What is the trigger for this rerating in IRCTC stock?
The way we have to look at this kind of an upside is how market participants are thinking about any internet company and where a lot of loss- making companies are coming out with IPOs. If we try and apply the same logic we apply for names like Zomato and discount the earnings of FY27 or FY28 to today’s time, then possibly some of this kind of valuation can be justified.
We all know the potential of railways as an end industry and IRCTC is slowly venturing into many non-core activities, which is expanding the total canvas and addressable opportunity for business. That is getting built into the valuation at this point.
Just in two years of its listed history, it has gone up almost 20 times since the IPO. Those who have completely missed the train, can they still jump in or do you think the valuations do not merit an entry at these levels?
Any run up which is as sharp as what we have seen in case of IRCTC is definitely a difficult price point to recommend anybody to onboard. But are we trying to be a one-year trader or two-years investor or a 10-year investor? From that perspective, we would not be shying away from this name.
The top reason is that there is a lot of untapped pricing in this business which will play out over a period of time. At the time of the IPO, there was no convenience fee charge. The profit pool of the company has increased significantly. Without getting into too many nitty-gritties, let’s talk about the ticketing business. In case of IRCTC, ticketing is charged on a per PNR basis rather than per passenger basis and if you look at the convenience fee which they charge, even for an AC commuter it is just Rs 30. While the average ticket value is more than Rs 1,000, the convenience fee being so low and also it being charge per PNR rather than per passenger it itself gives two-three leverages. One, the Rs 30 fee can go to Rs 40-Rs 60. It used to be Rs 40 four years back and definitely it can go higher over a period of time.
Secondly, per ticket there are 1.7 passengers and even if they move this from per ticket to per passenger basis, their profit pool can jump by 70%. So, there is big untapped pricing potential in the business. We are envisaging Rs 800 crore profit for this year. We do not know when some of these pricing will come into play. The total profit pool can go to Rs 2,000 crore-3,000 crore in just a couple of years.
So, nobody can time it but yes these will happen because the same consumers are paying very high convenience fees or surcharges in various internet businesses. So, there is a long way to go for IRCTC in terms of long-term potential.
