Improved Highways And Digital Platforms Will Erode Ticket Revenue

Key Takeaways

• Rising competition from air travel, highways, and digital platforms threatens IRCTC's core user base and market share, impacting revenue and convenience fee growth.
  
• Increased regulatory pressures and higher compliance costs are likely to compress margins and constrain profitability, even as modest sales increases persist.
  
• Diversified revenue growth across ticketing, tourism, and digital services, combined with strategic scaling and supportive policy environment, signals strong potential for sustained profitability and expansion.

Catalysts

Engages in the provision of catering and hospitality, Internet ticketing, travel and tourism, and packaged drinking water services in India.

• The accelerating penetration of affordable domestic air travel and improved highway infrastructure is expected to divert a significant portion of traffic away from railway services, diminishing IRCTC's core user base and ultimately constraining future revenue growth from both ticketing and ancillary offerings.
  
• The rapid adoption of digital payment solutions and third-party ticketing or food aggregator platforms such as Zomato and Swiggy creates greater competition and threatens to erode IRCTC's exclusive position, leading to a likely loss of market share and reduced convenience fee and catering income in the years ahead.
  
• Persistently rising environmental regulations and higher costs related to food safety, packaging, and waste management are expected to place continuous pressure on IRCTC's operational expenses, resulting in compressed gross and net margins even if topline sales continue to rise modestly.
  
• The slow pace of meaningful digital and product innovation relative to emerging private players could cause the company's digital engagement to stagnate, risking a stagnation or decline in transaction volumes and weakening overall earnings growth over the long term.
  
• Growing regulatory intervention, including potential caps on ticketing fees, increased revenue sharing with Indian Railways, and vendor pricing disputes-some of which remain unresolved or under litigation-could impose material constraints on profitability, limit IRCTC's ability to expand margins, and contribute to slower earnings growth.

Indian Railway Catering & Tourism Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Indian Railway Catering & Tourism compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Indian Railway Catering & Tourism's revenue will grow by 6.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 28.1% today to 27.4% in 3 years time.
• The bearish analysts expect earnings to reach ₹15.4 billion (and earnings per share of ₹19.28) by about August 2028, up from ₹13.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 41.8x on those 2028 earnings, down from 43.7x today. This future PE is greater than the current PE for the IN Commercial Services industry at 23.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.85%, as per the Simply Wall St company report.

Indian Railway Catering & Tourism Future Earnings Per Share Growth

Risks

• The company demonstrated consistent year-on-year growth in operating revenue, EBITDA, and net profit, with FY25 revenue rising nearly 10 percent and net profit up over 18 percent, highlighting financially robust fundamentals and ongoing improvement in key profitability metrics.
  
• IRCTC's Internet ticketing, Rail Neer, and Tourism segments showed strong double-digit growth, supported by high profitability in ticketing and tourism, which enhances the predictability of revenue streams and ongoing margin expansion.
  
• The tourism and high-margin luxury train businesses such as Bharat Gaurav, Maharajas' Express, and Golden Chariot continue to scale, with management expanding rakes and itineraries and reporting strong bookings, which positions the company for long-term top-line and bottom-line growth.
  
• The company is innovating digitally, with rapid growth in e-catering revenues (up 63 percent year-on-year), initiatives in payment aggregation licenses, and plans for a unified online travel platform, which support future digital engagement, transaction volume increases, and potential improvements in operating margins.
  
• The management expressed confidence that new government-driven infrastructure, growth in organized tourism, and the company's role as a key execution partner for national tourism policies will result in sustainable long-term expansion for both core and ancillary businesses, positively impacting future earnings and shareholder returns.

Valuation

• The assumed bearish price target for Indian Railway Catering & Tourism is ₹560.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Indian Railway Catering & Tourism's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1200.0, and the most bearish reporting a price target of just ₹560.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹56.3 billion, earnings will come to ₹15.4 billion, and it would be trading on a PE ratio of 41.8x, assuming you use a discount rate of 12.8%.
• Given the current share price of ₹718.95, the bearish analyst price target of ₹560.0 is 28.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.