INSTITUTIONAL EQUITY RESEARCH IRCTC Ltd.backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-__IRCTC_IPO_Note_-_Sept_2019...Page | 4 | PHILLIPCAPITAL INDIA RESEARCH IRCTC LTD

INSTITUTIONAL EQUITY RESEARCH

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IRCTC Ltd.

Board this train or you won’t catch the next one

INDIA | MID- CAP | IPO Note

30 September 2019

Indian Railway Catering and Tourism Corporation Limited (IRCTC) is a Central Public Sector Enterprise, wholly owned by the Government of India (GOI). It was incorporated in 1999 and under the administrative control of the Ministry of Railways. It operates two of the most transacted websites in the Asia Pacific region, www.irctc.co.in and Rail Connect, with a volume of more than 25mn transactions per month and 7.2mn logins per day. In line with plans to provide a “one-stop solution”, IRCTC has diversified into other businesses, including e-catering, executive lounges, budget hotels and travel and tourism. It operates in 4 business segments – catering, Railneer (packaged drinking water), internet ticketing, and tourism. IRCTC has also been given permission to start two (private) trains – Delhi-Lucknow-Delhi and Mumbai-Ahmedabad-Mumbai. In FY19, its revenue/EBITDA/PAT was at Rs 18.7/3.7/2.7bn with OPM/ROCE/ROE of 20%/44%/26%. It has had a debt-free balance sheet since incorporation.

IPO rationale: IRCTC is raising Rs 6.4bn through its IPO. The IPO price band is Rs 315‐320. At the upper band, on our FY21 estimates, IRCTC trades at EV/EBITDA and PE of 5x and 9.1x.

Offer structure

Offer for sale of up to 20,000,000 (20mn) shares (12.5% of its total shares) by GOI.

Additional Employee Reservation Portion of 160,000 shares (0.1% of total shares).

Total offer size: 20,160,000 shares (12.6% of total shares)

Investment arguments

IRCTC is authorised by the Ministry of Railways to exclusively offer: (1) railway tickets online (current share is c.71% of total railway tickets sold; expected to increase to 80% by FY24 and levying a conveyance fee will lead to growth), (2) catering services; e-catering is gaining traction, and (3) packaged drinking water (currently 45% demand is met through Rail Neer; expect this to be c.60% by FY24.

Strong customer base. Online transaction volume of 25mn per month; 7.2mn logins per day. One-stop solution for customers. Has added executive lounges, budget hotels, and travel & tourism services.

Strong levers in place to drive sustainable, profitable growth. PAT CAGR of 44% (over FY19-21) with ROCE/ROE of 59%/42% in FY21.

Key risks (1) Business is substantially dependent on railways, so any adverse Ministry of Railways policy change could hurt operating performance, (2) Outstanding litigations and (3) Catering and packaged drinking water services face competition from unorganized.

Outlook and valuation IRCTC is the only entity authorized by the Indian Railways to provide services. This gives it advantages in increasing market share in e-ticketing, packaged drinking water, and in e-catering. It has one of the largest customer bases in India, which will help it to push new product offerings such as executive lounges, budget hotels, and travel and tourism. It has started levying a conveyance fee (of Rs15/30 on AC&Non-AC) on customers, which gives strong revenue visibility. We expect revenue/EBITDA/PAT CAGR of 17%/37%/44% over FY19-21. It is a zero-debt company with ROE/ROCE of 42%/59%, cash-on-books of Rs 11.1bn and dividend pay-out ratio at 60%. Incremental capex planned from FY21 to FY23 is Rs 1.8-2.0bn, mainly to increase drinking water capacity and IT back-end operations. At the upper band of Rs 320, IRCTC would trade at an FY20/21 EV/EBITDA of 6.4x/5x and PE of 11.3x/9x. Company strong dividend pay-out track record of 40% over last 3 years. We like the business model, strong customer base, and increasing wallet share – which should lead to higher than growth, margins, and ROCE. We recommend SUBSCRIBE.

