IRCTC’s post-pandemic growth is ongoing. Here's what is happening

On august 18, public sector company Indian Railway Catering and Tourism Corporation Ltd (IRCTC) floated a tender to onboard a consultant to monetise passenger data, including basic user details such as name, address, phone number, age, email ID, payment mode, class of journey, and even login and passwords. The tender mentioned that the revenue generation potential of the initiative would be to the tune of `1,000 crore. A nationwide furore followed, topped by a summons to its top officials by the Parliamentary Standing Committee on IT, then led by Shashi Tharoor. Before the date of the summons, the company decided to withdraw the tender at its AGM. Due to flip-flops like these, financial consultancy firm Prabhudas Lilladher maintains a neutral stance on the company. “Its data monetisation plans got cancelled because it was related to some data breach in the privacy of users. It had plans to monetise passenger data. I’ve seen a lot of policy flip flops, which has been happening of late. That can be a big challenge for the company,” says Jinesh Joshi, Research Analyst at Prabhudas Lilladher.

This revenue generation ‘opportunity’ aside, IRCTC has been going great guns, by any measure. Listed in October 2019, IRCTC’s average market capitalisation jumped 96.7 per cent in the BT500 study period (October 2021 to September 2022). Its rank on the BT500 2022 list improved to 84, from 131 in 2021.

Total income and profit after tax rocketed 127 per cent and 255 per cent, respectively, in FY22 against FY21. The company has zero debt. Incorporated in 1999, IRCTC has delivered profit growth of 23.8 per cent CAGR over the past five years.

Currently, IRCTC is the only entity authorised to provide certain services to the Indian Railways, including online ticketing, catering, and selling drinking water on trains and at railway stations. In the past few years, the company has also ventured into new businesses like tourism. IRCTC organises budget and deluxe package tours for domestic and foreign tourists. One such popular tourism package for budget tourists covering key destinations across India is called “Bharat Darshan”. Then, in 2020, it ventured as a ‘private player’ by operating the Tejas Express from Lucknow to New Delhi, followed by the Ahmedabad-Mumbai Central Tejas Express and Kashi Mahakal Humsafar Express. According to IRCTC, in the quarter ended June, the Tejas trains generated revenue of Rs 41 crore and profit of Rs 5 crore (versus revenue of Rs 21 crore and a loss of Rs 4 crore in Q4FY22) on the back of increased occupancy.

The company’s recovery after the Covid-19 pandemic has been good, too. “IRCTC’s business model has once again demonstrated its resilient nature and its ability to scale up. In the last quarter of the last financial year, the catering segment has been the main driver of quarter-over-quarter revenue growth and the revenue for the segment has also touched a new high,” Rajni Hasija, Chairperson and Managing Director of IRCTC, said in the company’s analyst call, further adding that the Rail Neer (drinking water) segment also surpassed its peak revenue of the pre-pandemic period with better capacity utilisation of its plants. “The pandemic is behind the travel and hospitality [sector] and it can look forward to a better financial year this year and beyond, too,” she added.

IRCTC now books nearly 1.1 million tickets in a day on average, and in terms of catering, it serves more than 35,000 meals per day. Hasija said that she’s targeting Rs 1,500 crore in a year from catering alone. Next up: capacity would be ramped up for Rail Neer in the next few years. According to Hasija, the Simhadri plant is almost ready and may be commissioned anytime in the near future. “We are waiting for one of the licences so that an upgradation of 1.2 lakh litre can be [made]... and our Bhusawal plant is also nearing completion. Two plants will be opened up this financial year before December. Our maximum capacity has been 14.8 lakh litre a day, so that will now ramp up to 16.8 lakh litre, which we will be achieving before December,” she said at the analyst call.

According to IDBI Capital, IRCTC continued to log robust revenue growth and was above its estimates. Profitability observed some drag in the first quarter due to a decline in internet ticketing margins (down 700 bps QoQ), it said. In the longer term, the company will benefit from increased licence income in catering as it returns to pre-Covid levels. “In addition, with increased acceptance of online ticket booking, we expect internet ticketing to remain robust. Further, tourism is also expected to improve led by increase in travelling. The company’s focus on e-catering initiatives and increasing revenues from advertisements and licence fees bodes well for long term profitability,” IDBI Capital said in a report. Experts expect catering to drive growth led by higher pricing in cooked food (leading to higher licence income). “As of now, we are providing nearly 436 trains with pantry car and 610 trains in the TSV (train side vending) segment, and if there is demand we will be able to supply in intercity trains also,” Hasija said.

“Moreover, addition of licence revenue from new ventures (retiring room upgradation, for instance) would further improve catering income. This, coupled with increase in travelling, will boost tourism revenues. Further, increased internet ticketing penetration and higher Rail Neer revenues prompt us to remain positive on the long-term prospects of the company,” the IDBI report said.

Hasija said that beyond FY23, the key growth driver for the company will be the internet ticketing segment, where the company has an 81 per cent market share. “So there is going to be some [slow growth] in that [segment]... the company is now focussing on the non-convenience fee resources in addition to the convenience fee resources,” she said. From September 1, 2019, IRCTC started charging Rs 15 (plus GST) on booking of non-AC railway tickets and `30 on AC tickets online. Its non-convenience fee resources include catering, tourism, etc.

Joshi says that the company’s growth appears to be higher on a lower base: “FY23 will definitely see a jump and that will be because of the lower base of FY22, but the right way to look at it will be: will the company be able to grow on a top line base of approximately Rs 3,000 crore? I do not see a big double-digit growth from here on. Obviously being a monopoly and a market leader, it will not face any competitive risk as such. Growth will not be as high as what we saw in the past.”

Analysts say IRCTC expects a slowing of growth on account of already having achieved high penetration. Going forward, the management would focus on increasing the share of non-convenience revenue and growing its tourism and catering business. “[The] company states that it has awarded 33 contracts for refurbishing of retiring rooms and will soon float tenders for other rooms as well. The result of this is expected to reflect in Q3FY23E numbers,” the IDBI report said.

@PLidhoo