Once euphoria settles, IRCTC will be a good long-term bet: Devang Bhat, ICICI Direct
We don’t recommend a fresh buy but we would say you can always hold or buy on dips.
At Rs 660, is IRCTC a buy or it is a miss or a skip?
IRCTC has a very unique model. They have a monopoly in catering, they have a monopoly in e-ticketing and in packaged drinking water as well. There is an aberration, like in e-ticketing, the government has stopped them from charging service charge of Rs 15 and Rs 30 for non-AC and AC. Now going forward, they might be able to charge that and that will almost double their revenues which was around Rs 240 crore to Rs 450 crore by FY21 and 66% of the margins is generated from this business.
So what happens is, there will be a major delta in PAT and combined with the lower tax rate, the PAT will almost double. Secondly, in the packaged drinking water also, they are going to set up 10 more plants. They will almost double their capacity which will double their market from 45% to 85%. A monopolistic business, plus a great market share plus a higher delta in margins is the major driver for this company. In the near term, probably the returns might be capped but it is a good long-term bet as such.
Would you tell your clients to hold on Rs 670 also or buy afresh?
No, we would not recommend a fresh buy but we would say that you can always hold on because post this aberration of PAT doubling, it has the potential to grow 8% to 10%. So, people can buy on dips also.
Where do you think the stock could be in three years? Can it double in three years even from these levels?
It is difficult for it to double from these levels, but at the listing price on a forward basis, it would be a 10xp. Right now, if it is double then it would be a 20xp of FY21. So going forward, this euphoria might settle down at a certain level and then probably it is growing at 8 to 10%; there’s no debt on the balance sheet and healthy cash of Rs 1,000 crore, good free cash flow having 45% dividend payout. It is a fundamentally good business, but yes, right now the euphoria should settle down and then it might be a good long-term bet.