SUBSCRIBE COMPANY DATA ISSUE OPENS 30/September/2019 ISSUE CLOSES 03/October/2019 PRE- ISSUE EQUITY SHARES 160.0mn - LOWER BAND Rs 315 - UPPER BAND Rs 320 PRICE BAND Rs 315 - 320 - FRESH ISSUE 0mn - OFS 20.16mn NO OF SHARES TO BE ISSUED 20.2mn EMPLOYEE DISCOUNT (RS) Rs 10 ISSUE SIZE Rs 6.28-6.4bn POST- ISSUE EQUITY SHARES 160.0mn MKT CAP Rs 50.4-51.2bn

Financials Y/E Mar, Rs mn FY19 FY20E FY21E

Net Sales 18,679 22,426 25,501 EBIDTA 3,722 5,515 7,026 OPM (%) 20% 25% 28% Net Profit 2,726 4,542 5,620 EPS, Rs 17.0 28.4 35.1 PER, x 18.8 11.3 9.1 EV/EBIDTA, x 8.6 6.1 4.7 P/BV, x 4.9 4.2 3.5 ROE, % 26.1 36.9 38.4 Debt/Equity (%) - - -

Deepak Agarwal, Research Analyst (+ 9122 6246 4112) [email protected]

http://www.irctc.co.in/

mailto:[email protected]


IRCTC LTD. IPO NOTE

About the IPO Issue size: Rs 6.4bn.

20.16mn shares at Rs 315‐320 per share; 20mn shares offered for sale by promoters and management.

Market capitalisation: Rs 50.4‐51.2bn (USD 715-726mn).

The objects of the offer are: (1) to carry out the disinvestment of Equity Shares by the selling shareholder (the Government of India) constituting 12.5% of company’s paid up equity share capital and (2) to achieve benefits of listing the equity shares on stock exchanges. The company will not receive any proceeds from the offer and all proceeds will go to the selling shareholder.

Issue details

ISSUE OPENS 30/September/2019

ISSUE CLOSES 03/October/2019

PRE- ISSUE EQUITY SHARES 160.0mn

- LOWER BAND Rs 315

- UPPER BAND Rs 320

PRICE BAND Rs 315 – 320

- FRESH ISSUE 0mn

- OFS 20.16mn

NO OF SHARES TO BE ISSUED 20.2mn

EMPLOYEE DISCOUNT (RS) Rs 10

ISSUE SIZE Rs 6.28-6.4bn

POST- ISSUE EQUITY SHARES 160.0mn

MKT CAP Rs 50.4-51.2bn

Shareholding pattern post-issue

Shareholding pattern pre-issue

Name of shareholder

Pre-Offer No. of

shares offered

Post-Offer

No. of Equity shares % of Eq. Share Capital No. of Equity shares % of Eq. Share Capital

President of India 159,999,944 100% 20,000,000 139,999,944 87.5%

V.K. Yadav 8 0.0% - 8 0.0%

Purnendu Shekhar Mishra 8 0.0% - 8 0.0%

Vijay Kumar 8 0.0% - 8 0.0%

Vishwesh Chaube 8 0.0% - 8 0.0%

Sushant Kumar Mishra 8 0.0% - 8 0.0%

Anurag 8 0.0% - 8 0.0%

Sunil Mathur 8 0.0% - 8 0.0%

Other Public

20,000,000 20,000,048 12.5%

Total 171,095,293 100.00% 24,685,000 205,023,864 100.00%

Source: DRHP, PhillipCapital India Research

Issue allocation

Shares (mn) % of net issue

QIB 10.0 50%

NIB 3.0 15%

Retail 7.0 35%

Net Issue 20.0 99%

Employees 0.2 1%

Total Issue 20.2 100%

Source: DRHP, PhillipCapital India Research

Promoters 87%

Other public 13%


IRCTC LTD. IPO NOTE

About IRCTC

Segment-wise breakup

Source: RHP, PhillipCapital

Catering segment (55.4% of revenues), E-Catering to boost revenue: IRCTC is primarily responsible for providing catering services to Indian Railways passengers on trains and at stations. Catering is divided into three segments – (1) mobile catering, (2) static catering, and (3) e-catering. Currently, the company provides catering services for c. 350 pre-paid and post-paid trains, 530 static units, and also has 57 Jan Ahaars, 169 refreshment rooms, 138 food plazas, and 152 fast food units.

Catering is divided in three segments:

Mobile catering: Services provided to rail travellers aboard a train through a pantry car attached to the train or base kitchens located at major stations in the country. Static catering: Catering services offered to patrons at static units at railway establishments located at railway stations across the country. These static units include Jan Aahars (cafeterias that sell combo meals at reasonable rates), cell kitchens (supplying food to trains or static units), refreshment rooms (a-la-carte, ready-to-eat meals, and thali meals are served), food plazas (multi-cuisine food at market-driven rates), fast food units (fast food items through self-service counters), and food courts (selling food items such as branded products/eatables).

