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  • Writer's pictureParag Hemdev

What should an Investor Consider? Euphoria or MOAT?

Updated: Apr 5, 2022

We have seen markets moving from their bottom to an all-time high which was due to stimulus infused by Global Central Banks which led to lower interest rates and surplus liquidity in the system, this was also being aided by lower oil prices, administrative cost-cutting, renegotiations of contracts with suppliers/ vendors and lower tax rates (especially in Indian Context) which lead to higher profitability. The listed entities gained market share at the cost of MSME or its peers who lost their market share the same is evident in terms of GDP contraction of 7.3 % for FY 2020-21 as per RBI report.

The said stimulus from Central Banks globally lead to high liquidity chasing riskier asset classes in its conquest for generating returns, which was one of the primary reasons for equity markets reaching its all-time high. We all know that retail participation is at an all-time high and most of these investors have seen one side of markets which was liquidity-infused Bull Run. India’s largest exchange NSE data shows that markets are now dominated by individual investors, who now form 45% of the trading turnover on the stock exchange.

Below statistical data shows the Share of client participation in Capital Market at NSE (%)

We have seen a huge run up both in primary and secondary markets since traditional asset classes are yielding low returns, so one is willing to take risk to combat inflation and chase returns. After making an excellent return in the stock market in the last 12 to 16 months, retail investors are moving from the top blue chip to mid-cap and small-cap shares thereby moving in the higher risk matrix of investing.

There are concerns emerging from high global debt which has reached USD 300 Trillion, prospective 3rd wave of Covid 19 and its impact, decoupling of global activities and trade, increase of interest rates in some countries like Russia, Brazil, Mexico, Hungary and Turkey to fight inflation.

Our Government and RBI are also keeping a close watch on Fed’s Tapering moves and policy rates. In current scenario one has to be pro-active rather than re-active, since equity markets are at their historical high multiple. But do we really find businesses at a fair valuation?

There has been exuberance for Internet based platform companies post Zomato listing and many market participants are comparing it with the likes of Amazon, DoorDash and Meituan.

Considering the euphoria which is being built around Zomato, we tried to analyze whether it really has a MOAT for its valuations to be justified, since it is not profitable as yet and has good competition from existing players for its existing and new businesses and on the other side there are companies like IRCTC - Indian Railway Catering and Tourism Corporation Limited which is a Mini Ratna Category 1 Public Sector Enterprise and is also ranked in Fortune India Next 500 Companies and the only entity authorized by the Indian Railways to provide catering services, online railway tickets and packaged drinking water at railway stations and trains in India. The said company enjoys entry barriers and has a monopoly for its businesses. Let’s analyze both the companies in terms of its business segments, MOAT and valuations.


IRCTC mainly operates in 4 verticals like Internet Ticketing, Catering, Packaged Drinking Water (Rail Neer) and Travel & Tourism. Let’s have a look in detail at each of its verticals.

Internet Ticketing:

IRCTC is the only company authorized by Indian railways to offer online railway tickets through its website and mobile application IRCTC Rail Connect

  • The number of active users has increased from 5.96 crores as on March 2020 to 6.70 crores active users as on March 2021

The company charges a very nominal convenience fee of INR 15 + Taxes for Non AC Class and INR 30 + Taxes for AC Class per ticket booked online.

The company levies a convenience fee of INR 10 + Taxes for Non AC Class & INR 20 + Taxes for AC Class (including First Class) for customers booking e-tickets through BHIM/UPI payment mode.

IRCTC booked 1740 lakh tickets in the year 2021 (over 4.8 Lakh tickets per day vs 8.25 Lakh in 2020) and the convenience fee realized in the year 2021 was INR 299 crores (Per ticket INR 17.18).

If we look at the above table, we see that there is a continuous increase in digitalization of ticket booking.

(Source: IRCTC Annual Report 2021)

IRCTC is the cost-effective platform to book railway tickets online as compared to other Online Travel Aggregators (OTA). OTA route their bookings through IRCTC only. Let’s look at the below service charges table for online booking of Mumbai to Ahmedabad route.


➤IRCTC is the only entity authorized by Indian Railways to provide catering services to Railways

➤IRCTC has started the new initiative of e-catering which allows passengers willing to pay higher prices for a variety in food options to order food items from partner restaurants, which pays IRCTC a 12% commission on order value (inclusive of GST).

