3 days ago
IRCTC's Ebitda growth rate mirrors pace of a slow-moving train
Indian Railway Catering and Tourism Corp. Ltd (IRCTC)'s results for the three months ended March (Q4FY25) proved unimpressive versus expectations of a solid quarter due to the Mahakumbh event-related push. Ebitda growth was 6% year-on-year to ₹385 crore, with margin compressing by almost 100 basis points to 30.4%. A basis point is one-hundredth of a percentage point.
Recall that IRCTC had offered food service in Aastha Express to Ayodhya in Q4FY24 during the consecration ceremony of the Ram temple. Thus, there was hope that it would be done for Mahakumbh special trains, too. In the Q4FY25 earnings call, the management clarified that these trains operated without catering facilities because the government's aim was to accommodate more passengers to Mahakumbh and also clear the subsequent rush from there.
The outcome: IRCTC's catering revenue was unchanged year-on-year at ₹529 crore. The segment's profitability improvement isn't impressive either, as the base quarter had an abnormally low margin. Sequentially, the margin was flat at 12%.
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IRCTC's mainstay business remains internet ticketing, contributing about 75% of its total FY25 Ebit. The segment has two revenue streams of convenience fee (simply put, the online ticket booking charges) and non-convenience fee from advertising and ancillary services for buying food, travel insurance, etc.
Convenience fee grew 9% year-on-year as online ticket booking volume increased by 10%. While volume growth is not a problem, the concern here is about the 7% quarter-on-quarter fall in average fee per ticket to ₹18.6.
The fee is different for AC and non-AC ticket booking, and also for booking payments made using Unified Payments Interface (UPI) or other modes that include netbanking and cards. The share of UPI-based payments has been steadily climbing up, from 45% in Q1FY25 to 47.7% in Q4FY25, which puts pressure on the average fee per ticket as the convenience fee is lower on payments made using UPI.
Bright spot
The tourism segment was the only bright spot in the results, which essentially is a packaged tour business offering options for religious and luxurious tours. Tourism Ebit soared by 161% on-year to ₹50 crore with margin almost doubling to 18.1% in Q4FY25. Bharat Gaurav train and Maharaja Express have contributed to the growth.
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For FY25, the two trains clocked revenue of ₹277 crore and ₹92 crore, respectively. While Bharat Gaurav's revenue is higher, its margin is lower at 8% versus 18% of Maharaja Express, as the former operates in the affordable segment and the latter in the luxurious travel category. The management is optimistic that the tourism segment will maintain its upward trajectory, but the segment's past performance has been volatile.
Meanwhile, IRCTC is likely to get initial approval from the Reserve Bank of India (RBI) for a payment aggregation license within the next couple of months. However, even after the business starts, it would be tough to make inroads given the wafer-thin margin. The space is already crowded with well-entrenched players such as PhonePe and Razorpay.
High valuation
As such, the new business initiative is unlikely to change the trajectory of the stock, which is down 15% over the past one year even as the Ebitda CAGR over the last two years to FY25 has been 10%. The decline in the stock is thus indicative of the correction in its rich valuation. Ebitda is short for earnings before interest, taxes, depreciation, and amortisation.
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Bloomberg consensus estimates show Ebitda growth in FY26 could go up to 18%, which appears a tad optimistic. The decline in stock price pushes the enterprise value (EV) (numerator in EV/Ebitda) lower, while optimistic Ebitda estimates push the denominator higher. Despite that, the valuation still remains expensive at EV/Ebitda of 33x based on Bloomberg consensus estimates for FY26.
