The Government of India has been making significant strides in modernizing Indian Railways, with a focus on improving infrastructure, enhancing safety, and upgrading technology. Initiatives include the introduction of high-speed trains, better signaling systems, and electrification of routes. One of the flagship projects is the Vande Bharat Express, a semi-high-speed train designed to offer a more comfortable and faster travel experience. This modernization effort aims to boost economic growth by improving connectivity, reducing travel time, and creating new job opportunities.
Growth Prospects and Beneficiary Stocks
The modernization of Indian Railways presents growth prospects for several sectors, including infrastructure, manufacturing, and technology. Companies involved in rail infrastructure, rolling stock manufacturing, and safety equipment stand to benefit from these developments. Stocks of firms like IRCON International, Indian Railway Catering and Tourism Corporation (IRCTC), and Bharat Heavy Electricals Limited (BHEL) could see a positive impact as the government continues to invest in the railways’ transformation.
Share Price
The shares of IRCTC Limited are currently trading at Rs. 786 up by 2.93% from its previous close of Rs. 763.8. The stock also touched an intraday high of Rs. 800.75, which is almost 5% above the previous day’s close as of January 10, 2025
Macquarie’s Positive Outlook for IRCTC
International brokerage Macquarie has initiated coverage of IRCTC with an ‘outperform’ rating and a target price of ₹900, suggesting a 15% upside potential from the last closing price on the National Stock Exchange (NSE). Despite facing a challenging period, with a decline of 11% in stock value over the last three months, Macquarie remains optimistic about the company’s growth prospects.
Rationale Given by Macquire
Monopoly and Leadership in E-Ticketing and Catering
Macquarie underscores IRCTC’s unique position as the dominant player in Indian Railways’ e-ticketing and catering services, which grants the company a distinct advantage in the ongoing modernization of India’s railway network. This monopoly strengthens IRCTC’s leadership role in railway reforms and offers a clear pathway for sustained growth as the infrastructure undergoes substantial upgrades.
Growth Drivers in Railway Modernization
The brokerage also highlights that India’s ambitious push for railway modernization, particularly the rollout of premium train services, could act as significant growth drivers for IRCTC. As India expands its modern train offerings, IRCTC stands to benefit, with the potential for the stock to see substantial appreciation in the coming years, driven by its essential role in the transformation process.
Financial Strength and Strategic Expansion
IRCTC’s financial stability further strengthens its investment appeal, with a solid 30% free cash flow margin and impressive returns exceeding 30% on both equity (ROE) and invested capital (ROIC). Beyond its railway services, the company has diversified into areas like non-railway catering, e-catering, executive lounges, and budget hotels, providing a seamless and enhanced customer experience. IRCTC continues to be a key contributor to elevating the professionalism and operational efficiency within Indian Railways.
Financial Outlook
Indian Railway Catering & Tourism Corporation Ltd. (IRCTC) has demonstrated a solid financial performance for September 2024. Sales increased from ₹992 crore in September 2023 to ₹1,064 crore, reflecting a growth of 7.3%. EBITDA rose from ₹367 crore to ₹373 crore, a modest increase of 1.6%, while the operating profit margin (OPM) decreased slightly from 37% to 35%. Net profit saw healthy growth, rising from ₹295 crore to ₹308 crore, an increase of 4.4%. Despite a slight dip in OPM, IRCTC’s strong top-line growth and improved profitability suggest a positive financial outlook for the company.
About the Company
Incorporated in 1999, Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) is a Mini Ratna (Category-I) Public Sector Enterprise under the Ministry of Railways, Government of India. It is the sole authorized entity to provide online railway ticketing, catering services, and packaged drinking water at railway stations and onboard trains in India. IRCTC plays a vital role in India’s railway ecosystem, offering hospitality, travel, and tourism services. In July 2024, the company was elevated to a Scheduled ‘A’ Public Sector Undertaking, marking a significant milestone in its journey as a key player in India’s transportation and tourism sector.
Written By: Dipangshu Kundu
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