➤Catering contributed 29% of revenue in FY2021 against 46% in FY2020

➤ Due to COVID; catering revenues have gone down from INR 1,033 crores in FY20 to INR 223 crores in FY21

➤The average booking of e-catering is around 17,000 meals per day for 1Q22 as compared to 21,000 meals per day in the pre-covid era.

The Catering division has 3 verticals namely Mobile Catering (in trains), Static Catering (on railway stations), and E-Catering (in trains – food from partner restaurants)

Mobile catering: It provides onboard catering services through its pantry cars attached to the train or base kitchens located at major locations.

The company provides onboard catering and vending services in nearly 550 Trains as on 31st March 2021 in trains like Rajdhani, Shatabdi, Duronto, Gatiman, Tejas Express, Vande Bharat, Mails etc.

Static catering: Static catering services are offered at Jan Ahaars, cell kitchens, food courts, and refreshment rooms at railway stations.

(Source: IRCTC 2021 Annual Report)

Hospitality Services:

To provide railway passengers a comfortable and convenient space to relax, executive lounges and retiring rooms have been created on railway stations. Equipped with modern amenities, these spacious lounges have reclining sofas, offer buffet meals, Wi-Fi internet service and clean washrooms at nominal rates.

(Source: IRCTC 2021 Annual Report)

IRCTC has already been awarded the contract for setting up and management of Pod/Capsule concept, retiring room and dormitories at Mumbai Central (MMCT) station of Western Railway

IRCTC is also renovating, operating and maintaining Retiring Rooms at major railway stations across the country to improve facilities for travelers.

E-catering: IRCTC offers e-catering services to passengers through its mobile application "Food on Track" and its e catering website,

Its latest service offering, e-catering, allows passengers to book food from its partner restaurants and food outlets through a mobile application during train journeys.

➤Key brands providing meals include Domino’s, Subway, Haldiram’s, Faasos, Sarvana Bhawan, Nirula’s etc.

➤Passengers at the convenience of their seat in the train can order food as per their choice at the allocated station.

➤E catering services are available on 200+ stations and more stations are being added under the e catering umbrella in phased wise manner.

➤In E-Catering, the company has made few new tie-ups & has increased commission from 12% to 15%, it has also opened booking through B2C partners such as Mobikwik & other platforms.

IRCTC had talks with Zomato & Swiggy on the e-catering front. However, due to higher charges by these delivery aggregators, there could be erosion in margin for IRCTC. Hence, IRCTC is in talks with other B2C aggregators to bring IRCTC’s brand to supply food. Deals with Zomato & Swiggy are not yet finalized, talks are still on.

Rail Neer:

Only entity authorized by Indian Railways to provide packaged drinking water at railway stations and trains in India.

➤With 14 plants Capacity of around 14.08 lakh bottles per day. New plants coming up this financial year, with this the capacity will be increased to around 16 lakh bottles per day

➤Rail Neer contributed 7.3% of revenue in FY2021 against 9.8% in FY2020 and 12% in recent 1Q22 June ending quarter

Travel and Tourism

IRCTC with the help of its platform of Internet booking has a large data base of customers & their preferences these could help them to offer/promote other products in Travel related services for both Domestic and International Travelers.

IRCTC proposes to position itself as a one-stop solution to domestic and international customers with respect to Accommodation, Air ticketing, Cruise packages, Tour packages, Bus ticketing and allied tours and travel related services.

  • Accommodation

➤IRCTC through its platform has integrated with hotel chains, Inventory providers and State Government Guest Houses to provide accommodation services to its customers.

➤To reduce the dependency on Hotel Aggregators, IRCTC has started the process for direct tie-up with Hotels such as Pride, Ginger, Treebo, Park, KTDC, UPSTDC, KSTDC, etc, thereby increasing their scope for better margin.

  • Air Ticketing

IRCTC through its portal offers Air ticket booking for domestic & international flights. IRCTC charges one of the most economical fees which are lowest amongst the industry. It is the only portal which offers travel insurance up to INR 50 lakhs at zero cost on flight ticket booked through its website.

  • Tour Packages

IRCTC has been constantly working towards promoting and developing rail tourism.

Domestic Tour Packages: Includes various holiday, customized, adventure or educational tours.

