IRCTC Gets Outperform From Macquarie On Monopoly-Driven Growth Prospects

Indian Railway Catering And Tourism Corp. got an 'outperform' rating from Macquarie as the brokerage initiated coverage with a target price Rs 900, implying 16.9% upside from Thursday's close. Further, Macquarie sees two times more returns on the stock as India modernises its railways.

Macquarie also sees a possibility of growth exceeding its base case of 12% three-year revenue CAGR in case the Government of India goes aggressive on its railways upgradation plans.

IRCTC's monopoly position in the Indian railways e-ticketing and catering services has given its strong net cash position, according to the brokerage. The company has a direct market share of 80% in railway e-ticketing. It generates 30% free cash flow margin, and 30% return on capital employed and return on invested capital with minimal capital expenditure.

IRCTC earns a set commission fee per ticket, based on air conditioned or non-air conditioned seats and payment mode. It also earns extra cash on its 20% indirect flow via third-party online travel agents, Macquarie said.

Its key growth levers are higher share of reserved train tickets, upgradation of India's train fleet, and improving contribution from advertisement revenues. The brokerage estimates 14% CAGR revenue in next three years.

Macquarie estimates EBIT margin is 80–85% in e-ticketing , and 12–15% in catering by factoring in its public-sector roots. Given IRCTC's solid cash position, Macquarie sees a higher dividend payout.

When India modernise its railways, IRCTC will likely benefit from more number of restaurants, and stalls setting up outlets as it earns license and concession fees from vendors and sub-contractors providing catering services. Of these total fee collection, 40–45% is shared with the Ministry of Railways, Macquarie said. The public-sector owned travel service provider also benefit from food delivery applications which shares 15% of the order value for access.