Catering (55.4%)

Rail Neer(packaged drinking

water) (9.4%)

Internet Ticketing (12.5%)

Tourism (13.4%)

• Domestic Tourism• Domestic Air Packages• Educational Yours• Inbound Tourist

Targeted Tours

• Mobile Catering• Static Catering• E-catering

• IRCTC e Wallet• Other technologies

• Outbound tour packages

• Air Ticketing• Mass Tourism

• Other Tourism Activities

• Maharaja Express• Buddhist Circuit Special Train• Majestic Rajasthan Tourist Train• AC Tourist Trains

• Bharat Darshan/ Aastha Circuit Tourist Train

• State Special trains• Election Special Trains• Theme Based Tourist trains

• Event Management:• Charter Trains and Coaches:• Hill and Heritage Charters• Luxurious Railway Saloon Car• Cruise Packages:• Online booking of Retiring Rooms

at Stations and Hotel Booking• Mobile Applications• Comprehensive tourism and

hospitality service provider in India

• Ramayana Express• Unity Express• Ram Sethu Express

Catering

Mobile catering Static catering E-catering


IRCTC LTD. IPO NOTE

E-catering: An online food-ordering service launched by IRCTC in September 2014 that allows rail travellers (who are willing to pay higher prices) to order food items from partner restaurants listed on IRCTC’s Food on Track app and IRCTC’s e-catering website. Rail travellers can use their Passenger Name Reservation (PNR) number to order food with listed restaurants in the vicinity of approaching railway stations. They can order any time after booking their ticket and up to two hours before their scheduled arrival. The partner restaurants are selected through a tendering process and pay IRCTC a 12% flat commission of the order value for every order received through the Food on Track platform or a partner aggregator platform. Key regulations for rail catering As per the catering policy implemented by Ministry of Railways in 2010, mobile catering services including base kitchens were taken away from IRCTC. IRCTC was primarily responsible for running of Food Plaza, Food Courts and fast food units under this policy. However, under the New Catering Policy 2017 the MOR reassigned responsibility for the entire catering services across Indian Railways to IRCTC. The transfer of operations of mobile catering services from Indian Railways to IRCTC has boosted IRCTC’s mobile catering revenues from FY17. As IRCTC will now be responsible for the entire catering services provided to rail travellers, it will see cost and operational efficiencies. The New Catering Policy also directed IRCTC to unbundle catering services by creating a distinction primarily between food preparation and food distribution, and add 10 more IRCTC-operated, mechanized, sophisticated base kitchens to ensure fresh and hygienic supply of food on trains. E-catering gaining traction among rail travellers. E-Catering has seen strong growth based on growth in average meals booked per day – from just 1 in October 2014 to 19,847 in July 2019. The growth in meal orders has been driven by: (1) increasing access to internet, (2) growing online penetration in rail bookings, and (3) expanding list of popular restaurants and quick service restaurant (QSR) chains on the e-catering platforms. Additionally, growing number of young travellers have also boosted growth in e-catering orders. As of July 2019, e-catering services had c.700 partner restaurants listed on its portal.

E-catering services order volume (‘000) E-catering services revenue (Rs mn) E-catering services average ticket size (Rs)

Source: DRHP, Company Presentation, PhillipCapital India

Order volumes and revenue from e-catering services more than doubled in fiscal 2019, due to strong growth in orders from the mobile app and performance of the mobile website, which was introduced during the year.

1 59

543 540

1,304

1,760

2,112

0

500

1,000

1,500

2,000

2,500

We are exepcting a growth of 35%/20% in FY20/21

0 17

157 159

402

543

651

0

100

200

300

400

500

600

700

250

288 289 294 308 308 308

-

50

100

150

200

250

300

350

Sale of a-la-carte items and Ready-to-Eat (RTE) meals increase the variety of food items provided in catering services


IRCTC LTD. IPO NOTE

IRCTC’s catering revenues to see 7-8% CAGR over next 4-5 five years IRCTC plans to expand its base kitchen network, with 15-20 greenfield base kitchens, along with Jan Aahaar outlets at railway stations. It also plans to add pantry cars to trains that do not have pantry cars. Healthy growth in rail passengers (upper class and second class reserved tickets), is likely to aid growth in mobile catering revenues. E-catering services, although still a small part of catering services, are expected to continue strong growth on the back of increasing restaurant listings and ease of on-seat food delivery. Going forward, management expects revenue from static catering services to grow at 13-14% due to moderation in addition of new food plazas/fast food units, as coverage on railway stations nears saturation. Overall, we expect catering business to see a CAGR of 7-8% over the next 2-3 years.

