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Indian Railway Catering and Tourism Corporation
Monopolistic player in the service of rail passengers
CM RATING47/100
Indian Railway Catering and Tourism Corporation (IRCTC), a Mini Ratna public sector enterprise under the administrative control of Ministry of Railways, is the sole entity authorized by Indian Railways (IR) to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India. Additionally IRCTC along with Balmer Lawrie & Company and Ashok Travels & Tours, are the three entities permitted by the Government of India to offer air ticketing service to different ministries at both the Central and State Government level.

As part of IR's plan of privatization of trains, IRCTC was recently in Jul 2019 mandated to run two trains under the haulage concept (with ticketing and on board services) with full freedom to determine the train's fares. The company is currently in the process of finalizing the modalities of this concept following which it will implement them initially on a pilot project basis. Subsequently the Ministry of Railways and tge Railway Board have mandated the company to operate two Tejas rakes on a pilot project basis.

IRCTC was incorporated on September 27, 1999, with the objective to upgrade, modernize and professionalize catering and hospitality services, managing hospitality services at railway stations, on trains and other locations and to promote international and domestic tourism in India through public-private participation. It commenced internet ticketing service in 2002. The company was conferred the status of Mini Ratna (Category-I Public Sector Enterprise) by the Government of India on May 1, 2008.

Currently, IRCTC operates in four business segments, namely, internet ticketing, catering, packaged drinking water and travel & tourism. In FY2019, catering accounted for about 55%, with ticketing account for about 12.4%, packaged drinking water about 9.3% and travel & tourism balance 23.3% of the total revenue.

On a daily basis, more than 0.84 million tickets are booked through www.irctc.co.in website and 'Rail Connect' app. This makes the website of IRCTC as one of the most transacted websites in the Asia-Pacific region with transaction volume averaging 25 to 28 million transactions per month during the five months ended August 31, 2019. As of Aug 31, 2019, IRCTC has 53.7 million active registered users. Logins per day averages about 7.2 million and transactions done are worth about Rs 360 billion per year.

The company provides food catering services to Indian Railway passengers on trains and at stations. Based on point of consumption and sale, the On-board catering services are referred to as mobile catering and catering services at stations are referred to as static catering. It also offers e-catering services to passengers through its mobile application Food on Track and its e-catering website, www.ecatering.irctc.co.in.

The company, pursuant to the catering policy issued by the Ministry of Railways dated February 27, 2017 (Catering Policy 2017), provides catering services for approximately 350 pre-paid and post-paid trains and 530 static units. It provides catering services through mobile catering units, base kitchens (14 nos), cell kitchens (27 nos), refreshment rooms (169 nos), food plazas(138 nos), food courts(152 nos), train side vending, and Jan Ahaars (57 nos)over the Indian Railways network. However the Zonal Railways manages all other catering units, such as refreshments rooms at stations categorized at B or below, automatic vending machines (AVMs), milk stalls, and trolleys. IRCTC plans to expand its base kitchen network, with 15-20 green-field base kitchens to be set up along with conversion of some Jan Ahar outlets on railway stations into base kitchens. IRCTC also plans to add pantry cars to some trains not having pantry cars. Further the company proposes to commission 100 food plaza and fast food Units.

The company also operates executive lounges, budget hotels, and retiring rooms for the convenience of the travelling passengers on IR and are in line with its objective to build a 'one stop solution' for customers.

The company manufactures and distributes packaged drinking water, under the brand Rail Neer. Currently, it operates 10 Rail Neer plants located at Nangloi, Danapur, Palur, Ambernath, Amethi, Parassala, Bilaspur, Hapur, Ahmedabad and Bhopal, with an installed production capacity of approximately 1.09 million litres per day, which caters to approximately 45% of the current demand of packaged drinking water at railway premises and in trains. To increase its presence in the packaged drinking water market at railway stations, and to meet the growing demand, the company is commissioning new Rail Neer plants at Sankrail, Jagi Road, Nagpur, Bhusawal, Jabalpur, and Una. Further four new Rail Neer plants have been approved by the Company's Board of Directors and will be commissioned by 2021. The company has also installed 1,950 water vending machines (WVMs) at 700 railway stations as of August 31, 2019 to provide purified, chilled and potable drinking water to railway passengers at an affordable rate. Post planned expansion to 20 Rail Neer plants from current 10; the company will be in a position to meet about 80% of the packaged drinking water demand at railway premises and in trains compared to current about 45% of the total demand.

In travel & tourism, apart from specializing in rail tourism (rail tour packages), the company has footprints in across all major tourism segments such as hotel bookings, land, cruise and air tour packages and air ticket bookings.

