Target: ₹745

CMP: ₹662.65

Indian Railway Catering and Tourism Corporation (IRCTC) revenues increased by 4 per cnet QoQ primarily driven by 21 per cent jump in catering and 31 per cent rise in rail neer revenues.

Going forward, we expect catering & Tourism revenues to increase 22.4 per cent YoY and 22.8 per cent YoY in FY24 mainly led by conversion of additional about 200 trains in catering and addition of Vande Bharat & Bharat Gaurav trains. Softness in ticketing revenue due to absence of 2S revenue is expected be offset by higher convenience revenues.

We expect catering to drive growth led by higher pricing in cooked food (leading to higher license income). This coupled with addition of new trains & new circuits will boost tourism revenues.

Further, considering Q1-FY24 numbers and increase in catering trains we have revised our margin estimates upwards by 126 bps and 27 bps for FY24 and FY25. This has led to increase in EPS estimates upwards by 2.2 per cent and 4.6 per cent for FY24 and FY25.

We believe higher contribution from low margin catering and tourism will dent margins in long term. However, we expect margins to remain above pre-covid levels. We expect margins of 37.6 per cent in FY24 and 36.1 per cent in FY25.

Hence, we maintain our Buy rating with a target price of ₹745/share (PE of 45x on FY25E EPS).