IRCTC’s catering revenues & EBIT (%, rhs)


Packaged Drinking Water (Railneer) – 9.4% of revenues IRCTC is the only entity authorized by the Ministry of Railways to manufacture and distribute packaged drinking water at all railway stations and on trains. IRCTC manufactures and distribute packaged drinking water under the brand “Rail Neer”, and currently operates 10 plants. The total installed capacity is 1.09mn litres per day, which caters to c.45% of packaged drinking water needs at railway premises and in trains.

Railneer plant’s installed capacity Production and utilisation


4,693

2,071 2,346

4,712

6,791

14%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

FY17 FY18 FY19 FY20E FY21E

231 246

259 259

285

-

50

100

150

200

250

300


Installed Capacity

23

6

83%

80%

80%

81%

81%

82%

82%

83%

83%

84%

0

50

100

150

200

250


Production (bottles in mn) Capacity Utilisation (%)

IRCTC’s catering growth drivers:

Increase in passenger traffic – addition of new long distance trains.

Rising affordability – increasing offering

Increasing coverage – adding more kitchens

Initiatives such as providing access to CCTV footage from base kitchens on IRCTC’s website and providing QR codes on food packaging to access food details and base kitchen CCTV footage will help address concerns about quality of food being served


IRCTC LTD. IPO NOTE

IRCTC is increasing its capacity in Railneer; plans to add 10 more plants in 1-2 years, after which it expects its share to increase to c.80%.

IRCTC’s current and expected market share of packaged drinking water at railway premises and trains

We expect packaged drinking water revenue to see a CAGR of 7-8% over next two years, mainly driven by volumes. With an increase in capacity, we expect 5% growth in volumes and 1-2% in realisations over the next two years.

Packaged drinking water – Revenue and EBIT margin (%) RHS


2,0

58

16%

0%

5%

10%

15%

20%

25%

-

500

1,000

1,500

2,000

2,500


Revenue (Rs mn) EBIT (%, rhs)

Rail Neer plant locations: (India Map) Nangloi, Danapur, Palur, Ambernath, Amethi, Parassala, Bilaspur, Hapur, Ahmedabad and Bhopal New plants: Sankrail, Jagi Road, Nagpur, Bhusawal, Jabalpur, and Una and further plants at Vijaywada Ranchi, Vishakhapatnam, and Bhubneshwar

Location of Rail Neer Plants

Market share to increase from current c.45% to c.80% as the number of operational

plants increases from 10 currently to 20 after the planned expansion


IRCTC LTD. IPO NOTE

Internet ticketing (12.4% of revenues) – A Game Changer

IRCTC is the only entity authorized by the Indian Railways to offer railway tickets online. It launched its rail e-booking services in 2002, which helped the rail booking segment gain significant ground in e-booking penetration. As of June 2019, c. 71% of Indian Railways' tickets were booked online (800,000 tickets booked through www.irctc.co.in and Rail Connect on a daily basis) with 7.2mn logins per day. As of August 2019, IRCTC has c.53.7mn active registered users. Under the Next Generation E-Ticketing System, it has achieved bookings of 24,350 tickets per minute.

Railway tickets booked online Internet ticketing revenue (Rs mn)


E-Booking industry (Rs bn) Number of book chart and penetration


The growth in online rail bookings slowed down slightly between FY14 and FY17 due to moderation in online bookings and levying of a service charge of Rs 20-40 per ticket for Non-AC/AC classes. Additionally, a shift towards air travel due to improving connectivity and low-cost carriers/affordable airfares resulted in lower growth. In November 2016, Ministry of Railways announced the withdrawal of service charges, which boosted rail e-booking. Consequently, online bookings jumped to c.284mn in FY19 vs. 199 in FY16.

