IRCTC Vs IRFC: 5 Fundamental Indicators To Know Which Railway Stocks Is An Attractive Bet!

IRCTC and IRFC are two popular railway stocks that have received both fame and fortunes on stock exchanges. IRFC however is the largest railway stock with market cap of over Rs 2.07 lakh crore, while IRCTC with a m-cap of over Rs 76,100 crore is a promising stock that one would not want to miss out on. Both have announced their Q3 earnings. Here are five key fundamental indicators that give a view of financial health and potential of equity shares. Let's apply them in IRCTC and IRFC, to understand who is better!

Before we begin, it needs to be noted that IRFC is a multi-bagger with over 210% upside in six months. While IRCTC shares have rallied by 48% in the same period.

On February 14, IRFC share price ended at Rs 158.80 apiece, up by 2.9%, while IRCTC share price gained by 2.3% to end at Rs 951.30 apiece on BSE.

Here are the key fundamentals that need to be taken into account before buying a stock, as per ICICI Direct's blog. The data on IRCTC and IRFC is taken from stock exchanges and financial reports.

1: Earnings Per Share (EPS):

EPS is an indicator that represents the portion of a company's profit allocated to each outstanding share of common stock. It is calculated by dividing net earnings by the number of outstanding shares. A rising EPS is considered a positive sign, indicating a company's profitability. Investors often compare a company's current EPS to its historical performance and industry peers.

In Q3FY24, IRCTC's EPS rose to Rs 3.75 per share, higher from Rs 3.19 per share in Q3FY23. However, IRFC's EPS dipped by a fraction to Rs 1.23 per share in Q3FY24 versus Rs 1.25 in Q3FY23.

2. Price-To-Equity Ratio:

The P/E ratio is another widely used valuation metric that compares a company's current stock price to its earnings per share. According to ICICI Direct's explanation, a high P/E ratio may suggest that investors have high expectations for future growth, while a low P/E ratio might indicate undervaluation. However, it is crucial to compare P/E ratios within the same industry for a more accurate assessment.

As of February 15, as per BSE data, IRCTC's PE ratio is at 68.83x, higher than IRFC which has a PE ratio of 34.37.

3. Dividend Yield:

ICICI Direct's blog further highlighted that the dividend yield is the annual dividend payment divided by the stock's current market price. It measures the return on investment from dividends. Companies that consistently pay dividends are often considered stable and financially sound. However, a high dividend yield could also signal a lack of growth opportunities or financial distress.

Currently, IRCTC's dividend yield is at 0.84% and the company has paid up to Rs 8 dividend per share in the last 12 months. IRFC has a higher dividend yield of 0.94% and has paid up to Rs 1.50 dividend per share in the last 12 months.

3. Debt-to-Equity Ratio:

The debt-to-equity ratio compares a company's total debt to its total equity, indicating the proportion of debt used to finance operations. Further, ICICI Direct's note explained that a high debt-to-equity ratio may indicate higher financial risk, as the company relies heavily on debt for financing. However, industries like utilities or real estate often have higher ratios.

While IRCTC is a debt-free company as its debt-to-equity ratio is zero, on the other hand, IRFC's debt-to-equity ratio is at 8.54% as of December 31, 2023.

4. Return on Equity (ROE):

This parameter is very important. As per the brokerage, ROE measures a company's ability to generate profit from shareholders' equity. You can find the value of ROE by dividing net income by shareholders' equity. A high ROE suggests efficient use of equity capital, while a declining ROE may indicate less effective management or increased financial leverage.

Data from BSE showed that IRCTC's return on equity (ROE) stood at 38.85% as of February 15, which is very good. Meanwhile, IRFC's ROE was in the normal range of 12.66%.

5. Earnings:

When it comes to earnings for the quarter ending December 31, 2023, period, IRCTC has by far performed better than its peers in the railway segment. IRFC reported a mixed performance.

IRCTC earned a net profit of Rs 299.99 crore in Q3FY24, compared to a PAT of Rs 255.52 crore in Q3FY23 and Rs 294.67 crore in Q2FY24. Revenue stood at Rs 1,118.30 crore in Q3FY24, rising from Rs 918.06 crore in Q3FY23 and Rs 995.31 crore in Q2FY24.

IRFC registered a net profit of Rs 1,602.23 crore, down by 1.8% from PAT of Rs 1,633.45 crore in Q3FY23, but gained by 5.4% from the profit of Rs 1,549.87 crore in Q2FY24. While IRFC's revenue was at Rs 6,741.86 crore, up by 8.4% YoY but down by 0.36% QoQ. The revenue was driven by interest income which came in at Rs 2,334.84 crore in Q3FY24.

Notably, ICICI Direct in its blog concluded that fundamental analysis is a powerful tool for investors like you who seek a comprehensive understanding of a company's financial health. While these fundamental indicators provide valuable insights, it's essential to consider them in the industry context, economic conditions, and the company's overall strategy.

Disclaimer: The write-up just highlights the stock performances and key fundamentals, and is not a recommendation to buy, sell or hold. We have not done fundamental or technical analysis and have no opinion on the stock mentioned, and neither is the brokerage mentioned. Neither, the author nor Greynium Information Technologies, and nor the brokerage should be held liable for any losses. Please consult a professional advisor.