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IRCTC shares: Buy or sell, What IIFL recommends for the PSU stock

22 Jan , 2022   By : Kanchan Joshi

IRCTC shares: Buy or sell, What IIFL recommends for the PSU stock

Indian Railway Catering and Tourism Corporation (IRCTC) stock is among IIFL’s top sells for 2022 as the risk-reward is unfavourable in the brokerage's view, considering regulatory risks around sustenance of the unreserved-to-2S conversion and higher fixed charges on Tejas trains payable to Indian Railways (IR).

If the government sells further stake in IRCTC, a potential loss of monopoly in the ticket booking engine cannot be ruled out, it highlighted. Its sell rating on the PSU stock comes with a 12-month target price of Rs745 per share.

“The Railway Ministry’s decision to impose 50% revenue share on convenience fee and its prompt withdrawal in Oct-2021 brought regulatory risks to the fore. During 2Q, there was an increase in fixed charges on Tejas trains payable to IR, against which an appeal has been made by IRCTC. Media reports mention that the Railway Ministry is considering merging RailTel with IRCTC. The different nature of both businesses (with limited scope of synergies) could also pose risks," IIFL's note highlighted.

Indian Railways converted all unreserved coaches to 2S class (which requires reservation) during the pandemic. Average daily ticketing volumes are currently 40% higher than pre-pandemic levels, with 2S contributing to 40% of volumes. 

As per the brokerage house, uncertainty in management tone regarding sustenance of 2S class in the post-pandemic era has increased over time. “With the total number of rail tickets growing only in a mid-single digit in the past decade and the proportion of tickets booked online having more than doubled to ~80%, ticketing volumes growth may be modest in the absence of 2S."

Further, Airline tickets have witnessed 13.5 percent CAGR (compound annual growth rate), and higher affordability due to rising disposable incomes could result in shift from rail to air travel over time.

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