- The IRCTC stock has recovered by nearly 30% in April after recording a 40% fall in March, signaling a V-shaped recovery.
- The primary drivers of IRCTC’s share price could be the expected increase in revenues due to an increase in catering prices by up to 70%.
- A broking firm suggests that there is still a potential upside of more than 12%.
While earnings estimates have been cut, the target price still has room to grow the investor wealth. Brokerage and research firm Prabhudas Lilladher has maintained its ‘Buy’ rating on IRCTC, with a target price of ₹1,428. For context, the stock closed at ₹1,267.5 yesterday, April 27.
Based on the target price, there is a potential upside of more than 12%.
Since hitting a low of ₹815.6 on March 25, the IRCTC stock has recovered by more than 55%, signaling a V-shaped recovery, after the stock tanked 40% in March.
This is despite the fact that all passenger trains across India have been cancelled till May 3 when the lockdown is scheduled to end. Due to the lockdown, IRCTC has lost ticketing, catering and Rail Neer (water) revenue for 40 days, which is the total period of lockdown.
As a result, the broking firm has cut IRCTC’s ticketing revenue estimates by ₹50 crore. Revenue estimates for catering and Rail Neer have been cut by 18.3% and 8.8% respectively for the financial year 2020-21.
So, what’s driving IRCTC’s share price?
According to the report, IRCTC’s revenues are expected to increase due to four new Rail Neer plants which will be commissioned in 2020-21. In addition to this, IRCTC is also expected to hike mobile and static catering prices by 70% and 61% respectively. The impact of these factors on IRCTC’s revenues will be fully evident in FY 2020-21, the report adds.
The lockdown has brought the Indian economy to a standstill, and as such, companies which have a debt exposure are finding it difficult to service their debts as cash flows have frozen. According to a report by investment and credit rating ICRA, 328 entities across sectors have availed RBI’s three-month debt moratorium facility.
On the other hand, IRCTC which is debt-free will be able to weather this lockdown better. “IRCTC is debt free with a cash balance of ₹1,160 crore as of Dec 2019. Thus, it can tide over the current crisis without leveraging the balance sheet,” the report said.
Is this a good time to invest in IRCTC?
“Despite near term challenges, we believe IRCTC is best placed to bounce back once COVID fear resides as structural levers remain intact,” the research firm added.
Analysts suggest that long-term investors should buy the stock at ₹1,050-1,100 levels.
Healthy cash on its books, an almost three times increase in its net profit in the December 2019 quarter when compared to the same period in 2018, and a monopoly on the food business in railways makes IRCTC an option worth considering.
See also:
IRCTC was one of India’s best performing stocks - before Corona hit train travel
Indian Railways to refund ₹660 crore as 3.9 million bookings are cancelled
Closure of railway agent service to affect employment, IRCTC revenue: IAMAI