IRCTC IPO – How good is this IPO?

IRCTC IPO – How good is this IPO?

Indian Railways subsidiary, IRCTC is coming up with an IPO that would open for subscription on 30^th September, 2019. IRCTC Limited is the only provider to Railways for online ticket booking and catering services.  Investors might be excited about IRCTC IPO news which they might be waiting for some time. Should you invest in the IRCTC IPO or avoid? What are the risk factors you should consider before investing in this IPO? In this article, we would do IRCTC IPO Review.

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About IRCTC Limited

It is a Central Public Sector Enterprise wholly owned by the Government of India and under the administrative control of the Ministry of Railways. They are the only entity authorized by Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India. They are incorporated with the objective to upgrade, modernize and professionalize catering and hospitality services, managing hospitality services at railway stations, on trains and other locations and to promote international and domestic tourism in India through public-private participation. They were conferred the status of Mini – ratna (Category-I Public Sector Enterprise) by the Government of India, on May 1, 2008.

Currently, they operate in fits business segments, namely, internet ticketing, catering, packaged drinking water under the “Rail Neer” brand, and travel and tourism.

IRCTC IPO Issue details

IRCTC IPO DRHP Prospectus can be downloaded at this link

What are the Objects of the IRCTC Limited IPO?

Here are the objects of the IPO issue.

(i) To carry out the disinvestment of 20.16 Mn equity Shares by the Selling Shareholder constituting 12.60% of the Company’s paid up Equity Share capital of the Company; and

(ii) To achieve the benefits of listing the Equity Shares on the Stock Exchanges. The company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder

Who are the Company Promoters?

This is owned by Govt of India. The President of India acting through the Ministry of Railways is the promoter of this company.

How is the company doing in terms of Financial Performance (Reinstated)?

Here are the restated financials for the past 3 years.

1) Company revenues are at Rs 1602.8 Crores for the year ended Mar-17 and Rs 1,956.6 Crores for the year ended Mar-19.

2) Company profits are Rs 229 Crores for the year ended Mar-17 and Rs 272.5 Crores for the year ended Mar-19.

3) Its FY2019 EPS is Rs 17.04 and last 3 years average EPS is Rs 15.5.

What is the of IRCTC Credit Rating?

The credit rating is not required for issue of equity shares, hence, they have not approached any credit rating agency for credit rating.

What is the IRCTC IPO GMP now?

Currently IRCTC IPO GMP data is not available.

What is the allocation portion in this IPO?

Here is how the allocation would be done:

1) QIB (Incl Anchor investors) –Up to 50%

2) NIIs – up to 15%

3) Retail Investors – up to 35%

4) Employees reservation up to 160,000 shares.

What are the key strengths of IRCTC Limited?

Every investor should understand the company’s key strengths so that one can compare with its competitors to know how unique is such company in their business. Their investment decision would change based on these facts. Here are the key strengths of the company.

1) Authorized by the Ministry of Railways to offer Indian Railway tickets online

2) Authorized catering service provider to passengers traveling by Indian Railways.

3) Comprehensive tourism and hospitality service provider in India.

4) Exclusively authorized for manufacturing and supplying packaged drinking water at the railway station and trains.

5) Robust operating system and internal controls which include

– Customer Satisfaction Survey

– Complaint Monitoring

– 24 hits, 365 day monitoring through control offices

– Comprehensive Selection of Service and Product offerings

– Robust Contract Management

– Ability to provide quality services

6) Qualified and experienced employees and management team.

What are the various strategies of IRCTC Ltd?

Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.

1) Diversifying and offering new services to the passengers of Indian Railways and others

– RCTC iMudra wallet and i-Pay

– IRCTC as Private train operator

2) Continue to leverage the Government’s policy relating to its business.

3) Strengthen products and services offered online.

4) Strengthen operational efficiencies.

– Attracting and retaining talented employees

– Enhancing quality monitoring mechanism

– Exploring new opportunities by leveraging the strengths of its existing resources

Positive Factors to invest in the IPO of IRCTC

Investors can consider these factors to invest in this IPO.

1) IRCTC is the only service provider to Railways for online ticketing, catering services, etc., and it is monopoly.

2) IRCTC has a unique business model where there are no competitors.

