Q2FY24 Review: IRCTC: Healthy Q2; ancillary revenue picks up

9 Nov 2023 , 11:38 AM

IRCTC delivered a beat in Q2 (30% YoY PAT growth) led by higher Internet Ticketing revenue and catering segment margin. Ancillary revenue (payment gateway, ads, revenue share from OTA, etc.) also grew 7% YoY, reversing the declining trend seen in recent quarters. On the call, management attributed the healthy ticketing volumes to advance bookings ahead of the festive season and the catering segment margin improvement to higher proportion of premium trains. With the Indian Railways (IR) withdrawing pandemic-linked concessions granted to IRCTC on Tejas trains, train operations have become loss-making. Analysts of IIFL Capital Services raise FY24/25/26 EPS estimates by 5%/3%/3%. After building in a 25% convenience fee increase in FY26 (limited visibility on this), analysts of IIFL Capital Services estimate 16% EPS Cagr over FY23-26. Their SoTP-based TP after rolling forward to Dec-24 rises to Rs590 (from Rs539 earlier). At 44x 1YF PE, valuation is expensive for a regulated monopoly in their view. Maintain SELL. 

Healthy Q2 with most segments firing: 

IRCTC had a solid Q2 with the high-margin Internet Ticketing revenue surprising positively, which also aided profitability. Ticketing volumes growing in double digits (both QoQ and YoY) helped. Ancillary revenue also grew YoY after a few quarters of decline. With catering segment margin also witnessing a healthy expansion, Ebitda/PAT grew 20%/30% YoY. The company had Rs20bn cash as of endH1FY24. 

Upbeat management commentary: 

Key takeaways from the earnings call: 1) Ticketing volume growth was aided by advance bookings for the upcoming festive season; 2) New contracts (with higher menu prices) for 200 trains would be added to the current 1284 train count on which IRCTC offers catering; 3) The upside from IR mandating catering services from IRCTC for FTR trains will be limited; 4) The recently announced Zomato deal has been launched as a pilot in five stations; IRCTC will make Rs40 per order as flat fee of which Rs16 is shared with IR. If successful, IRCTC would extend this across India. 

Raising FY24/25/26 EPS by 5%/3%/3%: 

Analysts of IIFL Capital Services upgrade EPS by 3-5%. IRCTC served 16.5mn meals under its e-catering service in FY23. If they assume that the IRCTC-Zomato deal ramps up to 30mn meals pa over time, the PAT upside can be Rs540mn (~5%) based on current unit economics.