IRCTC Business Model & Research Report

What if your company is the only player in the market with no other competitors? It would be great to enjoy such a monopoly, and every company wants this for itself. One such company is Indian Railway Catering & Tourism Corporation (IRCTC).

What makes IRCTC a PSU behemoth? What is so special about it? Is it still worth investing in? We know you have so many questions in mind. This article will come in handy to clear the fuss and answer all your questions.

So, welcome to a detailed fundamental analysis report on IRCTC Ltd. In this report, we will learn everything about IRCTC. But make sure you read till the end.

IRCTC - Overview of the Company

IRCTC was established on 27th September 1999 as a public sector undertaking (PSU), completely owned by the Government of India. It is a wholly-owned subsidiary of Indian Railways. So, basically, it’s a Mini Ratna (Category-I) Central Public Sector Enterprise. It went public with its IPO in September 2019, giving a return of over 100% to its investors on the listing day itself, and now it’s somewhere around 500% above the IPO price! A great pick, indeed.

Just so you know -

Myth-buster: Many people think that IRCTC runs the Railways in India, but this is not true. It does not own or operate the trains and infrastructure of Railways; it only provides ticket booking, catering, water, and tourism services to the passengers. 

Business Model of IRCTC

IRCTC Limited provides Catering and Hospitality, Internet Ticketing, Travel & Tourism, Packaged Drinking Water, and State Teertha services in India.

Let’s dive deeper into each of its business segments one by one.

1. Catering

IRCTC is the largest hospitality and catering company in India, offering services in passenger trains and railway station premises. Through its catering segment, it undertakes other ancillary business activities. It provides the following services through its catering vertical:

• Mobile catering business: The company offers onboard catering services through its pantry cars in various trains. It also provides train-side vending contracts for taking orders from passengers in trains without pantry cars. 

• Static catering: Under this segment, the company has established Food Plazas/Fast  Food Units, Refreshment Rooms, Jan Ahaar, and Cell & Base Kitchens at railway stations. Through these units, it serves sumptuous dishes at affordable rates.

• E-catering: Its latest service offering, e-catering, allows passengers to book food from its partner restaurants and food outlets through a mobile application during train journeys. 

• Other hospitality businesses: The company offers several value-added services to passengers in the form of executive lounges, retiring rooms, and budget hotels at major railway stations across the country.

2. Internet Ticketing

With an endeavor to bring passenger reservation systems to consumers’ fingertips, IRCTC forayed into the internet ticketing system for Indian Railways in 2002. It is the only company authorized by Indian railways to offer online railway tickets through its website and mobile application.

You’d be shocked to know that on the first day in 2002, IRCTC received just 29 ticket bookings, and now, it books an average of over 8 Lakh tickets per day!

And we bet (most of) you didn’t know this fact about IRCTC’s ticket booking algorithm:

This is also an indication that IRCTC takes customer experience very seriously.

IRCTC’s e-ticketing service accounts for 72.75% of reserved tickets booked online on Indian  Railways as of FY20. This segment has been growing at a steady pace and is poised to continue the momentum as internet penetration continues to rise with the use of smartphones.

3. Packaged Drinking Water

IRCTC launched Rail Neer, a safe and trusted packaged drinking water brand to cater to passenger amenities on trains. It is processed and purified in state-of-the-art plants to ensure maximum hygiene. It is available on all trains and stations within the Indian Railways network. IRCTC plans to extend its Rail Neer segment further with the commissioning of 5 more plants, expected to be operational by 2020-21, and four other new Rail Neer plants are on the cards for IRCTC in the future.

4. Travel & Tourism

With a rich heritage and myriad attractions, India is home to some of the finest landscapes in the world. Over the past two decades, IRCTC has constantly been working towards promoting and developing rail tourism. Today, IRCTC is one of India’s leading travel and tourism companies, catering to diverse customer needs. Its travel and tourism segment offers various services such as Domestic Tour packages, Air tickets and Corporate Travel, Luxury Travel,  Mass Tourism, and Outbound Tour Packages.

