L-Earning from Stock Market

Add Maan Aluminium at CMP 153
Accumulate in phased manner
Target 180-190-200

1.34K viewsMukund Kumar, edited 04:19

*IRCTC: Lightning strikes twice - Indian Railways to normalize 2S tickets to unreserved class, Downgrade to SELL*

Link to detailed note:
https://tinyurl.com/265znuj4

*2S class ticket to become unreserved again*: IRCTC has shared that the Indian Railways have now decided to normalize Second Seating class (2S) accommodations in all trains back to unreserved category as per the applicability in the pre-pandemic period. This announcement is a significant negative for IRCTC as at present 2S class accounts for nearly 38.6% (48mn qtr run rate) of tickets booked in Q3FY22. So the volume impact of this will be about 30% but the realization would improve by ~13% on favorable AC/Non-AC ticket mix. Also, the revenues from non-ticketing part would see impact of about ~17% on account of lower monetization due to lower volumes on Advertisements/Agent fees/PG/Bank Charges revenues.

*Impact on estimates*: Would impact the ticketing segment rev by nearly 14%/20% for FY23/FY24E respectively (lower impact assumed for FY23, as this may get implemented effective 1st July’22 i.e. 120 days from now, given advance bookings on IRCTC portal). On overall basis the revenues may get impacted by 6%/8% for FY23/FY24E while the EPS impact is expected to be about 12%/15% for FY23/FY24E respectively.

*The Road Ahead*: With this event, we believe not only it results in the volume impact right away but it also weakens the prospects for potential new revenue opportunities from unreserved ticketing that was expected in case its merger with CRIS goes through (as advised by Sanyal Committee report in Sep’21). As current stance suggest Indian Railways is in no hurry to uplift the experience of unreserved consumers and thus would mean no near term potential from monetization through convenience fees on large unreserved ticketing pool (in Pre-Covid period 85% of all tickets booked on Indian rail networks were in unreserved class). The only catalyst could be accelerated New train launches as Dedicated Freight Corridor completion would free up the passenger routes (demands to remain healthy).

*View*: This event was a consistent investor concern and has finally come out to be true, and would add more uncertainty around the sudden change in policies by Indian Railways and its potential impact on earnings across business segments and thus, we believe the stock would see some de-rating. Baking in our revised estimates and factoring higher risk-premium in our DCF assumptions we downgrade the stock to Sell rating with TP of Rs600 (implies 45.5x FY24E earnings on PER basis).

Regards
Rahul Jain
Dolat Capital

1.7K viewsShashank Jain, 05:33