New Delhi: IRCTC plunged as much as 30% in its sharpest intraday fall since listing in 2019, wiping off as much as Rs 21,900 crore ($2.93 billion) from its market valuation, after the Ministry of Railways asked it on Thursday to share 50% of revenue earned from convenience fees from November 1.
But the stock pared most of these losses after the Indian government withdrew its decision earlier this morning.
The Ministry of Railways has conveyed its decision to share the revenue earned from convenience fee collected by IRCTC in the ratio of 50:50 from November 1, IRCTC said in a regulatory filing on Thursday.
The state-owned IRCTC is the only firm authorised to manage food services on trains and has a monopoly in the online ticketing and catering services for the Railways.
Also Read: The Dangers of Dismantling India’s Public Sector
According to Livemint, convenience fees charged from customers generated a sizable revenue for both IRCTC and the Railways. The fee is not part of the rail fare. It is for the service of online ticket booking offered by the IRCTC.
The company’s share price dropped by 25% to Rs 685.35, while other Indian public sector companies were also hit.
The Railway Board and top officials from the IRCTC are scheduled to meet on October 29 at 4 pm to discuss the withdrawal of the revenue sharing model for IRCTC’s convenience fee, Moneycontrol reported. This comes after Tuhin Kanta Pandey, secretary at the Department of Investment and Public Asset Management (DIPAM), said that the government would withdraw its decision on convenience fee.
“Government asking IRCTC to share 50% 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. 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.
The company earned about Rs 299 crore from convenience fees in 2020-21 or around 38% its revenue from operations, according to its annual report, in a year marred by COVID-19’s hit to travel.
“This incident reveals the risks that investing in public sector enterprises carry,” said Shriram Subramanian, managing director at corporate governance advisory firm InGovern Research Services told Reuters.
“All government ministries should realise not to rock the applecart as valuations of most PSEs are already very depressed and the disinvestment programs, like the LIC IPO, could get impacted.”
(With inputs from Reuters)