5. State Teertha

Its State Teertha vertical is a service under which state governments sponsor trains for pilgrimage. However, it was a laggard in 2020 due to almost negligible numbers of pilgrimage trips on account of the coronavirus impact. (similar is the case for its Travel & Tourism segment)

And how does IRCTC earn, you ask?

As clearly evident from the above revenue breakup, Internet Ticketing and Catering Services are the two major revenue-generating operations of IRCTC.

What is its moat?

The most significant competitive advantage or Moat that IRCTC possesses is the monopolistic authority granted by the Indian Railways to the company.  

And following are its moats which are offshoots of its monopoly:

• IRCTC is the only company authorized to sell railway tickets online. 

• IRCTC is the only company to distribute packaged drinking water across all stations and trains in India. The company has also installed ATVM’s for selling mineral water at lower prices.

• IRCTC is the only authorized entity to provide catering services in trains. To expand its services, the company has installed food plazas/stalls across most stations in India. 

What is good?

• Monopoly: Indian Railway Catering & Tourism Corporation Ltd (IRCTC) is 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.

• One-stop solution: It has become a ‘One Stop Solution’ in the travel industry, offering a  range of services, including online ticketing, tour packages, packaged drinking water, and catering.  

• Potent management: The company’s strong leadership and expert management team offer strength to deliver strong financial results and constant growth, year after year.

What is bad?

• Change in government policies: IRCTC is a government-owned monopoly, and any adverse change in the policy of the Ministry of Railways can adversely affect the business of IRCTC.

• Prone to natural disasters: Any natural disaster or calamity can completely disrupt the travel and tourism industry and consequently dent the business of IRCTC as well.

• Privatization: If the government decides to privatize the business owned and operated by  IRCTC, it can drastically affect its business due to increased competition by private players.

Financials of IRCTC

The company has shown a good sales growth of 16.53% CAGR over the past five years and a whopping profit growth of 32.26% CAGR over the past five years.

 

The company’s Operating Profit Margin (OPM) has constantly risen from 13.93% in Mar 2016 to  31.28% in Mar 2020. This shows the increased efficiency of the company’s operations over the years. Consequently, the company’s total expenditure as a percentage of total revenue has constantly reduced, leading to a rise in net profits.

 

The company’s balance sheet also looks very strong as the company has been continuously increasing its reserves over the years. Moreover, the company is entirely debt-free with no borrowings. Further, it also boasts strong cash reserves of ₹1,296.43 Cr.

 

As you can clearly see, the Net-Profit Margin and the EBIT Margin have also improved steadily.  Finally, the Interest Burden Ratio has also improved, leading to an increasing ROE at a CAGR of 34.18% over the last five years. The company also exhibited strong growth in ROCE of 52.67% CAGR over the same period.

Conclusion

Going by the business model and financials of IRCTC, it seems like there is no looking back for the  Mini-Ratna company. Moreover, the monopoly granted to it by the Ministry of Railways further boosts its growth. The company has shown consistent growth in its revenues and profits and has a  strong balance sheet powered by zero debt. IRCTC is also constantly diversifying its business and using technological advancements to strengthen itself further.

Furthermore, the future growth prospects of the company look very bright. Over the next five years, online ticket booking is expected to grow at a CAGR of 17% due to the rising internet penetration, affordable smartphones, and low-cost data. The packaged drinking water market in India is also expected to grow at a tremendous CAGR of 20% in the same period, and IRCTC is already planning to build new plants in the upcoming years to meet this increasing demand. The catering business segment in India is also expected to grow at a CAGR of 18% over the next five years. So, now you know. 

The only biggest threat to the company is the privatization of railway services! But suppose the government policies remain favorable towards the company, then that day is not too far away when IRCTC will be ranked amongst one of India’s most successful public sector enterprises!

Anyway, what’s your opinion on IRCTC? Let us know in the comments below.