On Friday, Macquarie began coverage on Indian Railway Catering and Tourism Corporation (IRCTC:IN) shares, assigning an Outperform rating and setting a price target of INR900.00. The initiation of coverage by Macquarie is based on several growth factors identified for the company, including its dominant position in rail e-ticketing and potential revenue increases from various services.
IRCTC, which handles online ticketing for the Indian Railways, has a direct market share of approximately 80% in rail e-ticketing. The company charges a commission fee per ticket, which varies based on whether the ticket is for air-conditioned (AC) or non-AC classes and the payment method used. Additionally, IRCTC earns extra compensation from the indirect ticket sales that occur through third-party Online Travel Agencies (OTAs), which account for about 20% of total ticket sales.
The key drivers for IRCTC's growth include an increase in the proportion of reserved train tickets, the modernization of India's train fleet with a greater share of AC coaches currently at 12%, and an improving contribution from advertising revenues, which currently represent 0.3% of gross bookings. Macquarie forecasts a three-year compound annual growth rate (CAGR) of 14% for the company's revenue.
In the catering services sector, IRCTC generates income through license fees, which include a fixed annual fee plus a variable component, and concession fees from vendors and subcontractors providing catering services.
Of these revenues, 40-45% is shared with the Ministry of Railways. As railway stations in India undergo modernization, IRCTC stands to benefit from an increased number of restaurants and stalls, further contributing to its revenue stream.
The company also gains from partnerships with food delivery apps, which share 15% of their order value for access to the railway customer base. Macquarie projects a 15% three-year revenue CAGR for IRCTC's catering services.
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