As the economy reopens, public transportation is expected to increase, benefiting the railways. Investors are also anticipating a stock split.
Sunil Shankar Matkar
September 08, 2021 / 11:57 AM IST
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Indian Railway Catering and Tourism Corporation (IRCTC) turned out to be a blockbuster wealth creator for investors holding shares from its initial public offering two years ago, with the stock appreciating a little more than 10-fold from the issue price of Rs 320.
It had a bumper debut and closed at Rs 728.60 on the BSE on October 14, 2019. The IRCTC share closed at Rs 3,288.65 on the BSE on September 7, after climbing to a record high of Rs 3,305 intraday amid strong volumes.
In this period of almost two years, the S&P BSE Sensex has rallied 53 percent and the S&P BSE MidCap Index 77 percent.
IRCTC shares have rallied 132 percent so far this year, compared with a 22 percent gain by the Sensex and a 36 percent increase in the MidCap index, being one of the latest entrants in the list of multibagger stocks of 2021.
IRCTC’s market capitalisation reached Rs 52,618.40 crore on September 7, and it is now among the top 100 companies by this measure.
After a consolidation in mid-August, the stock got off to a good start on August 24 and has rallied 29 percent since then.
The reopening of the economy, easing of Covid-19-related restrictions, the asset monetisation plan of the railways, expansion plans in the hotel sector, and IRCTC’s monopoly in railway e-ticketing and supply of packaged drinking water have helped drive the rally in the stock price, experts said.
“It is also tying up with local food suppliers, which means the IRCTC management is in a mood to emerge as an A-to-Z solutions provider in the hospitality sector,” said Mohit Nigam, head – PMS, at Hem Securities.
Tourism was one of the worst-affected sectors due to the pandemic and also affected state-owned IRCTC, which provides services such as online ticketing, catering and selling drinking water. The company also operates food plazas at some stations, manages waiting lounges, retiring rooms and budget hotels in partnership with private entities and organises package tours. The company was affected to some extent by the pandemic-induced curbs.
“During the nationwide lockdown, when all other modes of transportation were shut down, the railways performed a critical part in the nation’s logistic supply. As a result, the company’s losses during that period were contained to a minimum,” said Gaurav Garg, head of research at CapitalVia Global Research.
He said with the reopening of the economy, public transportation is expected to increase, benefiting the railways.
“IRCTC recently decided to enter the cruise business for the first time, focusing on both the domestic and international market, and has signed an agreement with Cordelia Cruises,” Garg said.
The rally may also have been on account of a stock split proposal. On August 12, IRCTC recommended splitting each equity share with a face value of Rs 10 into five shares with a face value of Rs 2 each, subject to approval of the Ministry of Railways and shareholders. The company’s annual general meeting is scheduled on September 29.
Stock Target
Experts said the momentum in the IRCTC stock can take it up to Rs 5,000 in six to eight months despite intermittent consolidation or corrections.
“On the technical front, the stock is forming higher highs and higher lows, which looks like a pole in a flag pattern, and the rally might go on for another two-three sessions before consolidating… to complete the flag pattern… the stock might hit a new high of Rs 4,000 in the next three months and if the rally continues, it could touch Rs 5,000 levels within six months,” said Garg.
According to Palak Kothari, a research associate at Choice Broking, the stock has formed a strong bullish Marubozu formation on its weekly chart, indicating a strong upside trend, and the momentum indicator strongly points upwards.
“Also, the stock has settled above the bullish clouds as well as the convergence lines of the Ichimoku cloud indicator, which suggests strength. The stock being at its lifetime high, the Fibonacci projection indicates a level of around Rs 3,600 and above the same can show Rs 4,000-4,400 levels with the support of Rs 2,500,” Kothari said.
“IRCTC shares have given breakout above Rs 3,000 and achieved immediate target of Rs 3,200. One should hold this stock for targets of Rs 4,000 in six to eight months,” said Nigam of Hem Securities.
Book profits or hold stock?
Experts advise short-term investors to book profits but long-term investors can continue holding the stock considering healthy returns ahead.
“Investors seeking capital appreciation can hold the stock for long-term growth, while those seeking short-term gains can book profits. Those who want to include the stock in their portfolio should wait for the correction in the stock,” said Garg.
The stock is trading at a very expensive valuation and fresh entry is recommended on dips only, said Nigam.
At the prevailing valuation, Ankit Pareek of Choice Broking advised long-term investors to avoid taking fresh positions, while those holding this stock can take advantage of the ongoing rally by booking profits.
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