IRCTC (Current Market Price: Rs 929, Market Capitalization: Rs 74,336, Rating: Equal-weight) has surged by over 37 percent in the last three months, outperforming the Nifty’s 12 percent rise. The third quarter (Q3) typically exhibits strength, and the company delivered satisfactory results with consistent growth in catering and tourism, while the internet ticketing segment remained stable. However, the provision made for Rail Neer affected the overall numbers, and the higher proportion of low-margin businesses put pressure on margins.
IRCTC enjoys a dominant position in railway ticketing, catering, and packaged water business, with tourism adding further value. Despite this, limited growth prospects in high-margin internet ticketing suggest only modest earnings growth. The current valuation seems to have outpaced the underlying fundamentals, largely due to optimistic sentiment towards PSU stocks.
Revenue performance remained satisfactory year-on-year (YoY), buoyed by tourism and catering, while internet ticketing maintained stability. However, the operating margin was impacted due to the significant growth in low-margin catering and tourism compared to internet ticketing. The management hinted at a positive outlook with the introduction of a New Catering Policy, expected to award contracts for longer terms, which could bolster margins.
During the quarter, the company made a provision of Rs 14.5 crore in the Rail Neer business to accommodate additional profit sharing with Indian Railways at 40 percent, up from the previous 15 percent under the PPP arrangement for Rail Neer plants. While this provision is not expected to cause significant financial strain, uncertainties persist regarding profit-sharing policies with the Railways across all its monopoly operations.