Q4FY23 Review: IRCTC: Thrust on Ancillary revenue and Tourism

In Q4, IRCTC reported in-line pre-exceptional PAT (16% YoY growth), with other segments faring well even as the high-margin Internet Ticketing revenue was flattish. Management stated the focus to be on ancillary revenue (payment gateway, ads, etc.) within the Internet Ticketing segment, even as convenience fee income linked to Ticketing volumes could see some slowdown. Management was quite bullish on Tourism segment. Analysts of IIFL Capital Services raise EPS estimates by ~5%, led by higher Tourism revenue and potential improvement in WC cycle. They build in 13% EPS growth over FY23-25.

Other businesses do well on Travel resumption even as Internet Ticketing decelerates: 

Despite the high-margin Internet Ticketing revenue being flat, IRCTC’s revenue grew 40% YoY in Q4. This was led by post-Covid normalisation of lower-margin segments such as Catering, Packaged Drinking Water (PDW) and Tourism. Management has been talking about healthy prospects for ancillary revenue. While ~19% growth in ancillary revenue in FY23 looks strong optically, this was lifted by a near trebling in Q1 off a low base. In past 3 quarters, ancillary revenue has declined 1% YoY.

Healthy management commentary: 

Key takeaways from the earnings call: 1) With online penetration reaching 82%, convenience fee revenue growth could slow down. But, management is doubling down on ancillary revenue. 2) Healthy growth in Catering should continue with 11-12% Ebit margin. 3) Catering business could see WC improvement since IRCTC is working on improved payment terms from Railways on Rajdhani, Shatabdi and Duronto trains. 4) In FY24, IRCTC sees Rs2.5-3bn revenue from Bharat Gaurav Train service (in Tourism) from just Rs600mn in FY23. 5) Tejas Train operations made profits in FY23.

Raise EPS by ~5%; new TP Rs572: 

With improved Tourism revenue outlook and potential WC cycle improvement in Catering business, analysts of IIFL Capital Services raise PAT by ~5%. The single-biggest trigger could be an increase in convenience fee per ticket. However, with elections around the corner, this looks less likely in near term. They assume a 25% increase in the same in FY26, which drives 22% EPS growth estimate in that year.

After rolling forward to June’24, analysts of IIFL Capital Services increase their SoTP-based TP to Rs572 from Rs529. At 44x 1YF PE, valuation remains rich; especially in the light of potential regulatory risks. Maintain SELL.