3) Employees of IRCTC and Retail investors would get Rs 10 discount on IRCTC IPO Price.

Major Risk Factors in this IPO

These risk factors can impact company revenue and margins which would affect its share price. Investors should go through and understand these risk factors before investing.

1) Its business and revenues are substantially dependent on Indian Railways. Any adverse change in the policy of the Ministry of Railways may adversely affect its business and results of operations.

2) They are the sole provider of online railway ticketing, catering services, and packaged drinking water for trains and stations, and certain other services they provide; if the Government were to allow open competition in all or any of these areas, it may impact its financial results.

3) Indian food service industry and package water industry have both historically been fragmented and unorganized, lacking sufficient reliable industry data. As such, any attempt to analyze the relevant data on catering and packaged drinking water market competition and industry trend may be incomplete or unreliable.

Other risk Factors to consider before investing in IRCTC Ltd IPO

Other risk or negative factors that are indicated in the RHP Prospectus.

1) Company and its Directors are involved in certain legal and other proceedings.

2) Its Auditors have included a matter of emphasis in relation to its Company in the Restated Financial Statements.

3) They have been unable to make consolidation of its financial statements in the absence of audited accounts of its joint venture, Royale Indian Rail Titss Limited

4) Its business can be negatively affected if they are unable to maintain quality standards.

5) They rely on information technology to operate its internet ticketing and tourism business and maintain its competitiveness; any failure to adapt to technological developments or industry trends could harm its business.

6) They are exposed to risks associated with online security, the security of its customers’ personal information and credit card fraud; failure to manage these risks may expose us to litigation, liability and damage to its reputation and brand image.

7) They rely on awareness of its brand to build its customer base and grow its revenues. Any failure to maintain or enhance consumer awareness of its brand could have a material adverse effect on its business, financial condition and operation.

8) They rely on telecommunications and information technology systems, networks and infrastructure to operate its business; any interruptions or breakdown in such systems, networks or infrastructure or its IT system may impair its ability to effectively provide its products and services, which in turn may harm its business.

9) Its travel and tourism and packaged water segments experience seasonal fluctuations due to periodic local and national elections, weather changes as well as holidays; as such, quarterly financial data comparisons may not be meaningful.

10) For complete internal and external risk factors, you can refer the IPO RHP of the company.

IRCTC IPO Schedule

Here are the IRCTC IPO dates and schedule.

IRCTC IPO Open date – 30-September-2019

Offer Closes – 3-October-2019

Finalization of Basis of Allotment – 9-October-2019

Unblocking of ABSA and Initiation of Refunds – 10-October-2019

Credit of shares to Demat Accounts – 11-October-2019

IPO Shares Listing Date – 14-October-2019

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Is the IPO Price of IRCTC justified?

IRCTC IPO Price Band is Rs 315 to Rs 320. If we consider its EPS for last year FY2019 of Rs 17.04 on the higher price band of Rs 320 the P/E works out to be 20.6x. If we consider its EPS for the last 3 years of Rs 15.5 on the higher price band of Rs 320 the P/E works out to be 18.8x. Means the company is asking the higher price band of Rs 320 at P/E between 18.8x to 20.6x. There are no listed peers to compare, hence we cannot say whether IRCTC Limited share price is under priced or overpriced. However 20x P/E looks reasonable in IRCTC IPO Valuation.

IRCTC IPO – Should you Invest?

Company revenues have grown in the last 3 years. It has earned consistent margins of around 14% on revenue in the last 3 years. It is a monopoly in its business. However, in future Govt can allow competitors in such business. Considering all these factors, one can invest in this IPO for 3 to 5 years tenure. Owing to current volatile market conditions, one may or may not get listing gains.

Disclaimer: The information in this article is for educational purpose only. This is not a recommendation to invest or NOT to invest in this IPO. Please consult your investment advisor before you invest in such high risk IPOs.

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Suresh KP

IRCTC IPO – How good is this IPO

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Suresh KP

Founder at Myinvestmentideas.com

Suresh KP is the Founder of Myinvestmentideas. He is NISM Certified - Investment Adviser and NISM Certified - Research Analyst. He has been analyzing financial markets in the last 20 years.He can be reached at suresh@myinvestmentideas.com

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