Q3FY24 Review: IRCTC: Rich valuations factor in upside from VB trains

15 Feb 2024 , 03:45 PM

IRCTC reported a strong quarter with Ebitda/pre-exceptional PAT growing 21%/24% YoY in Q3FY24. The beat was driven by catering and tourism revenue while 17% ancillary revenue growth (payment gateway, ads, revenue share from OTA, etc.) also surprised positively. On the call, management sounded upbeat on catering revenue prospects and upside from Vande Bharat (VB) trains. Based on the Railway Minister’s VB rollout plans and management’s unit train economics, analysts of IIFL Capital Services estimate that VB could add 5ppt to ticketing volume Cagr. It will also add to catering and packaged drinking water revenue. After factoring in the Q3 beat and VB trains, analysts of IIFL Capital Services upgrade FY25 and FY26 EPS by ~9% each. Analysts of IIFL Capital Services new TP after rolling forward to Mar-25 and assigning ~15% higher target multiples across segments comes to Rs779 (16% downside). After the upgrade, the stock trades at 55x 1YF PE which does not adequately factor in regulatory risks. Maintain SELL. 

Strong Q3 across the board: 

IRCTC’s Adj. PAT for Q3 of Rs3.15bn, up ~24% YoY, was higher than analysts of IIFL Capital Services estimate (Rs2.94bn) due to revenue beat in all segments. While catering and tourism revenue grew >25% YoY, the high-margin Internet ticketing segment also grew 11% YoY. Within Internet ticketing segment, ancillary revenue growth was robust at 17% while ticketing volumes rose 10%. 

Management upbeat on VB trains and New Catering Policy: 

Key takeaways from the earnings call: 1) Catering revenue benefited from Vande Bharat trains, rapid tendering of catering contracts (now in 1518 trains) and change in FTR policy; 2) the PoC with Zomato is witnessing steady progress; 3) the New Catering Policy would result in awarding of longterm (5 years+) catering contracts; and 4) VB trains have a multiplicative effect on IRCTC’s revenue across segments. 

Upgrading FY24/25/26 EPS by 4%/9%/9%: 

Currently, there are 41 VB trains. The Railway Minister has talked about adding 400-450 VB trains. IRCTC on the call mentioned that each VB train runs 6 days per week and carries 540-1000 passengers per trip. Considering two trips (up and down) and 1.7x passengers per ticket, analysts of IIFL Capital Services estimate that VB trains could add ~25% to ticketing volumes. Assuming VB train additions over five years, they estimate that this could add ~5ppt to ticketing volume Cagr. Analysts of IIFL Capital Services also continue to build in 25% convenience fee increase in FY26.