After Budget listing nod, IRCTC may command $3.5 bn valuation - TradeBizz Research

2016 wasn’t a great year for Indian unicorns, with several markdowns – Flipkart, Snapdeal, Ola and the list goes on. Today’s press report suggests that Vanguard World Fund has marked down the value of its holding in Ola’s parent firm by over 40 percent— from USD 5 billion in November 2015 to close to USD 3 billion. Amid all the negative publicity, one unlisted unicorn (from the government’s stable) seems to be creating waves by churning out solid numbers and suddenly had the spotlight shone on it when Finance Minister Arun Jaitley announced that it would be listed: IRCTC.
 

Indian Railway Catering & Tourism Corporation, to give it its full name, operates in four broad segments: catering & hospitality, internet ticketing, travel & tourism and packaged drinking water (Rail Neer), thereby capturing the entire value chain of travel and tourism. Now almost 60 percent of the rail tickets are booked online in the country. We think it could command a valuation of USD 3.5 billion, and that’s on the conservative side.
 

Here’s why.
Indians are not only getting wealthier, but are travelling a lot more for business as well as leisure. From the perspective of the government, the easiest way to create employment in a labour surplus country like India is to boost tourism. So IRCTC appears to be in the right place at the right time. The new lease of life for “Incredible India” will give it a leg up.
 

The company is now the largest website in the Asia-Pacific region with a transaction volume of 15-18 million per month and 12 million visitors a month. As per Google and AT Kearney report titled ‘Digital Retail 2020’, with a strong consumer base of around 175 million, Indian e-commerce could reach USD 60 billion in gross merchandise value (GMV) by 2020. Ecommerce sales in India are expected to grow from USD 14 billion in 2015 to USD 55 billion in 2018. So the road ahead looks exciting for this PSU.
 

The Company has impressive numbers to flaunt. In the past five years, this debt-free entity has clocked CAGR (in percent) of 28 percent, 38 percent and 40 percent respectively in revenue, operating income and after-tax profit. This contrasts with the performance of rivals in the sector where ‘cash burn’ appears to be the order of the day.

Revenue	F12	F13	F14	F15	F16	CAGR (%)
MakeMyTrip (USD mn)	196.6	228.8	255.3	299.6	336	14.3%
IRCTC (Rs cr)	554	720	955	1141	1505	28.4%

Alongside the announcement to list IRCTC, the FM also mentioned a complete waiver of service charges on all bookings over the internet. IRCTC used to levy service charge of Rs 20 per e-ticket in case of sleeper class and Rs 40 per e-ticket in case of all other classes (50 percent of this revenue was shared with Indian Railways). While prima facie this appears to be a dampener, we feel the diversified revenue stream and presence in high growth areas should partially counter the impact.

FY16	Revenue (Rs cr)	EBIT (Rs Cr)	EBIT (%)
Internet Ticketing	632	262.09	41%
Tourism	375	28.5	8%
Catering	333	-49	-15%
Railneer	119	16.7	14%

IRCTC plans to bolsters its presence in lucrative areas of international and domestic air packages, helicopter air services, rail tour packages, pick up and drop (concierge) services, cab services, medical tourism and inbound as well as outbound travel services for individual travellers. 

There are no comparable peers that operate across the gamut of businesses where IRCTC has a presence. However, our take on the sum of parts of this entity looks much more exciting than what the Income Statement seems to suggest. The Internet booking and online travel and tourism business of IRCTC mimics its homegrown rival, 

Make My Trip. The growth aspirations of the company in the catering business (getting into food courts, non- railway catering etc.) would see it competing with QSRs and restaurant chains. In the high-growth packaged water business, it could count companies like Bisleri as its competitor. Finally with an enviable database of 360 million users, it can one day rival the likes of Flipkart & Snapdeal. Are the unicorns ready for the competition from Bharat Sarkar?

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