Premium Tours: Maharajas’ Express and Golden Chariot Luxury Trains are tailored for providing a premium experience of the country’s most exquisite and beautiful locations.

Maharajas’ Express: IRCTC is the proud owner of the Finest Luxury Train Maharajas’ Express which aims to provide a royal experience.

Journeys offered includes:

The Indian Panorama

Delhi, Jaipur, Ranthambore, Fatehpur Sikri, Agra , Orchha & Khajuraho, Varanasi

Treasures of India

Delhi, Agra, Ranthambore, Jaipur

The Indian Splendour

Delhi, Agra, Ranthambore, Jaipur, Bikaner, Jodhpur, Udaipur, Mumbai

The Heritage of India

Mumbai, Udaipur, Jodhpur, Bikaner, Jaipur, Ranthambore, Fatehpur Sikri, Agra and Delhi

The Golden Chariot: - IRCTC runs a train in partnership with the Karnataka State Tourism Development Corporation Limited. It provides a thrilling tour across the states of Karnataka, Tamil Nadu, Kerala and Goa. The Golden Chariot has three main tour packages, ‘Pride of Karnataka’, ‘Jewel of South’ and ‘Glimpses of Karnataka’, covering famous places across Bandipur, Mysore, Hampi, Cochin and other places of interest.

  • Mass Tourism: For the well-established local heritage sites and domestic cultural favorite spots which includes:

Bharat Darshan is attractively priced at INR 900 & INR 1100 per day per person, plus INR 45 for sleeping & 3rd AC class passengers respectively. The price is inclusive of rail & road travel, all meals, sightseeing & accomodation along with accidental insurance cover of INR 10 lakhs. Tour packages are planned for visting famous tourist spots like Gaya, Nasik, Ujjain, Varanasi, Allahabad, Ayodhya, Somnath, Amritsar, Katra, Tirupati, Kanyakumari, Rameshwaram, Madurai, Puri, etc.

Pilgrim Special: These Pilgrim special trains are being operated with LHB rake. This being a pilgrimage centric product which has been attractively priced at INR 900/- & INR 1500/- per day per person + GST for sleeper class & 3rd AC class passengers respectively. The price is inclusive of rail & road travel, all meals, sightseeing and accommodation along with accidental insurance cover of INR 10 lakhs. IRCTC operated its first Pilgrim Tourist Train Ex Jalandhar from 27.01.2021 to 03.02.2021, covering Ujjain – Ahmedabad – Somanth - Dwarka.

Special Trains

IRCTC is the only private train operator with experience in operating an asset-light lease-based model. IRCTC already has experience of running Tejas trains (New Delhi-Lucknow, Mumbai-Ahmedabad, and Kashi Mahakal Express (Varanasi to Ujjain). 2,55,281 passengers have availed services of Tejas trains in FY 2021.

  • Bus Seat Booking

The IRCTC Bus Service (www.bus. offers booking of State Road Transports as well as Private Operators with more than 50 thousand bus operators covering 22 States and 3 Union Territories including Kashmir region.Company aims to facilitate seamless online bus booking services and enable last-mile connectivity to the travelers.

  • Cruise Packages

Recently IRCTC has tied up with Cordelia Cruises to offer domestic cruise packages through its website

The travel and tourism segment was the most affected sub-segment of IRCTC as discretionary travel has been most disrupted due to COVID and Government restrictions.

Below are the segmental Revenue and EBIT break-ups of IRCTC

Due to COVID; IRCTC business was affected in FY20-21 and once again in the June quarter it got affected due to the 2nd wave of COVID. However, despite challenges some verticals like Internet Ticketing, Rail Neer have improved. Internet ticketing segment continues to deliver strong margins & rail-neer segment turned EBIT positive after 4 quarters.

The average number of trains per day in June 2021 was 2521, in July 2021 was 2700 & in August 2021 was 2750 compared to pre-covid levels of around 3500 to 3600 trains.


Zomato’s business is built around the core idea that over time, people in India are going to eat more food from restaurants than what they cook at home due to increase in per capita income, time constraints, demographics of the young working population, increase in urbanization, etc. To capture this shift in customer behavior, Zomato has designed its core Business Model by devising B2B as well as B2C offerings.

Zomato currently operates in 525 cities in India, and have footprints across 23 countries outside India as on March 31st, 2021.

