Angel Broking expects limited listing gains, positive long term view
Indian Railway Catering and Tourism Corporation’s (IRCTC) two-day offer for sale of shares will end today. The government held 87.40% stake in IRCTC as of September 30. Offer for Sale of Govt shares in IRCTC got great response on day one as the issue subscribed 1.98 times of base size at a clearing price above the floor price by non- retail investors. The government on Thursday announced that it will exercise the oversubscription option to the extent of 80 lakh equity shares in addition to the base offer size.
Angel Broking expects limited listing gains and gives a ‘Neutral’ rating to the IRCTC OFS issue.
“Company’s business has been adversely impacted in 1HFY21 with revenues declining by 77.4% YoY to ₹220 crore while the company reported an EBIDTA loss of ₹50 crore as railway operations remained mostly suspended due to the Covid 19 crisis,” says a report by Angel Broking.
Shares were under pressure after the government announced an offer for sale of its 20% stake in the company. IRCTC share price has fallen 16% since Monday. At 12:25 p.m., IRCTC share was trading at ₹1,430, approx. 2% down from Thursday’s closing price.
The report further states though post unlocking of the economy business has been recovering gradually for the company and business is expected to recover to pre Covid levels only in FY2022.
Long term outlook: Positive
Given monopolistic nature of the business and strong growth expected post FY2021, the brokerage remains positive on the long term prospects of the company. But remains cautious on the near term business prospects of the company.
Here are the key highlights of the report:
Investment rationale
> It is the only entity authorized by Indian Railways to provide catering services, online railway tickets and packaged drinking water at railway stations and trains in India.
> High dividend payout ratio (38% in F.Y.20).
Investment concerns
> Business and revenues are substantially dependent on Indian Railways.
> Withdrawal of exclusivity of the Company for catering, online railway ticket and packaged drinking water at railway stations and trains in India by the Ministry of Railways.
> Removal or reduction of Service Charge by Ministry of Railways or instructing IRCTC to share part of revenue with them.
It takes longer than expected for the company’s business to normalize to pre Covid levels.
Indian Railway Catering and Tourism Corporation Limited (IRCTC) is a Central Public Sector Enterprise wholly owned by the Government of India and under the administrative control of the Ministry of Railways. It operates in four business segments, namely, internet ticketing, catering, packaged drinking water under the “Rail Neer” brand, and travel and tourism.
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