How does IRCTC make money
- There are five segments— ticketing, rail neer, catering, tourism and state teertha.
- Catering business alone made for nearly 38% of its revenue last quarter.
- The profit margin in each business is anywhere between 26 and 85%
AdvertisementIndian Railway Catering and Tourism Corporation (IRCTC) has restarted services since the trains started plying on May 12 but the share price has barely moved. That is because the investors aren’t very hopeful of the company’s prospects.
The coronavirus crisis forced people to avoid unessential travel. The pessimism around the travel and tourism sector, from airlines to travel operators to hotel chains, has hurt IRCTC too even though the Indian Railways subsidiary is a nearly $3 billion monopoly— and just the cash it has on its books is three times the quarterly profit.
The recovery of IRCTC’s business, and therefore its share price, will depend on where it makes most of its money from.
There are five segments— ticketing, rail neer, catering, tourism and state teertha.
Here’s the revenue break up of IRCTC
Ticketing: IRCTC sells on an average 25-26 million rail tickets per month and charges a fee for every booking. It also earns from a co-branded credit card with SBI Cards.
Rail neer: IRCTC on an average sells over 34 million bottles in a month and it forms around 8% of the total revenue for the company.
Catering: The catering business alone makes 38% of IRCTC’s total revenue and post tariff hike, analysts at Prabhudas Lilladher are expecting a 25% growth in catering revenue in the current year.
Tourism: Tourism contributes a little over 13% of the total revenue for the business and due the government-induced ban on international travel, IRCTC earlier postponed all its international tours for the few months.
AdvertisementHowever, the real potential of IRCTC as a money spinner is visible in the kind of profit margin that the company has in different segments.
*All these are gross margins, except in ticketing, which is operating margin
Source: Prabhudas Lilladher
“Despite near term challenges, we believe IRCTC is best placed to bounce back once COVID fear resides as structural levers remain intact... However, we would advise staggered buying and do not rule out near term weakness given the constantly evolving situation over lockdown. Further, risk of reduction/abolishment in service charge has magnified as COVID is a black swan event and government can take a socialist approach to deal with the current situation,” the Prabhudas Lilladher report in April said, pegging a target price of ₹1,656, which would imply an 14% gain in the next one year compared to the share price on June 24.
SEE ALSO: IRCTC website crashes as it reopened for booking after 50 days — now, it will be open for bookings from 6 pm
An Indian company has only one client and yet, it's a nearly $3 billion monopoly
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