Will IRCTC Become a Multibagger Stock Again?

With a few more days remaining, the number is likely to swell further.

As the world undergoes a phase of uncertainty amid wars, changes in the governments, regulations, tariffs and currency turmoil, many themes have lost steam.

However, there is one trend that refuses to die - the rise of tourism.

Social media is a big catalyzer. Mobile phones and high-speed internet have made planning trips and navigating destinations easy.

And then there is a mindset change. People are valuing experiences and creating memories as much, if not more than hoarding and earning wealth and buying stuff with it.

So how could you capitalize on it?

Sure, there are hotel stocks and travel aggregators to look at. And then even the airline sector has undergone a consolidation.

And yet, each has some or the other known risks to bother about.

Hotels are capital intensive. There is always a supply risk and competition from the growing Airbnb trend.

Airline stocks are in a much better space with consolidation that has unfolded in the sector. Yet, huge capital investment remains an inherent disadvantage.

Travel aggregators are prone to disruption and competition.

Amid all these beneficiaries, there is one company enjoying almost a monopoly on this trend.

I'm speaking of IRCTC.

IRCTC is the only entity authorized by Indian Railways to provide online railway tickets, catering services to railways and packaged drinking water at railway stations and trains in India.

Whether you book the ticket yourself, or agent does it for you, IRTCTC makes money.

The company has partnerships with Swiggy and Zomato, wherein it earns a commission for meal delivered to train passengers.

It earns money not just from standard convenience fees but has a few other avenues as well like marketing and ad income.

Be it a pilgrimage or a corporate tour, it offers a host of value-added through its tourism packages with itineraries and accommodations. The launch of luxury trains and State teerth is a positive for this.

And then there is ongoing investment in rail infrastructure, along with enhancement in the number of trains, that offer a multiyear tailwind for the company.

That's an enviable position to have.

While there are other monopolies, what makes IRCTC unique is the negative cash conversion cycle, and very low investments required as compared to the revenue and profits it generates.

Ever since it was listed, its operating profits have almost quadrupled. Barring Covid, a black swan event, its profits have grown every year. The business is almost debt free. The return ratios are north of 40%. The stock pays dividend too.

The company has applied for the in principal approval of RBI in December for the payment aggregator license. As per the management, a potential approval could open up huge opportunity for the company.

Yet, it is not entirely risk free.

In the online ticketing segment, its market share has come to a saturation point. More volumes of passengers and trains would be critical to growth for this segment. I could mention hike in convenience fees as well, but that's regulation driven so best to not count on it.

In fact, if there is a regulation change that restricts convenience fee, or if the ticket booking is opened to private sector, it's a risk. Personally, my experience of booking tickets on the portal has been quite exasperating. So, I believe the latter could be a big blow.

Personal experiences apart, if I have to pick a monopolistic business for a long-term watchlist amid the market correction (the stock is down 40% from 52 week high), IRCTC will feature at the top.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)