IRCTC OFS update!

Action: Accumulate

Share price action

IRCTC shares closed 10% lower on Thursday, after the government proposed to sell up to 20% equity stake in the company.

• The government looks to raise up to ₹4,374 crore through an offer for sale (OFS), on Thursday and Friday. The floor price for the sale has been set at ₹ 1,367 per share.
• Retail investors will be allowed to bid for the shares on Friday.

INDmoney Analysis

IRCTC shares had been on a rising spree till last week, up 75% in the year so far, despite the correction seen in the last two days. We believe that the OFS provides a good opportunity to accumulate the stock, given the following factors:

• While the company’s performance in the last two quarters has been hurt due to the pandemic, the business is set to improve with gradual relaxations in travel restrictions. The table below shows IRCTC’s performance in Q2FY21.

• According to a report by Prabhudas Lilladher, while the valuations remain high at FY24 forward PE ratio of 24 times, they are likely to sustain given 1) monopolistic nature of the company’s business 2) clear growth traction (20% PAT CAGR over 3 years) and 3) strong return ratios & healthy Balance Sheet. 
• Yesterday, the non-retail portion of IRCTC’s Offer for Sale received demand for 198% of the total number of shares on offer. The bids were received at Rs 1,391.42 per share, higher than the floor price of Rs 1,367 per share.