IRCTC Q2 Results Review - Optionality Can Emerge In Catering Business: Prabhudas Lilladher

Prabhudas Lilladher Report

We re-align our Ebit margin assumptions for catering division resulting in a marginal earnings per share upgrade of ~1% over FY24-FY26E. Indian Railway Catering and Tourism Corporation Ltd. reported better than expected operational performance with Ebitda margin of 36.8% (our estimate: 34.0%) led by a beat in catering segment.

We believe catering division has earnings optionality arising from-

1. tie-up with Zomato Ltd.,

2. managing trains/coaches booked on full tariff rate,

3. ~200 contracts that are in pipeline and

4. expected onetime gain arising from increase in license fee which has been pending as the matter is sub-judice.

We expect profit after tax compound annual growth rate of 11% over FY23-FY26E given-

1. traction in non-convenience revenue,

2. rail neer expansion and

3. healthy growth in catering segment.

However, we believe IRCTC's valuations at 43 times/41 times for our FY25E/FY26E EPS estimates price in most of these benefits and thus we maintain our ‘Hold’ rating on the stock with a target price of Rs 709 (45 times FY25E EPS; no change in target multiple).

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