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IRCTC goes full steam ahead

IRCTC goes full steam ahead

 its stock is rallying at a breakneck pace, and may still have a long way to go
July 4, 2021
3 min read
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IRCTC goes full steam ahead

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IRCTC goes full steam ahead

when it comes to choosing a business to invest in, it is often said there’s no better choice than a monopoly. the Indian Railway Catering and Tourism Corporation is most certainly one. that too in an indispensable sector that serves as the backbone of the world’s second-most populous nation. it’s no surprise that its stock is in demand.

at the beginning of September, the IRCTC stock was trading at a price of ₹2,750/share. on October 7, about five weeks later, it closed trading at a lifetime high of ₹4,763/share. a 73% jump across the period. here are the factors fueling the rally.

in a split

on August 12, the IRCTC board approved a stock split in the ratio of 1:5. let’s see how that works. when companies issue shares, they fix a certain “face value” for each share. the company can subsequently choose to split each share up into many, with a correspondingly lower face value. 

in the case of IRCTC, the face value of each share is ₹10.  a 1:5 split implies that each share will be split into five equal shares having a face value of ₹2 each. the stock price gets split up too. if the share is priced at ₹4,000 on the market at the time of the split, it will be priced at ₹800 after the split.

the overall value of shares held by an investor remains unchanged. but having more shares of a company is perceived to have greater potential for profit

the M-word

monopoly. IRCTC is the sole entity authorised by the Indian Railways to provide online railway tickets, catering services to railways, and packaged drinking water at railway stations and on trains. with vaccine coverage growing, travel back on the menu, and a sustained bump from goods businesses during the pandemic, one can expect IRCTC’s numbers to be right on track.

further, there is a possibility of its stock making the MSCI Standard Index during the November rebalancing. this could lead to an inflow of around $170 million into the IRCTC stock via automated index-based investments by institutional investors.

at its current price, IRCTC has multiplied the investments of its IPO holders (₹320/share) by nearly 15 times in just under two years. that too despite a pandemic. that certainly indicates a solid business that will likely continue to grow.