Proposed service charges on internet ticket booking

22 Nov 2016

“Removal of Service Charge at the rates of Rs. 20 for Non-AC and Rs. 40 for AC ticket booked online”

01 Sep 2019

“Proposed implementation of Service Charge at the rates of Rs. 15 for Non-AC and Rs. 30 for AC ticket booked online”


209

247

284 298.2

313.11

0

50

100

150

200

250

300

350


4,693

2,071 2,346

4,513

6,309

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


500 - 525

1300 - 1320

0

200

400

600

800

1000

1200

1400

1600

FY14 FY19E

E-booking industry (Rs bn)

32

0

43

0

74%

84%

0%

20%

40%

60%

80%

100%

0

100

200

300

400

500

FY14 FY15 FY16 FY17 FY18 FY19 FY20P FY23P

Rail tickets booked online (mn) E-booking penetration (%, rhs)

levying a conveyance fee (of Rs15/30 on AC & Non-AC), to boost revenue.


IRCTC LTD. IPO NOTE

Train Tickets comparison

2015 when the conveyance charges Were 20-45

2016-2018 when the conveyance charges were waived off

1ST

Sept 19 when the conveyance charges are at Rs 15-30

Source: Passenger ticket

During FY18/FY19 when IRCTC was not charging service charges, the Indian Railways compensated it to the tune of Rs 800/880mn. We expect implementation of service charges on internet ticketing business to boost revenues ahead. E-booking penetration in railway to increase to 81-83% by FY24 Online bookings have achieved high penetration in major cities, but there remains a huge potential for increasing penetration in smaller cities. Healthy growth in rail bookings is expected due to growing internet penetration (even in smaller towns), rise in domestic tourism, a widening rail network, increase in number of young travellers, and growing awareness about domestic tourist destinations. Some other reasons include improving technological infrastructure in IRCTC platforms as well as growing traction of other OTA (Online Travel Agency) platforms for online rail bookings boosting E-booking.

Key demand drivers:

Affordability of air and rail travel

Growing convenience of online travel bookings

Government policy initiatives for promoting domestic tourism

Improved connectivity

Higher exposure to unexplored domestic and foreign tourist destinations due to social media

Increase in disposable incomes

Increase in business travel

Growing concept of weekend getaways and shorter stays


IRCTC LTD. IPO NOTE

Internet ticketing revenue and EBIT margin yoy (%) Realisation/per ticket – Revenue & EBIT


Over next two years we expect volume growth of c.5%, with implementation of service charges on internet ticketing of Rs 15-30 (for AC & Non-AC). This will give boost to revenue, as E-Ticketing monthly volume 25mn, we expect revenue of Rs. 2.6bn/4.7bn in FY20/21 with EBIT per ticket of Rs 10.1/13.6.

Tourism – 13.4% of revenues: One stop solution for all IRCTC has been mandated by Indian Railways to provide tourism and travel-related services. IRCTC has a presence across all major tourism segments such as hotel bookings, rail, land, cruise and air-tour packages, and air ticket bookings, and is known as one of India's leading travel and tourism companies catering to the needs of diverse tourist segments.

Services offered


IRCTC operates various luxury trains such as Maharaja Express and Golden Chariot to attract foreign tourists in India. It also operates tourist packages such as Bharat Darshan Tourist Train and Buddhist Circuit Special Train.

6,3

09

67%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


Revenue (Rs mn) EBIT (%, rhs)

22.45

8.39 8.26

15.13

20.15

9.2

4.2 5.5

10.1

13.6

0

5

10

15

20

25

FY17 FY18 FY19 FY20 FY21

Revenue/ticket (Rs) EBIT/ticket (Rs)

Removal of conveyance fees

Rail Tour Packages Holiday Packages Customised Tour Packages

Leave Travel Concession (LTC) Domestic Air Packages

Educational Tours Inbound Tourist Targeted Trains

Outbound Tour Packages Mass Tourism

State Special Trains Air Ticketing


IRCTC LTD. IPO NOTE

Major tourist trains revenue breakup


Tourism: Revenue and EBIT State Teertha – Revnue and EBIT margin


-

1,000

2,000

3,000

4,000


Maharajas'Express Buddhist Circuit State Special Train Bharat Darshan Others

3,0

63

9%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

-

500

1,000

1,500

2,000

2,500

3,000

3,500


Revenue (Rs mn)

23.2%

23.4%

23.6%

23.8%

24.0%

24.2%

24.4%

0

500

1,000

1,500

2,000

2,500

3,000


Revenue (Rs mn) EBIT margin (%, rhs)


IRCTC LTD. IPO NOTE

Key financial Charts

Segmental Revenue Breakup


EBITDA vs. EBITDA Margin (%, rhs) PAT vs. PAT Margin (%, rhs)

