Q3FY23 Review: IRCTC: Targeted change in revenue mix not an easy fix

13 Feb 2023 , 01:06 PM

IRCTC reported better-than-expected Q3 with 22% YoY PAT growth, and 2S volumes staying resilient at 12% of overall volumes. Within the Internet Ticketing segment, management targets changing the revenue mix between convenience fee income and ancillary revenue (ad, payment gateway, etc.) — from the current 67:33 to 50:50 in two years. Analysts of IIFL Capital Services calculations suggest that this requires a stiff 48% Cagr for the ancillary business. On Catering and Tourism, management was sanguine on revenue growth prospects. 

IRCTC’s Q3 Ebitda and PAT were higher than expected, since ticketing volumes just fell 2.7% QoQ. 2S accounted for 12% of volumes vs 13% in Q2, suggesting that the ramp-down has been more gradual. IRCTC’s cash balance stood at Rs21.3bn.

Key takeaways from the earnings call: 1) Catering revenue has benefited from revised tenders (with higher prices) being awarded for a growing number of trains. 2) Catering segment Ebit margins saw a drag from adverse mix. 3) E-catering volumes (already above pre-pandemic levels) would receive a fillip from the recently launched WhatsApp-based ordering. 4) IRCTC is exploring increase in Packaged Drinking Water (PDW) prices. 5) Tejas trains saw Rs1.16bn revenue and Rs171mn Ebitda in M9FY23.

While IRCTC has grown ancillary revenue at a robust 26% Cagr over FY17-23, analysts of IIFL Capital Services find the asking rate stiff. If they assume that IRCTC raises PDW prices by 33% without suffering a volume hit, there could be ~4% EPS upgrade as per their calculations.

Despite the stock’s 25% underperformance vs Nifty in the past year, valuation remains rich at 48x 1YF PE. Analysts of IIFL Capital Services Maintain SELL with target price of Rs 529.