The Indian Railway Catering and Tourism Corporation (IRCTC) stock is the talk of the town. The Railways Ministry earlier said it will take 50% of the convenience fee, which led to IRCTC meltdown, but soon after, the Ministry revoked its decision. Investors jumped in again to grab shares. Let’s decode what's creating the buzz.
Revenue Model
IRCTC’s only job is to provide ticket booking, catering and tourism services to the passengers. It’s completely owned by the government. IRCTC receives an average of over eight lakh tickets per day, and the e-ticketing service accounts for 72.75% of reserved tickets booked online. E-ticketing and catering services are the two major revenue generators because 63% of revenue comes from internet ticketing, 22% from catering, 8% from RailNeer and 7% from tourism. That’s how it earns!
Moat & Threats
Moat, i.e. competitive advantage of IRCTC is simple - monopoly. It has no competitors in this business and will possibly never see one. This raises the bar of its sheer size because if that’s the case, then the company is beneficial in the long-run, right? Not really!
The threat of privatisation will always loom over IRCTC. If the government decides to privatise it, it will bring down the company to its knees.
Investors’ Obsession
The street knows that the company is financially strong. It has had a good sales growth of 16.53% CAGR over the past five years. The operating margins are constantly rising. The company is debt-free, with cash reserves of Rs 1,296 crore. This information is enough for the investors to pay any amount to get its shares. Despite valuations being at a peak, investors have continued to pick it at any rate available in the market.
How Long Will This Continue?
Like every game has its rules, the stock market has its own. When a stock trades at its highest valuation, it is bound to correct. The same applies to Sensex and the Nifty50 index. That’s what is happening with the stock right now. It’s in a correction phase. After rising over 300% this year itself, the stock is bound to return to its fair value. The ongoing correction is expected in the near future.
