Ministry of Railways withdraws convenience fee decision on IRCTC; stock recovers

NEW DELHI: Ministry of Railways on Friday withdrew its proposal to seek 50 per cent of the convenience fee that IRCTC generates. The fresh development comes after IRCTC stock took a dive earlier in the day, falling over 25 per cent on fears of derating amid regulatory risks.

The stock hit a low of Rs 650.10 on BSE, taking its fall to 49 per cent from the October 19 high of Rs 1,278.60. But following the latest development, the stock cut losses to trade 5.3 per cent down at Rs 865.15 at the time of writing this copy.

"I believe the stock will remain sideways in the coming days where the upside will be capped around Rs 1,000 level and the downside will be protected around Rs 700 level. Overall fundamentals are still strong for this counter but the market will hesitate to give IRCTC the same valuations that it was enjoying before this event because such of risk will remain in the mind of investors," said Santosh Meena, Head of Research, Swastika Investmart.


"Option writers and arbitragers are looking at it as a golden opportunity as uncertainty is out of the window for the time being. They may try to keep the counter range-bound in November," Meena said.

Earlier in the day, DIPAM said in a tweet said: "Ministry of Railways has decided to withdraw the decision on IRCTC convenience fee."


The Street expects about 433 million tickets to be sold via IRCTC in FY23 and a 50 per cent convenience fee would have hit Ebit estimates by about 30 per cent for FY23 and FY24.

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 Rs44-Rs 49 for FY23 and FY24, respectively.

At present, IRCTC has no sharing of convenience fee with MoR. As per IRCTC’s website, income from the convenience fee is recognized on the basis of the value of the convenience fee earned on the tickets booked by domestic customers through its website.

Many Dalal Street experts had also shown their concerns over the development, and its likely impact on the PSU basket as a whole.

"Government asking IRCTC to share 50 per cent convenience fee with the Railway Ministry is yet another instance which should warn investors of undue optimism while investing in PSU stocks. Enhancing shareholder return is not the objective of PSUs. Investors have to be careful while chasing PSU stocks, even if they are cheap," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services had said earlier in the day.

Meanwhile, Deepak Jasani of HDFC Securities believes existing investors, who bought the stock at highs, should be on a wait and watch mode. This analyst had expected 35-40 per cent impact on EPS in case convenience fee was to be shared on a 50:50 basis.