Offer and objects

The object of the issue is to carry out disinvestment of 2.016 million equity shares by selling shareholders, i.e., GoI and to achieve the benefits of stock exchange listing. Hence, the company will not receive any proceeds from the Offer and all proceeds shall go to the selling shareholder.

Strengths

IRCTC, being the CPSU under the administrative control of the Ministry of Railway, is the only entity authorized by IR to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India. Being sole provider of online rail ticketing, rail catering and packaged drinking water business it faces little to no competition in these businesses.

Since incorporation, the company has been a profitable and debt-free company. As end of March 31, 2019, its cash and bank balance stood at Rs 1140.04 crore.

Strong brand name, large registered active customer base to leverage on for cross selling as well as maximizing advertisement income. Strong online product design capability coupled with offering of other value added services responding to the ever changing needs and preference of the customers offers better experience for customers.

The company currently caters to just about 45% of the total demand for packaged drinking water in all railway stations and in trains in the country of approximate 1.8 million liters per day largely due to capacity constraint. Its existing packaged drinking water production capacity is 0.83 million liters per day and it is in the process of taking the number of plants to 20 from existing 10 which will enable it to significantly enhance its market share in total demand offering incremental growth opportunity for the company going forward.

Service charge on internet ticket booking levied on customer was a major source of income for the company. Levy of service charge was discontinued on November 22, 2016, but that is now reintroduced from September 1, 2019, at the rate of RS 15 for non AC and Rs 30 for AC ticket booked online. IR though reimbursed Rs 80 crore and Rs 88 crore for FY 2018 and FY 2019, respectively, towards operating cost incurred by IRCTC to provide e-ticketing, the levy of service charge from passenger will bring in higher revenue than reimbursed amount. It registered revenue of Rs 362.25 crore in the first eight months of FY 2017 before the levy of service charge was discontinued in November 22, 2016. So reintroduction of service charge though lower by Rs 5 and Rs 10 in case of non-AC and AC tickets, respectively, compared to pre November 2016 rates will boost the internet ticketing revenue as well as bottom line (after accounting for IR share of service charge) of the company going forward.

The company in accordance with the CPSE Capital Restructuring Guidelines issued on May 27, 2016, is required to pay a minimum annual dividend of 30% of its PAT or 5% of its net worth, whichever is higher, subject to the maximum dividend permitted under the extant legal provisions and the conditions mentioned in the aforesaid CPSE Capital Restructuring Guidelines, unless an exemption is provided in accordance with the guidelines. Dividend payout ratio in the last three fiscal was in excess of 35%.

Weaknesses

Substantially business and revenue of the company are dependent on IR and thus any adverse change in policy of the Ministry of Railways including allowing competition may adversely affect its business and financial performance.

IRCTC has to act in accordance with the directives of Government of India, through the Ministry of Railways.

The Government of India may, reasons of public interest, terminate/change any of its policy directives without due consideration to the interests of IRCTC.

The company has little or no power over the price of products and services offered by it. IR regulates the pricing of services and products offered by the company. In principle, the pricing of all catering items offered to passengers over the IR network, as well as the menu and tariff are all issued and regulated by the Railway Board according to guidelines promulgated from time to time. Thus, any escalation in raw material prices could not be passed to customers specifically on departmental catering and packaged drinking water segments.

IRCTC though has operated Maharaja Express Train and tourism special trains under the haulage concept; it has no prior experience of operating a full fledged scheduled passenger train as Private train operator. IRCTC mandated to operate two trains under the haulage concept, with ticketing and on board services. Further any change in haulage charges by the Ministry of Railways on the trains the company operate could adversely affect the business, financial condition and result of operations.

All of its servers, information technology and storage systems are centrally located at one single location. And it does not currently employ separate offsite storage or back-up systems other than at this location.

The company's business is susceptible to seasonal changes resulting from holidays, weather changes and special events.

Total railway passenger traffic has remained nearly flat over the past four years, going from 8,397 million passengers in FY 2014 to 8,286 million passengers in fiscal 2018. Going forward, the share of suburban passenger traffic in total railway passenger traffic is expected to slightly increase from ~57% in FY 2019 toabout58% in FY 2024, as passenger traffic on the suburban network is likely to grow at a 0.5-1.5% CAGR during the period, while non-suburban passenger traffic (which is IRCTC's main market) is likely to remain flat. Within non-suburban passenger traffic, share of upper class reserved ticket bookings in total railway passenger traffic is expected to grow slightly from about 2% in FY 2019 to ~3% in fiscal 2024, with the segment growing at only 5.5-6.5% CAGR during the period. The share of second class mail/express ticket bookings (reserved) is expected to inch up from ~17% in FY 2019 to about 18% in FY 2024, with the segment growing at a only 1.5-2.5% CAGR.

