Trading at whopping 200 PE, is this monopoly sending out sell signals?

IRCTC share price, IRCTC shares, IRCTC, IRCTC stock, IRCTC share price target, IRCTC news

NEW DELHI: Two years back, when the government decided to sell its stake in Indian Railways Catering and Tourism Corporation (

IRCTC

) at Rs 320 per share, no one would have thought the stock would hit the Rs 4,000 mark in 23 months.

True, it is a monopoly, with the sole right to book tickets for Indian Railways, and monopolies usually command premium valuations. But it would have been unfathomable to even the most bullish trader to expect over 12-fold returns.

It is remarkable given the fact its business has suffered heavily due to the pandemic during most of the last two-year period. The rally has defied logic, and some analysts believe it may have gone too far.

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Stock score of Indian Railway Catering and Tourism Corporation Ltd moved down by 1 in a month on a 10-point scale.

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Stock score of Indian Railway Catering and Tourism Corporation Ltd is 5 on a scale of 10. View Stock Analysis »

The stock now trades at a price-to-earnings multiple of 200, and price to book value of 40. Cutting the jargon, the stock is simply way too expensive, and probably running on just investors’ exuberance.

Understandably, the stock price has surpassed all one-year price estimates of analysts. Five analysts track the company, and their most bullish target was Rs 3,104. As of Monday’s close, the stock was nearly 20 per cent above that price.

“In IRCTC, I find the valuation obnoxious. At peak, they made a profit of Rs 600-700 crore in 2019 and that profit will not come for the next two years. It is a steady business, but it is not a very high growth business,” said Sandip Sabharwal, an independent market analyst.

IRCTC reported a net profit of Rs 189.90 crore on a revenue of Rs 783.05 crore during FY21 as per data available with BSE. This was a sharp drop from Rs 528.57 crore profit reported for FY20. The major reason was most trains were not running during the period.

Now, things have improved a lot. Most of the trains have resumed services, with others in line. The company is a prime play on the reopening of the economy, along with top airline and tourism sector stocks.

However, in the last couple of sessions, profit booking has begun. Short-term technical charts have also shown shorting opportunities. On Monday, on the daily price chart, the Heikin-Ashi candle changed from green to red, which is a bearish sign, said an analyst.

The tone of fundamental analysts has also changed, with some suggesting booking profit at this price level. The earnings outlook of the company remains weak. In fact, in the last three months, at least three analysts have downgraded their price targets for IRCTC, data available on Refinitiv shows. In comparison, InterGlobe Aviation, which is the strongest airline in business, has seen two upgrades and one downgrade in the last 120 days.

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