A rout, a reversal and then a recovery: the IRCTC flip-flop decoded

A rout, a reversal and then a recovery. Indian Railway Catering and Tourism Corporation shares took a hit of as much as 30% but pared almost all of its losses after the Ministry of Railways decided to take back its decision to share 50% of revenue from convenience fee charged by the PSU. That the Railways and IRCTC have a history on convenience charge sharing is well known. But the entire fiasco begs the question, why was it done in the first place?

Following the announcement of revenue sharing last evening, the stock today tanked 25% to as much as Rs 685/sh at its lowest, before making a sharp recovery. The scrip has had an extremely volatile year with many analysts flagging the valuations mismatch. Since its D-St debut, IRCTC increasingly becoming somewhat of a 'hot' stock in the market. The company, which listed on the exchanges in December 2020, saw the government relinquishing 20% of its stake as a part of its IPO at Rs 1,377.60/sh. The company has whipsawed significantly since then, it even hit a market cap of Rs 1 lakh crore briefly.



So what is the convenience fee fuss?

The convenience fee is a service charge levied on tickets sold via IRCTC's website. Before 2014, the Ministry of Railways used to decide the quantum of the charge levied. In 2014, a 80:20 ratio was adopted wherein IRCTC retained 80% of the ticket fee. A year later, it was decided that the split will be 50:50, only for it to be eventually scrapped altogether in November 2016 amid the rise of digital payments.

Fast forward to 2019, the service charge on online bookings was reintroduced, with Rs 15 for non-AC and Rs 30 for AC tickets, both along with GST, but this time there was no sharing with the MoR. If one were to book tickets via UPI/BHIM, the charge was Rs 10 for non-AC tickets and Rs 20 for AC tickets.

In its now-revoked notice, the Railways asked IRCTC to share 50% of revenues it generated from convenience fees for bookings made on its website with effect from November 1. For context, in FY21, the company's revenue from operations was Rs 783 crore, earning Rs 299 cr from convenience fee. The internet ticketing segment was the only segment among its four that had a profit margin of around 79%. Even in the previous fiscals, they have highlighted their robustness. Many analysts see the internet ticketing & tourism business as the company's biggest value driver. And many feel that a derating and an earnings downgrade would've been in order had the MoR's fee split decision gone through.

KRChoksey Investment & Managers had estimated the convenience fee for IRCTC at Rs 740 crore for FY23 and Rs 780 crore for FY24. As per the brokerage, sharing 50 per cent of revenue with MoR would have meant that the EBIT margin of the ticketing division would have fallen from nearly 85 per cent to roughly 48 per cent in FY23 and FY24. Correspondingly, the EPS estimate cut would have been be in the region of 28-27 per cent to Rs 44-Rs 49 for FY23 and FY24, respectively.

Reportedly, Railway Board and top officials from IRCTC are scheduled to meet today to discuss the withdrawal of the revenue sharing model for IRCTC's convenience fee, sources told Moneycontrol.

This turnaround in decision making is potentially damaging to the government's thrust on privatisation even as the economy continues to recover from the damage caused by the pandemic. Plenty of analysts and investors, who usually see PSUs as value-eroding stocks, feel this fiasco further strengthens their belief of keeping away from PSU stocks.

One wonders if the government, which has worked hard to show its intention on privatisation, can take this risk of being seen as shaky and irresolute.