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Indian Railway Catering and Tourism Corporation Limited (IRCTC) IPO Note
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Offer Details

Price band

Rs. 315-320 Per Equity Share

Offer Open Date

Sep 30, 2019

Offer Close Date

Oct 3, 2019

Credit of Shares to Demat A/C

Oct 11, 2019

Listing Date

Oct 14, 2019

Lot Size

40 shares

Shares for OFS

20,160,000 equity shares (employee reservation of 1,60,000 equity shares)

Net Shares for OFS

20,000,000

Face value

Rs. 10 Per Equity Share

Issue Type

Book Built Issue IPO

Issue Size (In Cr)

635-645

Book Building

QIBs

50% of the offer

Non-Institutional

15% of the offer

Retail

35% of the offer

Lead Managers

IDBI Capital Market Services Limited, SBI Capital Markets Limited, Yes Securities (India) Limited

IPO Registrar

Alankit Assignments Limited

Exchange

BSE, NSE

Capital Structure

Pre Issue Promoter Share Holding

100%

Post Issue Promoter Share Holding

87.4%


Company Profile

A Central Public Sector Enterprise wholly owned by the Government of India and under the administrative control of the Ministry of Railways, IRCTC 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. It conferred the status of Mini – ratna (Category-I Public Sector Enterprise) by the Government of India, on May 2008.

www.irctc.co.in is one of the most transacted websites in the Asia-Pacific region with transaction volume averaging 15 to 18 million transactions per month during the three months ended June 30, 2019. They have also diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges and budget hotels, which are in line with their objective to build a “one stop solution” for their customers.

Currently, it operates in four business segments:

1. Travel and Tourism: IRCTC is specialized in rail tourism. It offers travel and tourism services across diversified segments such as hotel bookings, rail, land, cruise and air tour packages and air ticket bookings.

2. Packaged Drinking Water (Rail Neer): It is the only entity authorized by the Ministry of Railways to manufacture and distribute packaged drinking water on trains and at railway stations. Currently they operate ten Rail Neer plants with an installed production capacity of approximately 1.09 million litres per day, which caters to approximately 45% of the current demand of packaged drinking water at railway premises and in trains.

3. Catering Services: The Company provides food catering services including on-board catering through mobiles on trains and static catering services at stations. IRCTC catering services serve approximately 350 pre-paid and post-paid trains and 530 static units.

4. Internet Ticketing: The booking of railway tickets through the internet is now available 24*7, with the only exception being daily maintenance closure from 23:45 hours to 00:20 hours. The main objective behind the introduction of the internet ticketing was that instead of requiring passengers to be physically present at the Passenger Reservation System (“PRS”), the PRS should be brought to the door steps of passengers.

Financial Overview

Particulars

(In Cr)

Fiscal 2017

Fiscal 2018

Fiscal 2019

Amount

%

Amount

%

Amount

%

Internet Ticketing

469.31

30.16%

207.13

13.63%

234.59

12.35%

Catering

398.63

25.62%

740.27

48.70%

1044.51

54.99%

Packaged Drinking Water (Rail Neer)

159.05

10.22%

169.20

11.13%

176.29

9.28%

Travel and Tourism

528.86

33.99%

403.39

26.54%

444.02

23.38%


Industry Overview

Total railway passenger traffic has remained nearly flat over the past four years, going from 8,397 million passengers in fiscal 2014 to 8,286 million passengers in fiscal 2018. Passenger traffic, after falling by 1-2% between fiscals 2014 and 2016, witnessed a revival in fiscal 2018, largely driven by a turnaround in non-suburban traffic. Going forward, the share of suburban passenger traffic in total railway passenger traffic is expected to slightly increase from ~57% in fiscal 2019 to ~58% in fiscal 2024, as passenger traffic on the suburban network is likely to grow at a 0.5-1.5% CAGR during the period, while non-suburban passenger traffic remains flat.

Total railway freight traffic grew from 1,052 million tonnes in fiscal 2014 to 1,160 million tonnes in fiscal 2018, registered a 2.5% CAGR during the period majorly driven by strong freight demand from coal, pig iron and finished steel, iron ore, and container service during the four years. In fiscal 2018, freight traffic rebounded to a 4.8% on-year growth on the back of strong freight demand from coal, cement, container service, and other goods.

Objects of the Issue

  1. To carry out the disinvestment of Equity Shares by the Selling Shareholder constituting Company’s paid up Equity Share capital
  2. To achieve the benefits of listing the Equity Shares on the Stock Exchanges

Competitive Strengths

  1. Authorised by the Ministry of Railways to offer Indian Railway tickets online
  2. Ministry of Railways on August 5, 2019 has Authorised IRCTC to decide on the service charges to be levied on the passengers for the booking railway tickets online which will increase the revenue going forward: a) Accordingly W.e.f September 1, 2019, company proposed to charge convenience fee of Rs. 15 and Rs. 30 for non AC classes and AC classes respectively. b) For payment made through UPI/BHIM applications, the convenience fee will be Rs. 10 and Rs. 20 for non AC classes and AC classes respectively.
  3. Authorised catering service provider to passengers traveling by Indian Railways
  4. Comprehensive tourism and hospitality service provider in India: They are one among the three entities permitted by the Government of India to offer air ticketing service to different ministries at both the Central and State Government level
  5. Exclusively authorized for manufacturing and supplying packaged drinking water at railway station and trains
  6. Robust operating system and internal controls

Business Strategies

  1. Diversifying and offering new services to the passengers of Indian Railways and tap opportunity presented by digital payments (developing their IRCTC iMudra wallet) in the Indian economy which are growing at significant pace.
  2. Continue to leverage the Government's policy relating to the business: Since the implementation of Catering Policy 2017, company have worked as per the mandate given by the Ministry of Railways to address operational, quality and logistics issues in order to improve the catering service offered on trains and in stations, including upgrading of base kitchens.
  3. Strengthen products, services offering online and operational efficiencies:

a) Offering optional travel insurance for rail passengers

b) Exploring new opportunities by leveraging the strengths of our existing resources

c) Enhancing quality monitoring mechanism

Key Risks

  1. As the business and revenues are substantially dependent on Indian Railways, any adverse change in policy of the Ministry of Railways such as change in haulage charges may affect their business and results of operations.
  2. They are the sole provider of online railway ticketing, catering services, and packaged drinking water for trains and stations, if the Government allows open competition in all or any of these areas, it may impact financial results.
  3. Competing with existing companies in the travel and tourism sector which provide various attractive offers
  4. Any adverse claims, media speculation or other public statements relating to food and service quality would impact the ability to obtain and renew operational licenses and regulatory approvals.
  5. As the company depends on the use of IT and systems for the payments, refunds, CRM, communications and administration, continuously improved and upgraded systems/ infrastructure is required to enhanced services, features and functionality maintaining a cost-effective manner.
  6. As IRCTC maintains certain personal information about customers who book online tickets and services through their websites, secured transactions over the internet are essential for their business operation. Security breaches, whether instigated internally or externally could materially and adversely harm their business.

Conclusion

The company is likely to benefit from its monopolistic nature of business and we expect significant growth over FY19-21. Moreover recent reduction in corporate tax rate, inclusion of convenience fee on railway tickets and the company’s plans to set up 10 water plants in next two years will act as catalyst. Therefore investors may consider investment for the long term as well as for listing gains. GMP is around 170-180.

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Source: DRHP


The author may have positions in the stocks as mentioned in the article above, please assume us to be biased. This is not a recommendation to buy or sell securities. This is purely information about the company mentioned.  Equity investing contain risks and please consult your financial adviser for any buy and sell securities!

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