IRCTC share price halts free-fall, but high P/E ratio worries investors; stock as expensive as Tesla

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Updated: October 22, 2021 11:03 AM

IRCTC share price continues to recover some of the losses recorded earlier this week as it continues to trade in the green for the second day straight.

IRCTC share priceIRCTC’s stock price has nose-dived 29% since the last hour of trade on Tuesday after hitting a market capitalisation of Rs 1 lakh crore. (Image: REUTERS)

IRCTC share price continues to recover some of the losses recorded earlier this week as it continues to trade in the green for the second day straight. The stock hit an intra-day high of 4,679 per share on Friday. However, IRCTC stock’s very high P/E ratio continues to worry investors. At a trailing P/Diluted EPS of 294x, IRCTC shares trade close to Elon Musk Tesla Inc — another stock which has repeatedly come under scrutiny for high P/E multiples. IRCTC stock’s forward P/E multiple of 147x too is close to Tesla, according to S&P Capital IQ data. IRCTC’s stock price has nose-dived 29% since the last hour of trade on Tuesday after hitting a market capitalisation of Rs 1 lakh crore. Now the stock trades at Rs 4,679 with a market cap of more than Rs 73,500 crore.

IRCTC share valuation as high as Tesla

P/Diluted EPS Before Extra (trailing)

  • IRCTC: 293.9x
  • Tesla: 282x

Forward P/E (1 year)

  • IRCTC: 147.4x
  • Tesla: 154x

Source: S&P Capital IQ

Monopolistic nature pushing valuations higher

Analysts believe the run-up in IRCTC stock price and the P/E ratio has been supported by various factors such as the opening up of tourism post-covid, platform-based business and the company’s monopolistic nature. “For IRCTC, there was the benefit in terms of opening up of the economy and the tourism industry along with the low free float in the market. The up-move in the stock started a few months back when the free float was low and this has happened earlier as well in low free float companies,” Vinod Nair, Head of Research at Geojit Financial Services told Financial Express Online. He added that the high P/E ratio of around 250-300 does not make sense.

IRCTC’s stock price has soared 169% in the last 6 months, despite taking into account the recent correction in the stock. Meanwhile, Nifty 50 has zoomed 23% during the same time frame. The PSU stock enjoys a monopoly that further augments its valuations. “For IRCTC, the problem stems from the fact that there is no peer to get an idea of fair valuation,” Likhita Chepa, Senior Research Analyst at CapitalVia Global Research told Financial Express Online.

Analysts at domestic brokerage firm IIFL Securities believe IRCTC has garnered interest after listing internet stock Zomato that has brought to light the monetisation potential of the former’s massive user base. However, IIFL securities have downgraded the stock to Sell rating seeing unfavourable risk after the current rally.

What should investors do?

The high P/E ratio of IRCTC has baffled analysts who believe IRCTC at its core is an attractive business but remain wary of the expensive nature of the stock. “The P/E ratio of 300 times does not make sense. Why should investors pay such high value for a stock, instead they should move away from this to other companies that have platform-based businesses and are making profits, Vinod Nair said. On similar lines, Likhita Chepa is advising investors to wait for valuations to cool down while adding that IRCTC. “Be it any stock, these are not the kind of valuations that investors should invest in. Investors who are currently holding the stock should avoid panic selling though as IRCTC remains a strong long-term bet,” she added.

(The story was first published on Financial Express on October 21, 2021.)

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