IRCTC IPO commands strong premium in grey market

State-run Indian Railway Catering and Tourism Corporation (IRCTC), which is set to launch its initial public offer, is trading at over a 50 per cent premium over its issue price band in the unofficial grey market.

Analysts said improved market sentiment, the firm's monopoly in the business and relatively cheaper pricing of the IPO are driving investor interest in the grey market, usually a harbinger of the stock’s prospects on listing.

In the grey market, shares of IRCTC are changing hands at a premium of Rs 160 compared to its price band of Rs 315 to Rs 320 per share, said brokers.


The Rs 645-crore IPO of IRCTC will open on Monday and close on Thursday. The issue comprises an offer for sale of 2 crore shares by the Government of India and is a part of the government’s divestment process.

IDBI Capital Markets & Securities, SBI Capital Markets and YES Securities (India) are the book running lead managers to the offer which constitutes 12.6 per cent of the total paid-up equity.

Its sales rose 25 per cent year-on-year to Rs 1,899 crore, and profit grew 23.5 per cent to Rs 272.5 crore in FY19.

IRCTC is offering a discount of Rs 10 per share to retail investors and employees.

“There is no competition, growth is likely to be reasonable over the next few years and valuations are not aggressive,” said Geetanjali Kedia, senior research analyst at SPTulsian.com.

A fund manager with a domestic brokerage said the stock could test Rs 600 in a month after listing.

Here is what some brokerages are saying about the issue:

ANAND RATHI: Rated subscribe. View the issue positively due to strong earnings profile, diversified business segment, healthy return ratio, debt free status and monopoly business.

ANGEL BROKING: Rated subscribe. Profitability will improve significantly due to tax reduction and increase in revenue from service charge for online ticketing.

BP EQUITIES: Rated Subscribe. IRCTC has strong moat due to monopoly e-ticketing, catering, and packed drinking water. Topline may shoot up due to levy of convenience fees in near term.

ICICIDIRECT: Rated subscribe. Inclusion of convenience fee on railway tickets, setting up of 10 water plants in the next two years and recent corporate tax reduction bodes well for EPS growth.

INDIANIVESH SECURITIES: Rated Subscribe. Expect IRCTC to see compounded growth of 20 per cent in revenue and profit for the next couple of years. IPO looks conservatively priced at 19 times FY19 earnings.