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Shares of Indian Railway Catering and Tourism Corp. Ltd (IRCTC) rebounded from a record 30% slump, after the government withdrew a demand that the state-run company share half of the convenience fee it charges customers after facing intense criticism for treating minority shareholders unfairly.
On 28 October, the railway ministry asked IRCTC to share half of the convenience fee collected by it from passengers starting 1 November. When markets opened on Friday, the move triggered the steepest plunge since IRCTC’s market debut in October 2019.
The drop eroded IRCTC’s market value by ₹18,000 crore. But the stock recouped much of the loss after the government decided to scrap the decision.
IRCTC stock ended trading on Friday down 7.45% to ₹845.65 on BSE.
The episode serves as a warning against “undue optimism while investing in PSU stocks. Enhancing shareholder return is not the objective of PSUs. So, 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.
IRCTC charges a convenience fee of ₹15+GST for bookings in non-air-conditioned coaches and ₹30+GST for reservations in air-conditioned ones. There are discounts if customers pay using the UPI digital payment method.
IRCTC’s convenience fee collections fell to ₹299 crore for the year ended 31 March from ₹352 crore in the previous year, as fewer trains operated and people avoided trains during the pandemic. Revenue from operations stood at ₹780 crore against ₹2,260 crore a year ago. Its booking declined 42% from a year ago.
Internet ticketing accounted for 51% of its revenue. This was the only profitable business while other operations such as catering and other travel services yielded very low margins.
Analysts said this episode may weigh on the government’s reform agenda, including the initial share sale of Life insurance Corp. of India next fiscal.
Investors said the government’s order trampled on interests of minority IRCTC shareholders. “Bad corporate governance, bad economics and bad for all divestments," lawyer Sandeep Parekh said in a Twitter post. “This has broken the trust of the investors in the integrity of future public sector divestments. Generally hurting valuation of all existing listed PSUs and those coming for divestment in the future," he added.
D. Muthukrishnan, a Chennai-based investor, tweeted: “If you cannot treat minority shareholders fairly, stop all disinvestments. Retail investors are never going to trust you. Killing the business model by one circular is extremely unfair."
For FY22, the government has set a disinvestment target of ₹1.75 trillion, over five times what it raised in FY21. After the divestment of Air India, the government is looking to India’s largest insurer, LIC’s IPO, privatization of IDBI Bank, Bharat Petroleum Corp. Ltd, Pawan Hans, Bharat Earth Movers Ltd, Neelachal Ispat Nigam Ltd and Shipping Corp. of India.
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