Debt free company with cash in books of Rs 14.7bn. A strong - ROE (%) & ROCE (%, rhs)

-

5,000

10,000

15,000

20,000

25,000

30,000


State Teertha Tourism

Rail Neer (Packaged Drinking Water) Internet Ticketing:

Catering

7,0

26

27.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


EBITDA EBITDA Margins (%, rhs)

5,6

20

22.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0

1,000

2,000

3,000

4,000

5,000

6,000


PAT PAT Margins (%, rhs)

11

,15

6

53 52

71

61

70

0

10

20

30

40

50

60

70

80

-

2,000

4,000

6,000

8,000

10,000

12,000


Cash (Rs) Cash Per Share (rhs)

41

.8

58.7

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0


ROE (%) ROCE (%, rhs)

Major growth will come form Internet Ticketing revenue.


IRCTC LTD. IPO NOTE

Industry Snapshots – Annexure 1 The packaged drinking water industry in India

Packaged drinking water market at retail price (Rs bn) Packaged drinking water (PDW) market (INR bn) for railways


Key regulations and challenges for packaged drinking water

Companies do not have control over managing water resources.

Ministry of Water Resources strictly limits the withdrawal of ground water by Industries that use water as raw material.

Category Ground water withdrawal limit

Safe Withdrawal limited to 200% of ground water recharge

Semi-critical Withdrawal limited to 100% of ground water recharge

Critical Withdrawal limited to 50% of ground water recharge

Imitation from unorganised players

Rising popularity of water vending machines, which dispense inexpensive potable water that consumers can fill in their own containers.

Investments in Railways

Split of investments among railway segments


30 - 35

80 - 85

180 - 185

-

50

100

150

200

250

FY14 FY19E FY24P

6.5 - 7.5

7.5 - 8.5

9 - 10

0

2

4

6

8

10

12

FY14 FY19E FY24P


IRCTC LTD. IPO NOTE

Overall investments in railways (Rs bn)


Overview of overall food services/catering industry The key features of the New Catering Policy 2017

IRCTC has been mandated to carry out the unbundling of catering services by creating a distinction primarily between food preparation and food distribution. It has also been mandated to set up new kitchens and upgrade existing ones in order to upgrade the quality of food preparation.

IRCTC shall be responsible for catering services through mobile catering units, base kitchens, cell kitchens, refreshment rooms at A1 and A category of stations, food plazas, food courts, trains side vending, and Jan Aahaars.

IRCTC shall manage catering service on all mobile units with pantry-car services. It will take over the management of catering services on trains for which contracts have not been awarded by Zonal Railways due to various reason, or trains that are being run departmentally by Zonal Railways.

IRCTC will determine the menu of standard meals, also those on Rajdhani, Shatabdi, and Duronto trains in consultation with Zonal Railways, taking into consideration the local taste and cuisine. The standard meals served in trains shall be within the fixed tariff approved by Railway Board.

Sale of a-la-carte items and Ready-to-Eat (RTE) meals shall be permitted through e-catering as well as on-board catering services by IRCTC.

Travel and tourism industry Direct contribution of India’s travel and tourism to GDP Trend in Indian Nationals’ Departures (INDs) from India

3.51%

3.54%

3.57%

3.60%

3.63%

3.66%

0

2

4

6

8

10

12

14

FY14 FY15 FY16 FY17 FY18 FY19E FY20P FY24P

Direct Contribution to GDP (Rs trillion) GDP (%, rhs)

0%

4%

8%

12%

16%

20%

0

10

20

30

40

50

Indian Nationals’ Departures (INDs) from India (mn)

yoy growth (%, rhs)


IRCTC LTD. IPO NOTE

Domestic tourists’ arrivals (mn) Foreign tourists’ arrivals (mn)


Ticketing (booking) industry Current market size of booking industry in India (Rs bn) Current segment-wise share in Indian bookings

India’s rising internet penetration Current Indian ticket booking industry – by share

0%

2%

4%

6%

8%

10%

12%

14%

0

500

1,000

1,500

2,000

2,500

3,000

CY12 CY13 CY14 CY15 CY16 CY17 CY18E CY23P

domestic Tourists Visits (mn) yoy growth (%, rhs)

0%

4%

8%

12%

16%

20%

0

2

4

6

8

10

12

14

16

18

CY12 CY13 CY14 CY15 CY16 CY17 CY18E CY23P

Foreign Tourist Visits (mn) yoy growth (%, rhs)

