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  • Rating: BUY | CMP: Rs1,004 | TP: Rs1,339

    Indian Railway Catering and Tourism Corporation (IRCTC IN)

    Monopoly play on rail travel & tourism

    Jinesh Joshi jineshjoshi@plindia.com | 91-22-66322238

  • Indian Railway Catering and Tourism Corporation

    January 28, 2020 2

    Contents

    Page No.

    Story in charts ........................................................................................................ 4

    Company Overview ............................................................................................... 5

    Monopoly in online train ticket bookings is biggest moat .................................... 5

    Investment Argument ............................................................................................. 6

    E-ticketing to benefit from digitization and & levy of service charge ................... 6

    E-booking industry to grow at CAGR of 16-18% ............................................. 6

    IRCTC to gain from rising e-booking penetration ............................................ 7

    Service charge re-instatement – Rs6.7bn revenue opportunity by 21E .......... 8

    “Rail Neer” to strengthen leadership ................................................................ 11

    Best placed to capture untapped potential in the PDW market .................... 12

    New plants to increase volume share to ~80% ............................................. 13

    New catering policy & tariff revision provides revenue visibility ........................ 14

    New catering policy (2017) provides a shot in arm ....................................... 14

    Revision in catering tariff to drive catering/licensing fee revenues ............... 15

    Rising traction of E-catering provides huge growth opportunity .................... 17

    One stop solution of all travel & tourism related services ................................. 18

    Domestic/ Foreign travelers to grow at 9-10% CAGR in next 5 years .......... 18

    Financial Projections ............................................................................................ 20

    Revenues to increase at a CAGR of 22.5% over FY19-22E ............................ 20

    EBITDA/PAT CAGR of 45%/49% over FY19-22E............................................ 25

    Valuations ............................................................................................................ 29

    Monopolistic entity deserves premium valuations ............................................ 29

    Story in Charts ..................................................................................................... 31

  • January 28, 2020 3

    Rating: BUY| CMP: Rs1,004 | TP: Rs1,339

    Monopoly play on rail travel & tourism

    We initiate coverage on IRCTC (Indian Railway Catering & Tourism

    Corporation Ltd) with a BUY rating given 1) monopoly position in providing

    online ticket booking and catering services for passengers travelling by

    Indian Railways (IRs) 2) high revenue visibility from packaged drinking water

    segment (Rail Neer brand) aided by 35% higher capacity 3) revenue kicker of

    Rs6.7bn/7bn in FY21E/FY22E from e-ticketing business post re-introduction

    of service charge (Rs15/ticket for non-AC and Rs30/ticket for AC from 01Sep

    2019) and 4) catering revenue CAGR of 14.5% over FY19-22E led by an

    average increase in mobile/static catering tariff’s by ~70%/~61% respectively.

    Strong balance sheet (net cash of Rs11.5bn as on Sept 2019), healthy return

    ratios (RoE/RoCE to expand from 27%/34% in FY19 to 44%/52% in FY22E) and

    45% dividend pay-out gives us additional comfort. Valuations at 20x/18x

    FY21E/FY22E look compelling given sales/PAT CAGR of 22.5%/48.7% over

    FY19-22E and monopolistic position in ticket booking and catering. Initiate

    with a BUY and TP of Rs1,339 (24x FY22E EPS of Rs56). Policy uncertainty in

    catering and reduction/abolishment of service charge are key risks to our call.

    A monopolistic business: IRCTC is a monopolistic entity authorized to provide

    packaged drinking water, catering, and online ticket booking services to passengers

    travelling by IRs. It has a dominant position in online rail bookings/packaged

    drinking water with ~73%/~45% market share respectively. Being a regulated

    monopoly acts a strong moat and limits competitive risks.

