IRCTC's stock rally has more steam left; buy on every dip, suggest analysts

IRCTC provides booking services for trains, buses, flights, hotels, and will soon start booking for cruises from Mumbai to places like Goa, Diu, Lakshadweep, and Kochi

Shares of Indian Railway Catering and Tourism Corporation (IRCTC) jumped 6 per cent and hit an all-time high of Rs 3,041 apiece on the BSE in the intra-day trade on Monday, extending its gravity-defying rally on the bourses. They eventually ended 4.8 per cent higher at Rs 3,009.5 per share relative to the S&P BSE Sensex's 0.3 per cent gain.
 

On a year-to-date basis, the stock has soared 109.4 per cent, so far in calendar year 2021, on the BSE, while over the past 2 months, it has surged 39 per cent. In comparison, the benchmark S&P BSE Sensex has gained 22 per cent YTD and 10 per cent over the past two months, ACE Equity data show. 
 

In terms of market-capitalisation, IRCTC stood at 95th position in the overall ranking with an m-cap of Rs 48,213 crore at 11:44 am on the BSE. The state-owned company surpassed Colgate-Palmolive (India), Cholamandalam Investment and Finance Company, Hindustan Aeronautics (HAL), Balkrishna Industries, ACC and Bandhan Bank in market cap ranking today. READ ABOUT IT HERE
 

Analysts, however, believe the stock’s rally is here to stay as a pick-up in vaccination drive against Covid-19 will cushion any third wave impact going-forward. Besides, its monopoly in the sector and government’s backing are strong growth levers.
 

“Nearly 650 million people have been vaccinated in India with a single shot and the daily vaccination rate has been around 7-8 million people. If the trend continues, we might be able to vaccinate a significant proportion of the eligible population by the end of this year. This would mean, even if we face a third wave, the impact on travelling won’t be too much,” says AK Prabhakar, head of research at IDBI Capital.
 

Likhita Chepa, senior research analyst at CapitalVia Global Research, meanwhile, adds that investors are now eyeing stocks from the “unlock theme” perspective considering their attractive valuations.
 

IRCTC is the only entity authorised by the Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India. It has a dominant position in online rail bookings and packaged drinking water with around 73 per cent and 45 per cent market share, respectively.
 

Additionally, IRCTC also provides booking services for hotels, buses, flights, and will soon start booking for cruises from Mumbai to places like Goa, Diu, Lakshadweep, and Kochi.
 

“From a long term perspective, cruise bookings would be positive for IRCTC as the company looks to become a one-stop solution player for travel and tourism. While the potential for this business to grow is huge, it would happen in a gradual manner considering the current pandemic,” says Ajit Mishra, VP-Research at Religare Broking.
 

Third trigger has been IRCTC’s stock-split plan, announced in the ratio of 1:5 to enhance the liquidity in the capital market, widen the shareholder base, and make the shares affordable to small investors. 
 

‘Buy the dips’

Given the steep rally in the stock, Prabhakar of IDBI Capital believes new investors should add the scrip to their portfolio on every dip while incumbent investors should hold the stock.
 

“The monopolistic nature of its key business coupled with its low fixed cost model, excellent free cash generation and strong return ratios are key positives for the company. However, considering the sharp run-up, we would recommend accumulating the stock on dips,” says Mishra of Religare Broking.
 

Chepa of CapitalVia believes foray into cruise ticketing is expected to benefit the firm not just in the long term but also aid its margins in the coming quarters. She expects IRCTC to hit Rs 3,360 target over the next 15 months.