The stock had plunged as much as 30 per cent in early trade on Friday, following an order by the ministry of railways which required IRCTC to share 50 per cent of its revenue earned from convenience fees from November 1.
This was its sharpest intra-day fall since listing in 2019.
The fall in share price had wiped off as much as Rs 21,900 crore from its market valuation in early trade.
However, the stock recovered majority of the losses after the government withdrew its order.
Sounds confusing? Let’s break it down…
The state-owned IRCTC has a monopoly in the online ticketing and catering services for the Indian Railways. It is the only firm authorised to manage food services on trains and has a monopoly in the online ticketing and catering services for the Indian Railways.
Income from convenience fee on train tickets was the largest revenue earner for IRCTC in 2020-21 because income from the catering and comprehensive services fell from Rs 512.45 crore in 2019-20 to Rs 87.31 crore in 2020-21 due to Covid-related restrictions.
IRCTC earned Rs 299.13 crore from the convenience fee in 2020-21 and Rs 350 crore in 2019-2020.
Now, the government wanted IRCTC to share half of that convenience fee income with it, which means it wanted to earn Rs 150 crore from the Railways.
When IRCTC agreed to share 50 per cent of the convenience fee on the tickets booked through its website, investors got very upset. And that’s a natural reaction since it earns a generous profit from these fees.
IRCTC charges a convenience fee of Rs 15 plus goods and services tax (GST) on a ticket for non-AC classes and Rs 30 plus GST for AC classes (including first class).
For BHIM/UPI payments, the convenience fee is offered at a discounted rate of Rs 10 plus GST a ticket for non-AC classes and Rs 20 plus GST for AC classes.
On Thursday evening, IRCTC informed the exchanges that “In compliance with the Regulation 30 of Securities and Exchange Board of lndia (Listing Obligations and Disclosure Requirements) Regulations, 2015, it is to be informed that ministry of railways vide above referred letter has conveyed its decision to share the revenue earned from convenience fee collected by IRCTC in the ratio of 50: 50 w.e.f 1st November 2021.”
At closing, the market capitalisation of IRCTC was Rs 67,652 crore, down from Rs 73,100 crore on Thursday’s close.
Once the stock started tanking in the morning, the government withdrew its order and the stock staged a recovery of 39 per cent when it hit an intra-day high of Rs 907.
Had the government not withdrawn its order, IRCTC’s revenues and earnings before interest and tax (EBIT) would have been hit by 14 per cent and 36 per cent respectively.
Also, the government is already under fire for soaring petrol and diesel prices, and a move like this would have eroded investor confidence in PSU stocks.
“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,” V K Vijayakumar, chief investment strategist at Geojit Financial Services told the Economic Times.