    Levy of service charge to provide revenue kicker: With effect from 01 Sep 2019,

    IRCTC has re-instated service charge for online bookings at the rate of Rs15/Rs30

    for non-AC/AC respectively. We expect revenue kicker of Rs3.6bn/Rs6.7bn in

    FY20E/FY21E post levy of service charge resulting in a 57.3%/68.7% CAGR in

    internet ticketing revenue/EBIT respectively over FY19-22E.

    Rail Neer’s market share to rise to ~80% post capacity expansion: Post

    increasing the number of plants to 20 in a phased manner by FY21E, IRCTC’s

    market share is expected to rise from ~45% to ~80% resulting in a 34.8%/41.4%

    CAGR in revenue/EBIT respectively over FY19-22E (being a monopoly IRCTC will

    have first right to cater to the unmet demand which is currently captured by players

    like Bisleri, Kinley & Aquafina.)

    Catering revenues to grow at a CAGR of 14.5% over FY19-22E post price hike:

    Average hike in mobile/static catering prices by ~70%/~61%, strong traction from

    e-catering business amid expanding list of partner restaurants and unveiling of the

    new catering policy 2017 (catering responsibility re-assigned to IRCTC which

    provides long term revenue visibility) is likely to drive catering revenue/EBIT at a

    CAGR of 14.5%/28.2% over FY19-22E.

    Comprehensive travel & tourism service provider: We expect tourism

    revenue/EBIT to grow at a CAGR of 9.1%/2.9% over FY19-22E as IRCTC has

    footprints across all major tourism segments such as hotel bookings, rail, land,

    cruise & air tour packages and air ticket bookings. It has monopoly in rail tourism

    and operates various theme based trains.

    Indian Railway Catering and Tourism Corporation (IRCTC IN)

    January 28, 2020

    Company Initiation

    Key Financials - Standalone

    Y/e Mar FY19 FY20E FY21E FY22E

    Sales (Rs. m) 18,679 22,967 31,160 34,336

    EBITDA (Rs. m) 3,722 6,596 10,162 11,218

    Margin (%) 19.9 28.7 32.6 32.7

    PAT (Rs. m) 2,726 5,273 8,060 8,966

    EPS (Rs.) 17.0 33.0 50.4 56.0

    Gr. (%) (69.1) 93.4 52.9 11.2

    DPS (Rs.) 7.6 14.8 22.7 25.2

    Yield (%) 0.8 1.5 2.3 2.5

    RoE (%) 27.3 44.4 51.9 44.4

    RoCE (%) 34.4 51.8 61.6 52.3

    EV/Sales (x) 8.0 6.4 4.6 4.0

    EV/EBITDA (x) 40.1 22.4 14.1 12.3

    PE (x) 58.9 30.5 19.9 17.9

    P/BV (x) 15.4 12.1 9.1 7.1

    Key Data INIR.BO | IRCTC IN

    52-W High / Low Rs. 1,029 / Rs. 625

    Sensex / Nifty 41,155 / 12,119

    Market Cap Rs. 161 bn/ $ 2,247 m

    Shares Outstanding 160m

    3M Avg. Daily Value Rs. 2787.63m

    Shareholding Pattern (%)

    Promoter’s 87.40

    Foreign 1.99

    Domestic Institution 5.11

    Public & Others 5.50

    Promoter Pledge (Rs bn) -

    Stock Performance (%)

    1M 6M 12M

    Absolute 14.0 - -

    Relative 15.2 - -

    Jinesh Joshi

    jineshjoshi@plindia.com | 91-22-66322238

  • Indian Railway Catering and Tourism Corporation

    January 28, 2020 4

    Story in charts

    Non-suburban passenger traffic to remain flat

    3 ,3

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    (m n

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    Source: MoR, PL #FY19 figures are NA & annualized based on

    1QFY20 figures.

    E-ticketing collection to be at Rs446bn in FY22

    6 0

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    (R s

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    Source: Company, PL

    IRCTC contributed Rs3.1bn to MoR’s kitty in FY19

    823 556

    256 282