IRCTC: Prabhudas Lilladher Recommends a ‘Reduce’ with Target Price of ₹822

Synopsis

Prabhudas Lilladher has issued a ‘reduce’ recommendation for Indian Railway Catering & Tourism Corporation Ltd. (IRCTC) with a target price of ₹822. The current market price of IRCTC is ₹936.2, suggesting a potential downside. The firm cites concerns over rising low-margin UPI transactions and limited margin expansion despite strong performance in the catering division.

Key Points:

1. Impact of Low-Yielding UPI Transactions: The share of low-yielding UPI transactions has risen to 45% in Q1 FY25, which is expected to limit the scope for margin expansion. This shift in payment methods is a key concern affecting profitability.
2. Catering Division Performance: While the catering segment has shown strong performance, it operates with lower margins, leading to stable EPS estimates despite an optimistic topline outlook.
3. Company Overview: Incorporated in 1999, Indian Railway Catering & Tourism Corporation Ltd. (IRCTC) is a mid-cap company with a market capitalization of ₹73,980 crore. It operates in the tourism and hospitality sector, primarily serving the Indian Railways.

Given these factors, Prabhudas Lilladher recommends a cautious approach with a ‘reduce’ rating and a target price of ₹822, reflecting concerns over margin pressure and the impact of a higher share of low-yield transactions.