The stock market debut of State-owned Indian Railway Catering and Tourism Corporation (IRCTC) saw its shares more than double on Monday with stock ending at Rs.733, gaining Rs. 413 or 129 percent over its initial public offering (IPO) price of Rs. 320. They have surpassed the record set by Power Grid with shares of which had soared 94 per cent in its trading debut in 2007, and this listing-day gain is the highest-ever for a state-owned company - the gains were the highest for an over Rs 500-crore IPO in a decade, on an overall basis.  

Witnessing 111 times more demand than the shares on offer, IRCTC’s Rs. 640 crore IPO had become the most-subscribed maiden offering by a state-owned company earlier this month. Several investors, who lost out on the IPO allotment, aggressively bought its shares in the secondary market, where shares worth over Rs 3,500 crore changed hands. According to market players, as IRCTC have modest valuations, monopoly status in the online railway ticketing space, and untapped potential in the internet space, it has been attracting many investors recently. For 2018-19, the company had reported net profit of Rs 273 crore on revenues of Rs 1,868 crore. At the IPO price of Rs 320, the company was valued at nearly 19 times its 2018-19 earnings per share of Rs 17.

Even the trailing price-to-earnings multiple has crossed 40 times at the current market rate, and, such valuations which are fairly common for private companies operating in the internet space, it is very rare for a state-owned undertaking, as said by experts. At the moment, IRCTC has four core business verticals. Besides online ticketing, it does railway catering, tourism services, and sale of packaged drinking water under the brand name Rail Neer. The analysts are betting that IRCTC will be able to generate high growth by scaling into new business areas. They also stated that investors need to be cautious about valuations and future stake sales by the government.

“The company enjoys significant barriers to entry for each business segment. The company is likely to reap future benefits of favorable regulations as it scales other products like e-wallets, train operations, and hotels,” said a note by Motilal Oswal.