IRCTC stock: Why a monopoly business cannot be a ‘Buy’ at any price

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Subscribe to enjoy similar stories. Indian Railway Catering and Tourism Corp. Ltd’s (IRCTC) shares hit a new low for 2024 at ₹777.20 on Monday and are hovering near those levels.

The stock’s lacklustre price performance over the past three years is a reminder that companies, even in monopoly businesses like IRCTC in railway ticket booking, do not see a linear rise in profit and market capitalization. This applies more so if the monopoly business is a government-owned company, which means there are higher chances that it will not be allowed to make windfall profits and will face challenges in cost-cutting through manpower rationalization. As IRCTC would find it difficult to raise ticket-booking charges, it has to rely on volume growth and ancillary businesses.

While volume growth has its constraints, ancillary businesses have not done enough to please its investors. IRCTC’s shares touched a high of ₹1,279 on 19 October 2021 (after adjusting for 5:1 stock split) when it traded at a staggering price-to-earnings multiple of more than 150x based on FY22 earnings per share (EPS) of ₹8. From FY22 to FY24, its net profit grew at a compound annual growth rate (CAGR) of 33%, which is good but not good enough to justify the valuation.

However, in H1FY25, the profit before exceptional items increased by a mere 6%. The disappointment over the slowdown in growth has brought down the stock’s valuation now to 48x of FY25 earnings, as per Prabhudas Lilladher’s estimates. Well, internet ticketing accounted for 80% of IRCTC’s Ebit (earnings before interest and tax) even in H1FY25 despite the diversification into ancillary businesses such as rail neer, catering and tourism.