IRCTC’s Offer For Sale soon; but is there still value in this monopoly play while Covid hits travel

The OFS, according to the Department of Investment and Public Asset Management (DIPAM), could see the government selling 15-20% of its stake.

Indian Railways Catering and Tourism Corporation (IRCTC) was one of the most celebrated IPO on the stock exchanges prior the sell off that shook the markets in March. The stock was listed at a price of Rs 664, a massive 101% premium to the issue price of Rs 320 per share. Further the stock went on to touch a high of Rs 1,994, which translates to over 520% gains from the issue price. Now the stock trades at Rs 1,334 per share but investors could soon get a discounted entry into the stock with the government planning an Offer For Sale (OFS) soon. However, the question remains if IRCTC stock is still attractive?

OFS could see 15-20% stake sale

The OFS, according to the Department of Investment and Public Asset Management (DIPAM), could see the government selling 15-20% of its stake. The promoter group, which is the government of India, owns a 87.4% stake in the company. Rough calculations show that a 50% stake sale at current prices could help the government shore up over Rs 3,700 crore. However, the situation in the post pandemic world where demand for travel is down does not look attractive for investors to flood IRCTC’s OFS with cash. 

Has IRCTC lost its charm?

“We were positive at the time of the IPO with complete monopoly and positive around the changes in pricing. Of Course now the situation is different and the services are hit and so is the demand,” Vinod Nair, Hear of Research, Geojit Financial Services told Financial Express Online. Costs could increase for the company and near term issues might remain which could hit the financials. Shares of IRCTC dived with the stock markets in March to touch a low of Rs 899 apiece, but managed to recoup some losses soon. But after surging in April, IRCTC shares have not gained much. 

The stock has so far not resulted in losses for those who subscribed to the IPO with a long-term view and continues to trade at a price that is way above its listing price. Analysts alo point towards IRCTC being a PSU. Over the last five years, PSU stocks have failed to impress investors when compared to returns generated. “There are inherent inefficiencies in the working of PSUs which is evident from the returns of most of the listed Public sector companies in the last 5 years,” said Anuj Jain, Research Head at Green Portfolio, a SEBI registered PMS. “Shares like ONGC, Oil India Ltd, PNB, Coal India, MMTC, IFCI etc. are leaders in their field yet are down by over 25% in the last 5 years,” he added.  On the other hand S&P BSE Sensex has risen by over 50% in the same time period.

HAL stock fell post OFS

Plans for IRCTC’s OFS come after a similar issue was executed for Hindustan Aeronautics Limited (HAL). The Rs 5,000 crore OFS with a floor price of Rs 1,001 per share was fully subscribed. Since the OFS the stock has dived close to 25% to now trade at Rs 838 per share. “Investors should not jump on immediately. Such OFS is part of divestment programs,” Pritam Deuskar, Founder of Wealthyvia.com told Financial Express Online. He adds that a 15% stake sale looks possible if the government is looking to bring holding down in line with the SEBI guidelines. 

Travel restrictions and the fear of travel in the times of a pandemic would also impact the demand for railways in the near term. “Travel and hotels are the worst hit sectors. Considering prohibition of spread, railways have been operating way less except special ones. To restore to normal frequency , it is going to take time,” Pritam Deuskar added as he pointed out that investors with a long-term view of over 2 years could take it as a good bet. 

What do the charts say

On the technical side, IRCTC has been range bound since June this year recording lacklustre volumes. “For the stock to resume its upward journey, it needs to get past 1460 and then we can target 1700. On the downside, there is a support at 1300 and if we break that, we could go down to 1100,” said Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments.