Introduction
In this article we are going to discuss current opportunity to investing in IRCTC share. Indian railway needs no introduction, but buying a “IRCTC” share doesn’t mean buying ownership in Ministry of Railways. Rather, the fact is, Indian Railway Catering and Tourism Corporation (IRCTC) is a PSU Company (Mini Ratna 1) and it comes under the Ministry of Railways, Government of India. Mainly, it operates internet ticketing, hospitability in trains and stations. Further, the company is also expanding into tourism and hotels.
Business Details
Before planning for investing in IRCTC, we must know about the company and its business model. I think you must be aware about the IRCTC ticketing system, which is its main source of its revenue (around 57%). Also, IRCTC is engaged in providing catering and hospitality services at stations, on trains, and other locations. Catering services of IRCTC generates around 29 % of its total revenue.
Think of your last train journey, the water bottle you purchased ( Rail Neer ) is produced by IRCTC. Rail Neer contributes to the 7% of its total revenue. Currently, 14 plants are operational and several are in different stages of their development. Further, the food provided to you in all premium trains like Rajdhani, Shatabdi, Tejas, Vande Bharat, Duronto, Gatiman, and other Mails/Express trains is also managed by IRCTC. You can easily find Food Plazas, Fast food units, Refreshment rooms, Jan Ahaar(s), Cell kitchens, and Base kitchens on many of the railway stations those are also managed by IRCTC.
Apart from those two this segment also involves E-catering businesses and other hospitality businesses. It has now entered into It has also started promoting domestic and international tourism through the development of budget hotels, unique tour packages, information & commercial publicity and global reservation systems. Involvement in tourism sector contributes to its 7 % of total revenue. Apart from all this company also offers services like Tourist trains, Domestic and International Air packages, Customized tours, etc.
Why should I invest in IRCTC ?
- IRCTC has monopoly in railway services.
- On fundamental aspects, the company is virtually debt-free (debt of 107 crores and cash of 345 crores). And it has an excellent ROCE of 52.3% and ROE of 39.8%.
- A low debt to equity ratio company, should be preferred for investments. IRCTC is standing tall with debt to equity ratio of 0.06 and the Interest coverage ratio of 81.9
- Due to ongoing correction its PE ratio has dropped lower than last three years median PE which is an indication that now stock is fairly valued. And we are not buying an expensive stock
- All other fundamental ratio are increasing like Compounded profit growth for the past 5 years is 24%. In the past 5 years, Operating Profit Margin has increased from 19% to 47% along with that the Net profit of the company jumped to 664 crores in 2022 from 221 crores in 2018.
Inherent risk involved in Investment
So, till now we have discussed so many good things about the company, it doesn’t mean it doesn’t have flaws. Its sales growth is low 4.34% which is low and a reason of concern. The company do not offer a good dividend yield which is just 0.35%. Apart from this low institutional holding also raises doubts.
Technical and Price action Analysis
Weekly chart is used to analyze the stock moves for one to two year time span. Currently, IRCTC is running in a correction of previous up move. The downtrend is confirmed because of successive lower low and lower high formation. So, a buying opportunity can be spotted when it starts forming higher high in weekly time frame. To change the trade stock may reverse from any previous support level, for e.g. Fibonacci levels or previous breakout level.
Last leg of the downtrend approached a strong support area and resulted into a bounce. But we can not be sure whether it is just a bounce or a trend reversal. To find better opportunity and fine tune our entry, we need to look at the resent price action too. So, we must check its daily chart also.
The stock is in a downtrend in daily chart too, but the good news is, in a downtrend only we find a good stock at lowest price. In daily chart IRCTC is showing sign of reversal by forming in inverted head and shoulder pattern, which is a bullish chart pattern. In daily chart the nearest resistance is at around 700 level. Any medium to long term opportunity will only be created only, If stock starts closing above 700. A medium to long term trader/investor should avoid buying it below that level. Although, for 7-8% up move possibility a short term trades can be identified.
CONCLUSION
IRCTC enjoys a monopoly in its business and the long-term prospects of the business also look good. You may avoid the stock because of its high valuation fundamentally right now, but remember a good stock will always looks expensive. This is how market works. Looking at company fundamentals, and its business, it can be a good investment for long term. But I never advocate to buy the full quantity at once. For long term i feel one should start buying here in staggered manner and try to accumulate the stock on every dip.
The analysis represents my personal view, and it is only for educational purposes. This is not any trading or investing advice strictly. Stock trading comes with inherent risk, consult your own financial advisor before investing your hard earned money
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