Demonetisation boost to digital payments may derail IRCTC IPO

Withdrawal of service charges on rail ticketing, while helping promote digital transactions after demonetisation, may derail the proposed listing of Indian Railway Catering and Tourism Corporation (IRCTC) in the current financial year, sources told FE. However, sources said, preparation for listing of two other railway PSUs —Indian Railway Finance Corporation (IRFC) and IRCON — are well on course and their IPOs are expected to hit the market by September.

IRCTC’s service charge waiver for over seven months, up to June 30, will result in revenue loss of about Rs 330 crore, which is 1.75 times of the Rs 188-crore net profit reported by the rail PSU in 2015-16. IRCTC’s annual loss due to non-collection of service charge on e-ticketing is estimated at around Rs 600 crore.

“This service charge from ticketing was the most profitable business model of IRCTC. It is now losing Rs 1.5 crore per day,” said an official. On November 23, the railway ministry decided that service charge will not be collected if train tickets are booked via credit/debit/cash cards. Nearly half of IRCTC’s revenue came from this service in 2015-16.

Officials are concerned that the current valuation of the company may be much too low and won’t fetch the desired revenue from the proposed stake sale by the government through the IPO. Its valuation was estimated to be around Rs 800 crore in 2015-16.

The railway ministry has written three letters to the finance secretary requesting reimbursement of the loss to IRCTC. “But the finance ministry has not responded,” the above cited official said. On November 8, the government announced old `500 and `1,000 currency notes would no longer be valid and this led to a huge cash crunch across the country. The government subsequently took various steps to ease the situation and promote cashless transactions, and withdrawing service charges from online ticket bookings was one of them.

“The Department of Investment and Public Asset Management (DIPAM) has asked IRCTC to think of changing its business model. Thankfully, the entire catering business has come back to IRCTC (which was earlier also given to third party vendors), and if catering and tourism is undertaken with due diligence the annual income can be increased by two-three times,” the official added.

In his 2017-18 Budget speech, finance minister Arun Jaitley had announced that railway PSUs like IRCTC, IRFC and IRCON would be listed in the stock exchanges to unlock their value and improve corporate governance. The government may sell up to 10% or more in the IPOs of the three rail PSUs, depending on the market appetite. Going by the 2015-16 estimated valuation, the listing of three rail PSUs could fetch less than Rs 3,000 crore. The IPOs are part of the government’s annual disinvestment programme. It has set an ambitious disinvestment target for 2017-18 at Rs 72,500 crore, which is 60% more than such receipt in the last financial year.

Three weeks after budget was presented, DIPAM invited proposals from merchant bankers to manage the proposed IPOs. Three bankers — ICICI Securities, IDFC Securities and SBI Capital Markets — have responded to the request for proposal for advising the government on the listing of rail PSUs.