Indian Railway Catering and Tourism Corporation (IRCTC) stock is among IIFL’s top-sellers for 2022 as the risk-reward is unfavourable in the brokerage’s outlook, regulatory risks around sustenance of unreserved-to-2s conversion and Tejas trains. To consider the higher fixed charges payable on Indian Railways (IR).
If the government sells more stake in it IRCTCThe potential pitfalls of the monopoly in the ticket booking engine cannot be ruled out, it highlighted. Its sell rating on PSU stock comes with a target price of 12 months 745 per share.
“The decision of the Ministry of Railways to levy 50% revenue share on convenience fee and its prompt withdrawal in October-2021 exposed regulatory risks. During 2Q, there was an increase in the fixed charge on Tejas trains payable to IR, against which an appeal has been made by IRCTC. Media reports said that the Ministry of Railways is considering the merger of RailTel with IRCTC. The different nature of the two businesses (with limited scope of synergy) may also pose risks,” the IIFL note highlighted.
Indian Railways converted all unreserved coaches to 2S class (which requires reservation) during the pandemic. Average daily ticketing volume is currently 40% higher than pre-pandemic levels, with 2S contributing 40% of the volume.
According to the brokerage house, the uncertainty in the tone of the management regarding the sustenance of the 2S class in the post-pandemic era has increased over time. “With the total number of train tickets growing only in the mid-single digits over the past decade and the proportion of tickets booked online more than doubling to ~80%, ticket volume growth could be modest in the absence of 2S “
In addition, airline tickets have seen a 13.5% CAGR (compound annual growth rate), and higher affordability due to rising disposable income may result in a shift from rail to air travel over time.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
Don’t miss a story! Stay connected and informed with Mint.
download
Our App Now!!
,