0

500

1000

1500

2000

2500

FY14 FY19E

Indian booking industry (Rs bn)

47-49% 48.50%

29-31% 30.32%

21.23% 19-21%

0%

20%

40%

60%

80%

100%

FY14 FY19E

Airline booking Hotel Booking Rail booking

1370-1390 2335-2355

24.1 27

32.9

38

48

62

0

10

20

30

40

50

60

70

FY15 FY16 FY17 FY18E FY19E FY22P

35-40% 53-58%

60-65% 42-47%

0%

20%

40%

60%

80%

100%

FY14 FY19E

Offline (%) Online (%)

1370-1390 2335-2355 Share of e-tickets in total Indian ticket-bookings is

estimated at 53-57% as of FY19


IRCTC LTD. IPO NOTE

Market size of industry e-tickets Major booking segments


Annexure -2 Strong team - Experienced board with prominent independent directors

Name Qualification Designation Joining Date Current/Last employment

Mahendra Pratap Mall BSc, MA Chairman and Managing Director 21-Jan-13 Ministry of Railways

Ajai Srivastava

Chief Financial Officer 17-Feb-16 North Eastern Railways

Suman Kalra CS, LLB

Company Secretary / Compliance

Officer 23-Nov-13 Rail Vikas Nigam Limited

Rajni Hasija BSc, MSc

Whole-time Director (Tourism &

Marketing) 18-May-18 Indian Railway Traffic

Narendra BA, Masters (History) Director (Finance) 19-Aug-19 Indian Railway Accounts Service

Neeraj Sharma MSc, PHD (Philosophy) Part-time Government Director 12-Jul-18 Indian Railway Traffic Service Officer

Smita Rawat BA, MA Part–time Government Director 08-Dec-16 Indian Railways

Kanak Aggarwal BSc Part–time (Non–official) Director 31-Jan-17

Khadi Humara Mantar Foundation, Quay

Intech Pvt. Ltd and Crystal Crop Protection

Ltd.

Sarita Deshpande BA, LLB Part-time (Non-official) Director 29-Mar-18 Bhopal District Court

Rabi Narayan Bohidar BSc Part–time (Non–official) Director 31-Jan-17 Development Commissioner, Govt of Odisha

Dheeraj Sharma Doctors, Business Administration Part–time (Non–official) Director 31-Jan-17 Professor, IIM

Comal Ramachandran

Sundaramurti BSc, MA Part–time (Non–official) Director 13-Oct-17

Controller General of Accounts, Ministry of

Finance

Sachin Chaturvedi Part–time (Non–official) Director 10-Oct-17 director of Reserve Bank of India


500 - 525

1300 - 1320

0

200

400

600

800

1000

1200

1400

1600

FY14 FY19E

57-59%

60-62%

29-31%

23-25%

11-13%

13-15%

0% 20% 40% 60% 80% 100%

FY14

FY19E

Airline booking Hotel Booking Rail booking

1300-1320

505-525

Indian e-ticket bookings to see 16-18% CAGR from FY19-24


IRCTC LTD. IPO NOTE

Financials

Income Statement Y/E Mar, Rs mn FY18 FY19 FY20e FY21e

Net sales 14,661 18,679 22,426 25,501 Growth, % -3.5% 27.4% 20.1% 13.7% Total income 14,661 18,679 22,426 25,501 Raw Material expenses 2,524 1,241 1,346 1,530 Expenses of catering services 2,463 6,391 7,176 7,905 Expenses of tourism 3,052 3,090 3,364 3,570 Manufacturing & Direct expenses 671 613 736 836 Employee expenses 1,922 1,951 3,364 3,825 Operating expenses 1,298 1,672 926 808 EBITDA (Core) 2,731 3,722 5,515 7,026 Growth, % -12.6% 36.3% 48.2% 27.4% Margin, % 19% 20% 25% 28% Depreciation 237 286 333 415 EBIT 2,494 3,435 5,182 6,611 Growth, % -14.0% 37.7% 50.8% 27.6% Margin, % 24% 23% 27% 30% Interest paid 29 23 28 32 Other Non-Operating Income 991 888 916 932 Non-recurring Items 0 0 0 0 Pre-tax profit 3,456 4,300 6,070 7,511 Tax provided 1,250 1,574 1,528 1,890 Profit after tax 2,206 2,726 4,542 5,620 ( - ) Exceptional Expenses 0 0 0 0 Net Profit 2,206 2,726 4,542 5,620 Growth, % -3.7% 23.6% 66.6% 23.7% Margin, % 15.0% 14.6% 20.3% 22.0% Net Profit (adjusted) 2,206 2,726 4,542 5,620

