IRCTC – Tatkal Booking Advised!

Imagine if IRCTC had parentage of a true blood entrepreneur, freshly wet behind the ears, a thousand dreams twinkling in the eyes! Would it have done the IPO at a P/E (price to earnings ratio) of <10x current year’s estimated earnings? Or rather, would you have been able to calculate a P/E? I haven’t been able to do that for any start-up I ever came across so far!

Sadly though, IRCTC’s parentage belongs to the age old “babus”, Govt. of India. Reliable, but fickle minded. Visionary (for a change), but maverick. Executing ideas “at scale” and then selling them “for a pittance”. Hardly a sign of genius, no? 🙂

India has more than a billion people. Adding crazily to that count every minute. A huge country with humongous geography, immense logistical challenges, and opportunities, and a penchant for travelling, be it for social or religious or adventurous – you name the cause, we do it! So…a billion plus people, what’s the preferred mode of communication? Trains! Unanimously!!

A billion plus people, travelling the Indian Railways, most almost on daily basis! What is the 1 name synonymous with booking tickets in India? IRCTC! Our “famously slow and lagging network”, which, hold your breath, can issue over 24,000 tickets per minute! That’s 1,300 Cr. tickets a year, 10 tickets per individual, possibly more than the combined processing capacity of other travel operators and websites (don’t hold me on that statistic though!). Additionally, it has access to the big data – travel and food preferences of close to over a billion Indians (almost every one of us has travelled via train at some point, and used IRCTC). That’s immense and profound insights sitting for someone to tap!

Why should it not be taken as technology company, instead of a bureaucratic Railway portal?

IRCTC handles over 36,000 Cr. each year in bookings alone, has 7.2mn logins every day, a captive user base of 53mn and books 25-28mn tickets a month! It is probably more profitable than a whole bunch of so called consumer franchises (Paytm, Flipkart, Swiggy, Bookmyshow, Thomas Cook, Cox & Kings, Make My Trip, Red Bus, etc. etc. etc.) in India combined! (again, pls don’t hold me to that statistic!)

Yet, in a country of billion plus people, the most powerful tourism related brand’s valuations would be a fraction of the valuations of most of the above players. Do you know why? Let me give a simple example below:

How would a typical, profit (hahaha) focused startup price their Series A/B/C…..rounds? They will look at every metric but profit to price their offerings. Focus on showing how they will eventually reach a massive scale and profitability that comes with it (hopefully someday). By that yardstick, IRCTC has jaw dropping metrics, and eye-opening opportunties, with a long long way to go, but already a giant in its own right when it comes to scale. Focus on the top 10 unicorns in the country, and IRCTC will match (or better) each one of them on atleast some crazy parameter (gross merchandise value or GMV, revenue, captive customer base, logins / site hits, profitability, etc. etc.). And yet…

The Government recently allowed IRCTC to charge a convenience fee again, on every ticket booked through their platform. A charge, which they had allowed earlier, only to stop it post demonetization in 2016 (silly, I tell you!). How does this matter? Well, against a ~280 Cr. PAT in FY19, the convenience charge alone can add incremental profits of ~450-500 Cr. in full year FY21. (est. 33 Cr. tickets booked thru the year * 20 Rs. average fee per ticket, 90%+ PBT margins, ~25% tax). So what, you ask? Well….if this was a private corporate, would they have done the IPO before letting the positive impact of this additional charge flow in? So, let’s say, would Bookmyshow have done their next round of funding before introducing these charges? No!! They would rather have milked this additional revenue / profit for whatever it is worth. And then applied a suitable (Maybe 20%? Maybe 30%?) growth CAGR to it, then priced it at a crazy multiple before coming out with their next round of funding. Silly, the Indian Govt., they don’t hire IIM Calcutta Grads (like me 🙂 ) to advise them on all things strategy!

So, the Government has erred….priced IRCTC maybe a bit cheaply. They could easily have asked 400 for it, maybe 500, maybe even 600 and still had takers. Maybe 700 even? The question being asked by all those who got allotment in the IPO (I didn’t unfortunately), is “Wow! I made a cool 100%+ return on my investment in less than 15 days. Should I sell? No, silly, you should buy!”

To me, IRCTC is another “Maruti” moment in this country. Once again, the Government has, foolishly if I may add, sold a jewel in their crown for next to nothing. In 2003, when Maruti’s IPO came at Rs. 125, with a listing debut on the exchanges at Rs. 164, how many could have imagined that the stock would peak out (for now atleast) at Rs. 10,000! A cool 80x return, in 14 years!

Imagine….the times were very similar…2003 was by no means a bull year, and Maruti was a highly popular name, but not necessarily looked at as a frontline consumer story (I could be wrong here)! I believe, the same will happen with IRCTC. I don’t know what it can achieve over the next 5 and maybe 10 years. But I do know that there is no bigger “consumer focused, supply constrained, B2C moat business with sustainable earnings visibility” in the country right now. And as the Indian Railways modernizes itself over the next 5 years, IRCTC could possibly be the biggest beneficiary and the face of that change.

So, to sum it up in a few words….if I was you….

I would immediately do a Tatkal booking in the IRCTC stock, for a journey to be undertaken much later (4 months for their tickets, maybe 5 years for our investment?).

Disclaimer: This is not an investment advice, even if it may seem like one. All I want to say, is that if I had your IRCTC shares with me, I wouldn’t have sold a damn thing! Maybe, bought a little bit more!