Issue Open date: 30th Sept 2019

Issue Close date: 3rd Oct 2019

Equity shares offered: 2.01 Cr

Price Band: 315-320

Issue Size: 645

Minimum lot size: 40

Retail investor discount: Rs. 10 (less than Rs. 2 lac)

Purpose of IRTC IPO

The proceeds of the offer will be received by the government of India. Proceeds of the offer will not be received.

About the Company

IRCTC was incorporated on September 27, 1999 as a public limited company and is the only entity authorized by Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India. IRCTC was conferred the status of Mini Ratna (Category-I Public Sector Enterprise) by the Government of India, on May 1, 2008. IRCTC operates as one of the most transacted websites, www.irctc.co.in, in the Asia-Pacific region with transaction volume averaging 15 to 18 million transactions per month during the three months ended June 30, 2019. IRCTC has diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges and budget hotels, which are in line with the objective to build a “one-stop solution” for the customers.

Segments

Catering: IRCTC provides food catering services to Indian Railway passengers on trains and at stations for approximately 350 pre-paid and post-paid trains and 530 static units through mobile catering units, base kitchens, cell kitchens, refreshment rooms, food plazas, food courts, train side vending, and Jan Ahaars over the Indian Railways network.

Internet Ticketing & Travel and Tourism: Mandated by Indian Railways to provide tourism and travel related services, IRCTC has footprints in across all major tourism segments such as hotel bookings, rail, land, cruise and air tour packages and air ticket bookings, and are known as one of India’s leading travel and tourism companies catering to the needs of diverse tourist segments.

Packaged Drinking Water (Rail Neer): IRCTC is the only entity authorized to manufacture and distribute packaged drinking water at all railway stations and on trains through 10 plants (capacity ~1.09 m liters per day) catering to 45% of the overall demand of packaged drinking water at railway premises and in trains. To increase presence and meet the increasing demand, IRCTC is expanding via setting up around 10 additional plants. irctc ipo segmentDomestic Tourist Visits (DTVs) to all States/UTs in India have seen strong growth largely on account of rising disposable incomes, increase in connectivity via air and rail travel, affordability of air travel thanks to low-cost carriers, state-level policy initiatives for tourism and increasing room inventory across budget, mid-segment and premium hotels in the country. Other softer factors like increase in business travel, the concept of weekend getaways and shorter stay gaining popularity, ease in bookings due to growing proliferation of online agents and aggregators and rising inclination of young travelers to explore untapped tourist destinations have also played a role in strong growth in DTVs in India.

The direct contribution of India’s travel and tourism industry to GDP grew at a strong 11.2% CAGR between FY13 and FY18 to reach INR~6.8 trillion driven by rising incomes and improved availability and affordability of travel, though the growth moderated in FY17 due to liquidity crunch caused by demonetization.

MoneyWorks4me Opinion

IRCTC caters to the mass middle class and offers affordable ticketing service and catering during a commute. IRCTC is a monopoly but the key edge of monopoly to charge higher price is non-existent. So much so that the government waived off online booking fees to promote online booking.

Positives of IRCTC are long term growth in disposable income and hence travel and food. Although the long term growth prospects are good the growth won’t be steep as it already has good reach. We believe that this offer for sale is part of divestment and not capital raising for expansion.

At a price band of 320 per share, excluding cash per share of 70/share and P/E ratio stands at 17x.

Since all of IRCTC’s business is asset-light, the company generates a lot of free cash flows. It is likely to throw out a lot of dividends. We expect dividend yield to be around 3-4% at CMP.

At the current juncture, we have many better growth opportunities to invest in. We find IRCTC to be a very gradual growth and high dividend yield story. We recommend avoiding if you’ve invested in our existing recommendations.

If you’re keen to participate in the rising traveling and catering segments and banking for dividend yield, you can consider buying IRCTC for a small portion of the portfolio.

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