Indian Railway Catering and Tourism Corporation Ltd.'s stock has found itself back to pandemic levels, after having fallen despite a healthy growth and sales and profit.
The PSU has clocked a 5-year compound annual sales growth rate of 46%, while profit has risen 54%. Meanwhile, shares have fallen 16% during the same period to 468.90, as per the last closing price.
Sales are up, profit is growing, then what is not working for India's Navratna travel firm?
IRCTC Feels The Margin Pinch
Betwen fiscal year 2022 to fiscal year 2026, IRCTC's EBITDA margins have narrowed by 1,460 basis points from 46.8% to 32.2%, while net profit margins have shrunk by 810 bps from 35.1% to 27%.
The strain on margins comes primarily because the revenue mix has shifted from ticketing to catering. In FY22, catering made up only 22% of IRCTC's total revenue, but by FY26 its contribution had expanded to 46%.
Catering revenue grew by approximately 23% between FY24 to FY26 but the segment profit was almost unchanged. Margin fell by 2.7 percentage points.
On the other hand, composition of ticketing — which is a margin lucrative business — narrowed to 29% in FY26 from 54% in FY22. Therefore, even as profits increased tangibly, IRCTC's headroom for operating profitability has squeezed over time.
The ticketing revenue growth has remained in high-single-digit during FY22 and FY26, as annual ticket bookings continue to rise but the rate of volume expansion is not accelerating. Additionally, online booking penetration was already approximately 89% by the first quarter of fiscal 2027, leaving smaller headroom for further growth.
Beyond Margins: High Costs, Uneven Rail Neer Growth
The company's costs of goods sold (COGS) has increased more than 4.5 times between FY22 and FY26 while revenue increased 2.8 times. COGS rose from 35% to 57% of sales between FY22 and FY26
The Bottled Water Overhang
Rail Neer, branded packaged drinking water produced and managed by IRCTC, has been hunting for a partner to bridge its supply gap. Revenue from these bottled water has declined to just 3% in FY26, compared to 9% in FY24.
However, the company shifted its focus to capacity expansion at existing plants and a pipeline of new sites to close the shortfall, according to its management commentary on the Q1 FY27 earnings call.
In the call, Chairman and Managing Director Rahul Himalian said Rail Neer's installed capacity stands at 17.77 lakh bottles a day, down from 18.4 lakh after the closure of one plant, against supply of around 15.5 lakh bottles.
ALSO READ: More Bottled Water, No Partner Still: IRCTC's Rail Neer Fix Remains Half-Built
Demand at some stations runs as high as 25-30 lakh bottles a day. "The requirement is much higher," Himalian said, adding that the gap is "unfortunately utilised by the unauthorised vendors," a problem he said is recognised by both the railways and IRCTC.
On expansion, Himalian had confirmed capacity at two existing plants is being scaled up. "For Ambernath, we are going from 2 lakh bottles to 3 lakh. For Danapur, we are trying to increase from 1 lakh to 2 lakh bottles per day," he said, adding both should be finalised this financial year. Although, capacity expansion has not translated into consistently accelerating revenue growth.
The Valuation Reset
The company's price-to-earnings ration (P/E) stood at 157.3x at the 2021 peak, 39.9x in 2025 and has shrunk to 26.6x now. Out of the nine analysts tracking the company on bloomberg, six have a 'buy' call, and three recommend selling it with a consensus return potential of 32.5%, implying a broadly bullish sentiment towards the company's stock.
Growth Triggers Ahead
Some key growth triggers to watch for IRCTC include:
- Vande Bharat expansion
- Digital monetisation
- Rail Neer capacity additions
- Overall tourism growth and its sustenance
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