Indian Railway Catering and Tourism Corporation (IRCTC), a subsidiary of the Indian Railways, received a strong response to its initial public offer (IPO) today. The IRCTC IPO through which the government aims to collect Rs 645 crore was subscribed 81.31% at the end of opening day. The IRCTC IPO received bids for 1,63,94,040 shares compared to 2,01,60,000 or 2.01 crore equity shares on offer by the firm, data from the NSE show.
The public issue, which will close on October 3, is a part of the government's divestment programme for the financial year 2019-20. The government which owns 100% in IRCTC plans to sell 12.6% stake in the firm. After the IPO, government's stake in the firm will fall to 87.4%.
IRCTC is engaged in internet ticketing, catering, packaged drinking water and travel and tourism. IRCTC has also diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges and budget hotels.
The issue involves sale of 2.01 crore equity shares of face value of Rs 10 each in a price band of Rs 315 to Rs 320. Post listing, market capitalisation of the government-owned firm is pegged at Rs 5,120 crore at the higher end of price band
Of the total shares on offer, 50% are available for allocation to qualified institutional buyers (QIBs), including 2 lakh equity shares for the mutual fund portion on a proportionate basis. Another 15% of the offer is allocated to non-institutional investor category and 35% will be made available to the retail category. A retail investor can only subscribe for shares up to Rs 2 lakh. Additionally, there's a discount of Rs 10 per share for retail category and eligible employees. The effective price band for retail category and eligible employees is Rs 305 to Rs 310.
IRCTC has reserved 1,60,000 shares for its employees. The lot size or minimum order quantity in the IPO is 40 and in multiples of 40 equity shares thereafter. At the effective price band of Rs 305-310 per share after taking into account discount of Rs 10 per share, retail investors have to spend Rs 12,200-12,400 to buy one lot of shares.
The book running lead managers to the offer are IDBI Capital Markets & Securities, SBI Capital Markets and YES Securities (India).
The company would not receive any proceeds from the IPO and "all proceeds shall go to shareholders", IRCTC said.
Healthy financial performance
The firm logged a healthy financial performance in the last fiscal. Total revenue growth increased 25% year-on-year to Rs 1,956.5 crore for fiscal ended March 2019 compared with Rs 1,569.5 crore earned for fiscal ended March 2018. Profit after tax also rose 23.6% year-on-year to Rs 272.5 crore as of March 2019 against Rs 220.6 crore booked during the same period last year. IRCTC's sales rose 25% year-on-year to Rs 1,899 crore, as per the draft red herring prospectus filed with Sebi in August.
Brokerages give thumbs up
Brokerages have been bullish on the IPO considering IRCTC's near monopoly in ticketing and catering services. In its offer document, IRCTC compares itself to MakeMyTrip and Yatra. But that does not seem accurate, as the company earns major chunk of the revenue from catering too, making it a very lucrative revenue source.
"IRCTC has a unique business model and the company does not have any competition across any business segment. Based on various parameters like strong earnings profile, diversified business segment, healthy return ratio, debt free status and most importantly monopoly business, we have a positive view on the issue" points out Anand Rathi in its IPO note.
IRCTC is the sole licence holder for catering and online ticketing for the Indian Railways and is exclusively authorised to manufacture and supply packaged drinking water at stations and in trains. "Recent tax reduction by government to 25.2 per cent and increase in revenue from service charge for online ticketing will improve profitability substantially going forward. There is also significant opportunity for the company to ramp up the catering business given a very large captive audience which is currently being underserved," a note from Angel Broking said.
From September 1, 2019, Ministry of railways has permitted the company to charge Rs 15 for Non- AC and Rs 30 for AC ticket booked online. If tickets are booked through BHIM or UPI charges are Rs 10 & Rs 20 for Non-AC and AC, respectively, which is big positive for the government firm, Angel Broking added.
Reliance Securities also gave a subscribe rating to the IPO and said, "The company has a healthy balance sheet with over Rs 1,100 crore cash to support capex. IRCTC has a good dividend pay-out track record, as it paid 50% average payout in the last 3 years. Assuming moderate revenue growth of 10% compounded annual growth rate (CAGR) through FY19-21E, the company is valued at 13 times FY'21 estimated earnings, which appears to be justified considering its business model, steady growth and healthy return ratios."
By Aseem Thapliyal