagger,” Manali Bhatia of Rudra Shares and Stock Brokers said.

Astha Jain, Senior Research Analyst at Hem Securities, also recommended investors to hold the stock partially and to book profit in remaining the quantity if it was available at around or more than Rs 500 per share.

The reason for profit booking would be highly stretched valuation from 18x (on issue price) to 30x (on listing) price-earnings ratio, Prashanth Tapse, AVP Research at Mehta Equities, said.

IRCTC is a Mini-Ratna Category-I Public Sector Enterprise and a wholly-owned subsidiary of the Indian Railways.

IRCTC is the only entity to provide catering services to the railways, manufacture and distribute packaged drinking water and issue online train tickets. It also offers non-railway services such as budget hotels, e-catering and executive lounges.

It exclusive business allowed to generate a healthy return on equity (ROE) since FY 2017. With its profitable and debt-free status along with strong dividend payout, the company is looking attractive for long-term purposes also. Analysts see it as definitely a portfolio stock.

“Surely IRCTC is a portfolio stock. As IRCTC enjoys a monopoly, having pricing power and future growth potential, we maintain a positive outlook on the stock,” Manali Bhatia said.

Prashanth Tapse also said IRCTC could be considered a good portfolio stock, if accumulated in good quantity at decent lower levels around 20 percent from the list price.

The recent corporate tax cut and restoration of service charge on ticket bookings also enthused investors to add more, he said.

Tapse believes IRCTC gives investors a unique opportunity to own a leading Mini–Ratna with a dominant market share of 72% in Railway e-ticketing bookings. The monopoly enjoyed by IRCTC, favourable industry dynamics and profitable growth gave IRCTC a competitive advantage for long-term play, he said.

The internet ticketing segment contributed 12.35 percent to IRCTC’s FY19 revenue against 13.63 percent the previous year.

The catering business accounted for 55 percent of the revenue against 48.70 percent in FY18. Packaged drinking water counted for 9.28 percent revenue against previous year’s 11.13 percent, while travel and tourism 23.38 percent against 26.54 percent.

Angel Broking also says there is an ample opportunity for the company to ramp up the catering business, given a very large underserved untapped captive audience. “Increasing business volumes from catering and packaged drinking water businesses, along with service charge for online ticket booking will drive earnings growth going forward. We are positive on the prospects of the company,” it said.

IRCTC raised Rs 638-crore through the public issue which was subscribed 112 times during September 30 and October 3. It was an offer for sale of 2,01,60,000 equity shares by the government.

The government’s stake in the railways’ tourism and catering subsidiary stands reduced to 87.40 percent post issue.

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