It was observed last week that the stocks of Indian Railway Catering and Tourism Corporation (IRCTC) were the only ones that underperformed, down 10% on a YTD basis, while shares of all other railway-related stocks witnessed a fabulous rally in the recent trading sessions. So far in this calendar year, Titagarh Wagons and Rail Vikas Nigam were the top performers, up 87% and 80% respectively. Texmaco Rail & Engineering surged 56% while Rites and Ircon International gained 43% and 25% respectively.

As Indian share markets trade near record-high levels, rail stocks are speeding full steam ahead. The significant rally in railway stocks began in late August with select counters observing a significant rise in volume-based buying. Rail Vikas Nigam saw a rise in daily volumes with the counter clocking the highest volume since November 2021. Rites experienced a sharp spike in daily volume, a trend last seen in July 2020.

IRCTC had begun well

IRCTC was not dull always. The catering service, along with Ircon International, Indian Railway Finance Corporation and Rail Vikas Nigam, among other railways stocks, gained after Union Finance Minister Nirmala Sitharaman announced that 400 new generation Vande Bharat trains would be built in the next three years. The IRCTC share price surged 3.7% to Rs 900 apiece, IRCON International gained nearly 2% to Rs 46.40 apiece, Indian Railway Finance Corporation stock was up over 1% to Rs 23.60 apiece, and Rail Vikas Nigam scrip added nearly 4% to Rs 37.35 apiece on 1 February.

Analysts said that the government’s emphasis on expanding railway infrastructure made railway stocks post initial gains. “Technically, 905,46.5 & 37.4 remain massive resistance for IRCTC, IRCON, and Rail Vikas Nigam. Buying should be done only on sustained closing above these levels,” AR Ramachandran, a co-founder and trainer at Tips2Trades, had said at that point.

On 15 October, however, the IRCTC stock declined 14% to hit an intra-day low of Rs 3,960.05 on the BSE after it came out of the futures and options ban list that day.

Just about a week before that, the PSU stock had risen by 9% on 19 October to hit an all-time high of Rs 6,393, becoming the ninth public sector entity to join the club of Rs 1 lakh crore market capitalisation (m-cap). However, the stock witnessed a sudden correction of more than Rs 1,000 amid profit booking and ended 8.75% lower at Rs 5,363 on the BSE. The shares fell nearly 33% that week.

IRCTC had entered the markets in October 2019 and delivered a multi-bagger return to its shareholders in the last year. The stock rose 187% since the beginning of this year. The shares stood higher than the 50 day, 100 day and 200 day moving averages but lower than 5 day and 20-day moving averages, as of October.

Reason for the correction

Akhil Rathi of the Vice President Advisory at Marwadi Shares and Finance Limited explained it well, saying, “The internet ticketing segment which contributes around 53% of revenue is likely to increase in Q2 and upcoming quarters on the back of unlocking of economy and festival season. Easing of travel restrictions by almost all states is very positive for the company as new trains will start and this will benefit all segments, especially the catering segment which contributes around 27% revenue.”

“The stock is likely to be under pressure in the upcoming weeks due to a strong run-up and this will be an opportunity for investors to accumulate the stock for the long term,” Rathi said.

Dolat Capital observed that IRCTC was a multi-year high-growth compounding story. The company witnessed a significant jump in passenger volumes travelling (expected to go up 100% QoQ) as the Covid impact subsided, leading to a resumption of more train services and frequencies. This would drive a revival in the ticketing business in Q2 and the rest of the other segments by Q3. “For the quarter Q2FY22, bookings are higher by 100% on a QoQ basis and up 15% higher than pre-Covid volumes,” it stated in a research report.

“An uptick in the number of passengers and tickets booked as well as in the number of trains operating should result in robust revenue growth in Q2 FY22,” said IDBI Capital.

“We expect a strong sequential pick-up in revenues driven by the internet ticketing and catering business. We estimate that the share of catering business should increase to 41%, while the internet ticketing segment should continue to contribute the highest towards overall revenues (+49% share),” it stated in its research report.

IRCTC is the only entity authorised by the Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India. It has a dominant position in online rail bookings and packaged drinking water space with around 73% and 45% market share, respectively.