IRCTC or the Indian Railway Catering and Tourism Corporation is official entity authorised by Indian Railways to provide catering services, railway tickets online and packaged drinking water at railway stations and trains in India.

In 2017, to boost online ticket sales the Railway Ministry erratically decided to waive off the service fee for booking tickets. This had a major impact on the company's revenues. To compensate for the damage, the government eventually decided to reimburse about 160 Crores.

If an investor had put money in IRCTC back then, it would have been a disillusioning experience. In the same year, the government instituted a new catering policy. This allowed IRCTC to expand beyond railway catering and take control of food plaza, food courts and other fast food units operated by other departments in the Indian Railways.

As a result IRCTC's revenue from catering services doubled from ~400 Crores to over a 1000 crores in 2 years.

As one can see from the earlier experience, the government often makes erratic decisions, and many times those decisions may not be in the best interest of shareholders. The government always has to act in the larger interest of the nation. Hence as a shareholder, one has to be careful.

Valuation: IRCTCs asking price is between 315–320. That implies a P/E of 18x. The company has listed at about 644, which makes it about 35x. Such a substantial valuation for a PSU stock is clearly high.

Hence one should be cautious before investing.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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