The company in December 2008 formed Royale Indian Rail Tours (RIRTL), a 50:50 JV with Cox & Kings, to operate, acquire, furnish, maintain and manage a premium tourist train with a view to market and sell the holiday packages. In terms of the JV agreement the company shall acquire the coaches and rakes from Indian Railways and further lease the premium train to RIRTL for a period of 15 years, i.e., till the term of the agreement. Cox & Kings provides unsecured loan amounting to 50% of the total cost of the train to RIRTL and RIRTL shall pay advance lease charges of 50% to IRCTC from this unsecured loan. Therefore, the amount paid by RIRTL to the company annually will be less than the lease charges and the difference amount shall be utilized by the RIRTL for repayment of the unsecured loan to Cox & Kings. Cox & Kings has subsequently initiated two arbitration proceedings vide two separate statements of claims dated November 09, 2011 and July 26, 2012, against the company with respect to RIRTL; one pertaining to the JV agreement dated December 10, 2008 and the other pertaining to the articles of association of RIRTL. Simultaneously, the company has also initiated proceeding before NCLT under sections 388B, 397, 398, 399 and 403 of the Companies Act, 1956. Accordingly, no financial information for RIRTL has been prepared and thus the financials of RIRTL not consolidated with the company since FY2011.

Valuation

The company for the fiscal ended March 2019 registered revenue of Rs 1867.88 crore, translating into a growth of 27% and a net profit of Rs 272.60 crore, a growth of 24%. The increase in revenues was mainly due to increased catering services revenues. Catering service revenues increased primarily as it operated the catering business throughout all of FY 2019, whereas in Fiscal 2018 it initiated to take over catering operations from IR in a phased manner from September, 2017.

Adjusted EPS (after excluding provision for doubtful debts and relevant tax) for FY 2019 on current equity of Rs 160 crore (equity post issue remains same as the issue is only an offer for sale by existing share holders) works out to Rs 18.9. The asking price of Rs 315-320 discounts this EPS 16.7-16.9 times. The company's effective tax rate (including deferred tax) was 36.6% in FY 2019, which will come down in FY 2020 due to recent cut in corporate tax rate. The company has no listed peer for comparison.

Indian Railway Catering & Tourism Corporation: Issue Highlights

Offer Size (no of Shares)
- Offer for sale 20160000
Price band (Rs.)*315-320
Offer size (Rs crore) 635-645
Post-issue promoter (including promoter group) stake (%) 87.4 
Issue Open Date30/09/2019
Issue Close Date 03/10/2019
Minimum Bid Lot40 equity shares
ListingBSE, NSE
Rating47/100
*Retail & Employee will get discount of Rs 10/ per equity share on offer price

India Railway Catering and Tourism Corporation: Financials

1903 (12)1803 (12)1703 (12)
Sales1867.881466.091519.65
OPM (%)22.418.620.6
OP418.30273.10312.55
Other income88.7899.1067.47
PBIDT507.07372.20380.02
Interest2.352.912.54
PBDT504.73369.30377.48
Depreciation28.6423.6622.41
PBT476.09345.63355.07
EO Exp46.120.000.00
PBT after EO429.96345.63355.07
Tax188.24116.04117.87
Deferred tax-30.878.988.12
PAT272.60220.62229.08
Short provision for earlier years0.000.000.00
Net profit272.60220.62229.08
EPS (Rs)*18.913.814.3
* on post issue equity of Rs 160 crore. Face Value: Rs 10
EPS is calculated after excluding EO and relevant tax
Source : Company's RHP

India Railway Catering and Tourism Corporation: Segment Financials

1903 (12)1803 (12)Var.(%)% to total1803 (12)1703 (12)Var.(%)% to total% to total
Revenue
Internet Ticketing234.59207.131312207.13469.31-561430
Catering1044.51740.274155740.27398.63864926
Packaged Drinking Water (Rail Neer)176.29169.2049169.20159.0561110
Tourism253.14189.903313189.90264.03-281217
State Teertha190.88213.48-1110213.48264.83-191417
Total1899.411519.99251001519.991555.84-2100100
Segment Profit
Internet Ticketing156.675103.5145142103.514192.255-463462
Catering119.035122.996-332122.99626.241369418
Packaged Drinking Water (Rail Neer)29.30637.224-21837.22430.879211210
Tourism22.736-11.767LP6-11.767-4.203-180-4-1
State Teertha45.35750.424-101250.42464.375-221721
Total373.109302.39123100302.391309.547-2100100
Figures in Rs crore
Source : Company's RHP

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 Rating Reckoner
Rating range Risk-return profile Recommendation
51 or above Low risk, moderate to High return Must subscribe
45-50 Low risk low return or Moderate risk, moderate/high return May subscribe
40-44 High risk high return Avoid, however active risk seekers can try
Below 40 High risk, low/moderate return, Moderate risk low return Do not subscribe