The sale of Air India to the Tata Group, part of a broader divestment strategy, offered strong evidence that the central government was committed to a reform agenda that had privatisation at its very centre. The bleeding airline was, perhaps, the hardest public asset to offload and the government’s success in doing so sent an important message that sudden government interventions in the market were finally a thing of the past.
However, threatening all that good work was the government’s decision to direct the Indian Railway Catering and Tourism Cooperation (IRCTC) on Thursday, to share 50 per cent of the revenues it collected as convenience fees from users.
The move had an almost immediate and disastrous impact on IRCTC’s share price which fell by as much as 40 per cent on the BSE on Friday. Said the IRCTC in a filing to the stock exchange on Friday, “…it is to be informed that Ministry of Railways…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.”
It’s worth noting that the IRCTC began sharing its revenue with the Indian Railways on an 80:20 basis in 2014. However, in 2015, that split changed to 50:50. The revenue sharing system was later suspended for three years from 2016.
The convenience fee mechanism is the highest revenue earner for the IRCTC. In 2020-21, it raked in Rs 299.13 crore for the body. The restrictions imposed by governments to contain the spread of COVID-19 meant that this revenue was significantly lower than the 349.64 crore it collected in 2019-20. As it stands, the IRCTC charges Rs 15 plus GST for a non-AC class ticket and Rs 30 plus GST for AC classes. If transactions are carried out using BHIM/UPI, the fees are lower at Rs 10 plus GST for a non-AC class ticket and Rs 30 plus GST for an AC class ticket.
In response to IRCTC’s stock tanking, the government, less than 24 hours later, revealed that it was binning the revenue sharing idea. The Department of Investment and Public Asset Management (DIPAM) secretary took to Twitter to confirm the same. Shortly after the announcement, IRCTC share prices began to gradually recover and traded at a day’s high of Rs 906.60 on Friday before dipping slightly.
Although the government’s decision was welcomed by analysts, some experts have raised concerns around the larger market sentiment, questioning whether the initial decision will have an effect on the uptake of PSU stocks.
It bears mentioning that following the government’s notification, other PSU stocks also suffered. It’s also worth being reminded that it was only in August this year that the IRCTC stock was split to broaden the investor base and increase liquidity in the capital market. The stock split involved splitting a single equity share priced at Rs 10 into five shares each priced at Rs 2. IRCTC shares had traded at a record high of Rs 1,279 on October 19, 2021.