Food Delivery

Food delivery is a service provided by Zomato as a food delivery aggregator to its customers;

Zomato has three key stakeholders to serve in their food delivery business –

(i) Customers, (ii) Delivery Partners, and (iii) Restaurant Partners.

What does a customer pay?

Customers Pays = Food Price - Discount + Delivery Charges + Tip (If any)

How do Zomato and their business partners earn revenue?

  • Delivery Partners Income = Delivery Fees + Tip Collected from User + Additional Delivery Charges

  • Restaurant Partners Income = Food Price + Packaging Charges - Restaurant Funded Discount - Commission retained by Zomato

  • Zomato Income = Commission from restaurants + Ad revenue - Zomato Funded Discount

We have seen consolidation in the food delivery business. In 2016, there were 4-5 operators including Zomato, Swiggy, Foodpanda, UberEats, and Faasos. Now it’s a duopoly between Zomato and Swiggy. However, despite recent consolidation, new entrant risk cannot completely be ruled out. Amazon recently entered the food delivery space in India, and currently operates in limited areas of Bengaluru.

Some restaurant owners and associations are not comfortable due to high commissions and lack of access to consumer data from food delivery platforms. In the near term large restaurant chains could consider going for the "direct delivery" route. Either through their own websites or apps like in the case of Indian Hotels which operates the Taj brand, have their own delivery app named Qmin. Other small restaurants also have the option to tie-up with 3rd party delivery providers such as Eazydiner, DotPe, Thrive, etc which provide tech solutions and platforms to restaurants for handling direct deliveries, with lower commissions as compared to Zomato and Swiggy.

Zomato Pro

Zomato provides an exclusive paid membership program called Zomato Pro, which unlocks flat percentage discounts for pro customers at select restaurant partners across both food delivery and dining-out offerings.

Customers become Pro Members by paying a membership fee. The Fee starts from INR 200 for 3 months and INR 750 per year.


In India, Zomato is a preferred destination for dining-out search and restaurant discovery.

Zomato is the largest food-focused restaurant listing and reviews platform in terms of customer base and also the largest online table reservations platform in India with 3.3 million covers booked through Zomato’s platform in Fiscal 2021. In Fiscal 2020, 12.2 million covers were booked through the platform.

As of March 31st, 2021, Zomato had active listings of 3, 89,932 restaurants on its platform. The Company currently monetizes their dinning out options through advertisement sales, which the restaurant partner pays for higher visibility. There are some other platforms like Dineout and EazyDiner, where one can book a table while dining out at restaurants.

Here customers or even restaurants are not bound to have a tie up only with Zomato but they have multiple choices.

B2B Supplies (Hyperpure) & B2C Ecommerce Supplies

Through its Hyperpure division, Zomato supplies ingredients like fruits, vegetables, groceries, dairy, poultry, meats, seafood, bakery items, gourmet, packaged foods, beverages and packaging to their restaurant partners.

Restaurant partners ordering supplies through Hyperpure get a “Hyperpure Inside” tag on their Zomato page, which is intended to provide customers with an assurance of the quality of ingredients used at the restaurant. In March 2021, Zomato in its Hyperpure segment provided supplies to 9225 restaurants in 6 cities in India. The revenue from this segment was INR 200.2 Crore in FY 2021, INR 107.6 Crore in FY 2020 & INR 14.9 Crore in FY 2019.

Many restaurants already have their key supplies tied up with their existing vendors, who provide them attractive rates and also offer them credit. In this case, only not so known restaurants or cloud kitchens may tie-up with Zomato for their Hyperpure arrangement to get the tag of “ Hyperpure Inside ” to lure the customers to order from them.

Zomato had launched its e-grocery business last year, but it failed to take off due to stiff competition in the segment from BigBasket, Jio Mart, D Mart Ready, Amazon Pantry etc. The company restarted it e-grocery business this year on pilot project basis which it has decided to stop completely from 17th September 2021 mainly on account of gaps in order fulfillment due to dynamic store catalogue and frequent change in inventory level which leads to poor customer experience.

