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This is a summary of the revenues earned by IRCTC

IRCTC operates mainly in 4 segments

1. E-ticketing for Indian Railways
   IRCTC enjoys a monopoly and other travel agents like Paytm, MakeMyTrip etc. have to route their booking through the IRCTC platform.

2. Food Catering
   Serving food to the railway passengers. This includes operating pantry cars (on-board cooking) attached to the trains, food plazas & fast food units located at the stations, operating kitchens at railway stations that prepare the food in bulk, operating Jan Ahar Kendras that provide economy meals

3. Packaged drinking water – Rail Neer
4. Travel & Tour packages
   These include the special trains run by Railways like the Maharaja Express (luxury Rajasthan tour), the Ramayan express, the Buddha circuit as well as other tour packages.

This is the performance of the various segments in the year 2019

*Profit – This is the segmental profit before assigning the overheads and common expenses.

The most profitable of the segments is the e-ticketing segment.
After demonetization, the government of India forced IRCTC to stop charging service charge on every ticket booking on its platform.

• This resulted in a drop in a more than 60% in annual revenues from the e-ticketing business.
• Now, the government of India has again allowed IRCTC to start charging service charge for booking done on its platform – website and mobile app.
  
• IRCTC books 0.84 Mn tickets every day on its website and the rail connect mobile app.
• If we assume a Rs 15 service charge per transaction, this could potentially result in additional revenue of Rs 453 Cr to IRCTC. Most of this revenue will directly add to the bottom-line.

PBT (profit before tax) in 2019 = Rs 355 Cr.
The additional revenue from the service charge could easily double the profits at IRCTC in a year’s time.

IPO Price Range = Rs 315 to Rs 320 per share
Assuming that the IPO will be subscribed for at Rs 320 per share, the post-issue market-cap of the company will be
Market-Cap (at IPO price) = Rs 5,120 Cr.
PE Ratio = 19 (based on 2019 profits)

Since there is high visibility of profits nearly doubling within a year, the forward PE ratio for a profitable monopolistic PSU company is actually less than 10.
Markets are smart enough to sense this and hence, the stock price of IRCTC is likely to double on listing.

There are two major risks to this analysis

1. IRCTC starts subsidizing the low-margin catering and tourism businesses from the higher profits generated from the e-ticketing segment. Also, the prices for catering are as prescribed by the Ministry of Railways and IRCTC has little control over pricing the food items.
2. Change in government policy that materially harms IRCTC – eg. Ending IRCTC monopoly in e-ticketing, changes to the National Catering Policy etc.

Disclaimer:
Please do not consider this article as a recommendation to buy/sell any particular stock.
This article is an illustration of the kind of analysis that goes into fundamental research and equity investing.
The author (@amey153) is a SEBI registered Investment Advisor.

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