Balance Sheet Y/E Mar, Rs mn FY18 FY19 FY20e FY21e

Cash & bank 8,339 11,400 9,810 11,156 Debtors 5,509 5,817 7,475 8,500 Inventory 74 79 235 257 Loans & advances 231 336 336 336 Other current assets 6,517 5,110 5,110 5,110 Total current assets 20,670 22,743 22,967 25,360 Investments 276 277 277 277 Gross fixed assets 3,366 3,564 4,564 5,564 Less: Depreciation 1,744 2,018 2,351 2,766 Add: Capital WIP 77 404 404 404 Net fixed assets 1,699 1,950 2,617 3,201 Misc Exp not w/o 0 -3 -3 -3 Total assets 22,645 24,966 25,856 28,834 Current liabilities 13,028 14,556 14,093 15,396 Provisions 617 599 599 599 Total current liabilities 13,646 15,155 14,692 15,995 Debt 0 0 0 0 Deferred Tax Liability -546 -617 -617 -617 Total liabilities 13,100 14,538 14,075 15,378 Paid-up capital 400 1,600 1,600 1,600 Reserves & surplus 9,145 8,828 10,182 11,857 Shareholders’ equity 9,545 10,428 11,782 13,457 Total equity & liabilities 22,645 24,966 25,857 28,834

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY18 FY19 FY20e FY21e

Pre-tax profit 3,456 4,300 6,070 7,511 Depreciation 237 286 333 415 Chg in working capital -1,769 2,599 -2,277 257 Total tax paid -1,259 -1,628 -1,528 -1,890 Other operating activities -428 -631 -887 -900 Cash flow from operating activities 236 4,927 1,710 5,392 Capital expenditure -345 -543 -1,000 -1,000 Chg in investments 2 3 0 0 Other investing activities 745 -2,924 916 932 Cash flow from investing activities 402 -3,464 -84 -68 Free cash flow -109 4,384 710 4,392 Dividend (incl. tax) -568 -1,794 -3,188 -3,945 Interest Paid 0 0 -28 -32 Cash flow from financing activities -568 -1,794 -3,217 -3,978 Net chg in cash 70 -331 -1,591 1,347

Valuation Ratios

FY18 FY19 FY20e FY21e

Per Share data Dil. EPS (INR) 55.2 17.0 28.4 35.1 Growth, % (0.0) (0.7) 0.7 0.2 Book NAV/ FD share (INR) 59.7 65.2 73.6 84.1 CEPS (INR) 61.1 18.8 30.5 37.7 CFPS (INR) 5.9 30.8 10.7 33.7 Return ratios Return on assets (%) 24.5 27.8 40.7 43.8 Return on equity (%) 23.1 26.1 38.5 41.8 Return on capital employed (%) 38.7 44.1 54.6 58.7 Turnover ratios Sales/Total assets (x) 1.6 1.9 2.0 2.0 Sales/Net FA (x) 8.6 9.6 8.6 8.0 Working capital/Sales (x) 0.5 0.4 0.4 0.4 Fixed capital/Sales (x) 0.1 0.1 0.1 0.1 Receivable days 140.9 112.1 120.0 120.0 Inventory days 2.2 1.9 5.0 5.0 Payable days 393.1 350.3 300.0 300.0 Liquidity ratios Current ratio (x) 1.5 1.5 1.6 1.6 Quick ratio (x) 1.5 1.5 1.5 1.6 Interest cover (x) 85.0 129.3 173.9 189.3 Total debt/Equity (%) - - - - Net debt/Equity (%) (0.9) (1.1) (0.8) (0.8) Valuation PER (x) 23.2 18.8 11.3 9.1 Price/Book (x) 5.4 4.9 4.3 3.8 EV/Net sales (x) 0.3 2.1 1.8 1.6 EV/EBITDA (x) 1.1 8.6 6.4 5.0 EV/EBIT (x) 1.2 9.1 6.7 5.3


IRCTC LTD.

IPO NOTE

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

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No


IRCTC LTD.

IPO NOTE

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