Zomato recently completed the acquisition of 9.16% stake in Grofers India for $100 Million, through this the company believes that its investment in Grofers will generate better outcomes for its shareholders than in-house grocery efforts. The company expects that its investment in Grofers would give them an opportunity to be a part of growth in e-grocery business. However, the e-grocery market is already crowded with the biggies like Amazon Pantry, Reliance Jio Mart, Big Basket who are well established and have deep pockets. Swiggy has also expanded its grocery delivery service “Swiggy Instamart” to 7 cities in India, with an aim to deliver in 30-45 minutes.

Let’s look at globally listed food delivery aggregators’ and their sales multiple at which they are currently available.

DoorDash Inc., an American online food delivery services firm, on 9th Dec 2020 had a debut on NYSE with issue price of $102 per share , which is now trading at $203.33 per share i.e. after giving gains of 99% within a year is available at 15.5 EV/Sales multiple.

Meituan Inc., a Chinese food delivery giant On September 20, 2018, debuted on the Hong Kong stock exchange at an IPO price of HK$69 per share, which is now trading at HK$245 per share i.e. after giving gains of 255% in 3 years is available at 10.5 EV/Sales multiple.

Similarly, there are other global companies in the above table, the average EV/Sales of these players are 8.7x, whereas Zomato is available at 50.6x which is 5.8 times higher than the average multiple of global food aggregators. This shows how expensive the said business is when we compare it with globally listed players. No doubt there is a large market place which is available for Zomato or its rivals, however, what kind of premium valuations can be justified?

On one side we have a business like IRCTC wherein the MOAT is, that the company enjoys virtual monopoly by way of entry barriers and is the only entity authorized by the Indian Railways to provide services like catering, online ticket booking and packaged drinking water at its stations and trains. The company’s catering business provides its Mobile catering services in more than 550 trains, has 536 Static catering outlets, and is also in the business of e-catering through its mobile application Food on Track wherein the passengers can book a meal of their preference at the convenience of their seat fulfilled by its delivery partner outlets. The company has a rich database of customers to whom they can upscale Luxury Train packages, Domestic and International Tour packages, air tickets, cruises etc. In FY 20-21 average monthly transaction volume was 14.5Mn and daily login per day was 2.65 Mn whereas in the pre covid era in FY 2019-20, IRCTC was one of the most transacted platforms in Asia Pacific with a transaction volume of over 25Mn per month and 5.5Mn logins per day, which reflects that the company has a market to cater to and it is only due to covid that their volumes have been impacted for ticketing which inturn impacts their catering and packaged drinking water business, the same would normalize as restrictions open up and people restart their travel.

Online food penetration in India is lower as compared to other countries which gives Zomato an opportunity to cater to a large market, it also has active monthly users of 32.1 million during FY 20-21. On the other side, Zomato is in a duopoly business of food delivery with stiff competition from the likes of Swiggy. The restaurants are not bound to work with Zomato and they may either go direct or would prefer partners who charge them lower commission. Globally the Governments are intervening in the business model of delivery aggregator and are pressuring them for reduction of commission structure to save the restaurant industry. Earlier Zomato had ventured on pilot basis in the e grocery business which it recently shelved off it plans. Restaurants already have their existing vendors and would not be easily shifting to Hyperpure segment. Similarly there are multiple players in the dining out segment.

The customer is attracted to those platforms or apps which provide them cost-effective or discounted deals. The Customer Acquisition Cost i.e. CAC is negligible for IRCTC whereas there is a significant cost to be incurred for acquisition of new customers and retention of existing customers for Zomato which they do by offering First time coupons (to new customers), referral discounts, continuous social media ads and campaign, TV commercials, restaurants or delivery discounts, offers etc.

Although, both the companies are not comparable in terms of financials since, both have different business models and both the companies are trading at a premium valuations.

IRCTC has MOAT with monopoly business and has clear revenue and growth visibility when it comes to India’s growing online ticketing with an inbuilt catering business and potential of becoming a one-stop travel solution provider.

On the other side, Zomato is in a competitive business environment and has not been able to turn business into profitable yet.

It’s needless to say that the valuation of any business is derived based on its future profitability. However, certain risk factors, market positioning, entry barrier, regulations, MOAT are to be considered before giving high multiple to any business.

The Price of the stock is not important, but valuation is the litmus test, that investors should look out for. It is prudent time to have a more pro-active approach in terms of business and company selection as Everything which shines is not GOLD.

Please note that this is not a recommendation to buy or sell any specific company or stock. Our only intension is to analyze a business, its MOAT, and its respective valuation.

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