irctc ipo

The Big Fat IRCTC Fiasco and Why It’s Such a Huge Deal

The IPO universe has been a multi-coloured bouquet. But we must treat today’s IRCTC episode as a learning lesson.

Is this a stock or an Abbas Mustan film, someone asked me on Twitter, in response to recent developments on the Indian Railway Catering and Tourism Corporation.

Best to go top to bottom in this case. In a dramatic 19-hour-turnaround, the DIPAM (Department of Investment and Public Asset Management) Secretary announced in the middle of the trading day that the Indian Railways were withdrawing their decision on a convenience fee sharing agreement for IRCTC. On Thursday, October 29, IRCTC announced that going forward, the company will have to share the convenience fee in the ratio of 50:50 with the Railways.

However, significant damage had been done. Shares of IRCTC plunged as much as 29% to hit an intraday low of Rs 650.10 on the Bombay Stock Exchange (BSE) in early trade. After the announcement, the stock recovered and cut its losses sharply. But such wild intra-day gyrations on any stock leave both trading exhaustion and losses in its wake, more so when trading volumes are high.

Also read: Explained: The Why and Why Now of the Stock Market’s Continuing Rise

Why is this convenience fee such a big deal?

IRCTC earns this fee on railway tickets booked through its website www.irctc.co.in. The charges range from Rs 30 per ticket on an AC booking and Rs 15 per ticket for a non-AC booking. Last year (a pandemic year, so travel was severely curtailed), the company earned Rs 300 crore from the convenience fee. So, even working with that figure, the share for the Railways (read government) would be around Rs 150 crore. Here’s where things get curious. As a 67% shareholder in IRCTC, a bulk of those collections would come back to the government as income or dividend.

According to Dalal and Broacha Research, the revenue sharing model of IRCTC with the Ministry of Railways would have had a Rs 138.5 crore impact on the revenues of IRCTC in 2021-22 and a Rs 495.7 crore impact of the company’s top-line in 2022-2023. Was this ugly and expensive two-steps-back-one-step-forward really worth it?

Then again, it seems like there never has been a clear line of thought around the convenience fee aspect. Before 2014, there was no sharing of service charge between IRCTC and the Railways, though the Railways decided the amount of the charge. Sharing started in 2014 in the ratio of 80:20 between IRCTC and the Indian Railways.

That ratio was changed to 50:50 in 2015 (after the fee was doubled) but the charge remained withdrawn for three years from November 2016. IRCTC defended the decision explaining that there was always a plan to reintroduce the revenue sharing model with the Railways Ministry, however, following the COVID-19 outbreak and a fall in bookings, plans were delayed.

Representative image. Photo: Reuters

Some questions need to be asked. First, given IRCTC’s own comments about how this was just a “pandemic adjustment” how does one read today’s decision to scrap sharing the convenience fee? Is this temporary as well, or for keeps? Or will there now be a glide path that will eventually lead back to the same point? All conjecture right now.

Opinion is also divided on whether this entire event was a function of insider trading, or good old fashioned incompetence. However, this is a classic case for the regulator to investigate what happened and whether the last two trading sessions saw evidence of insider trading or of parties having material non-public information and indulging in front running. If SEBI is where the buck stops on stock market irregularities, then it must come forward.

Third, DIPAM (Department of Investment and Public Asset Management ) Secretary Tuhin Kanta Pandey said that his department’s advice to other ministries had been that in case of listed state-owned companies, they should be mindful of the interests of minority shareholders. True – and also a north star to keep in mind before actually unleashing havoc on the stock and its investors.

Is there clear communication to the DIPAM around companies that have been specifically identified as candidates that will go public through initial public offerings or shed stake through offers-for-sale. Who is running quality checks here?

Myriad reactions

Fourth, some of the commentary post the event had me quite perplexed.

‘Don’t grumble about volatility, just be happy the decision was reversed,’ said one equity markets anchor.

‘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 a stock market analyst.

IRCTC made its market debut on October 14, 2019, and was listed at Rs 644 against its issue price of Rs 320 per share. Since listing, IRCTC stocks have tripled in value, aiding retail and other investors of course but most importantly it’s primary shareholder, the government.

Also read: As Buzz Builds Around IRCTC’s Tejas Express, Will Privatisation Take Wing?

Is it the case of stock market analysts and commentators that this kind of ridiculous and frankly damaging corporate governance should not be questioned and investors should quietly take whatever vagaries are inflicted on stocks they invest their money in? Or is it that one must attach lower standards of governance to a PSU stock?

If you’re not in the stock market to enhance shareholder returns, then why did you get listed in the first place ?

Finally, a word to the retail investor.

The IPO universe has been a multi-coloured bouquet, so much variety in businesses, so much colour in what’s on offer. But treat today’s IRCTC episode as a lesson for learning. Read the draft prospectus, try and understand what a company does, why it should be valued at a particular multiple and what the potential risks attached to the company are.

The less you know, the more you lose. And unfortunately, there’s no sharing the inconvenience fee of that loss.

As Buzz Builds Around IRCTC’s Tejas Express, Will Privatisation Take Wing?

The national transporter is in the process of finalising bidding documents for inviting private players to run about 150 trains.

New Delhi: Buoyed by the successful run of the first ‘corporate’ train between Delhi and Lucknow, the Indian Railways has received strong interest from the private sector even as various unions continue to oppose the plan.

According to sources in the national transporter, at least three Indian airlines have also expressed initial interest in bidding and operating certain train routes as a possible last-mile connectivity solution that they can offer their customers.

Much of this excitement is due to the initial demand that the IRCTC-operated Tejas Express has been attracting. The next Tejas service, which will run between Mumbai and Ahmedabad, is currently getting ready.

Reeling under mounting losses, the Indian Railways has firmed up plans to offer about 50 high demand routes for private train operations, in a move that will involve roughly 150 trains.

The Railways wants to lease out to private operators a number of long distance or overnight journey trains. These include routes such as Delhi-Mumbai, Delhi-Lucknow, Delhi-Jammu/Katra, Delhi-Howrah, Secunderabad-Delhi, Delhi-Chennai, Mumbai-Chennai, Howrah-Chennai and Howrah-Mumbai.

It has also proposed to invite private players for the intercity express on over 12 routes including the Mumbai-Ahmedabad and Mumbai-Pune journeys. Besides this, there are also proposals to operate suburban trains in Mumbai, Kolkata, Chennai and Secunderabad by private players.

Currently, the national transporter is in the process of finalising bidding documents to invite private players to run about 150 trains. The cost of these 150 trains is estimated to be Rs 22,500 crore as one rake will consist of 16 coaches.

Also Read: Large Rail PSUs to Hit the Public Markets to Meet Highest-Ever Divestment Target

It will be decided through competitive bidding and for this, the tender document is being finalised taking various factors into account, sources told The Wire. The process envisages prospective operators bidding for a minimum of 12 trains and a maximum of 50 trains, which include overnight and day-long trains.

Asked about airlines’ interest in train operation, sources told that some airlines are exploring acquiring certain train routes as a last-mile connectivity solution to increase the demand for their air routes. There is also a possibility that some players may discontinue their non-profitable air routes and focus on train routes instead.

In countries abroad, some airlines have chosen to do this, although its unclear whether the precarious financial health of the aviation sector in India will permit such an endeavour.

“Currently nothing is concrete. Once the tender is floated, the picture will be clear and we will come to know who all are coming,” sources added.

When asked, Indian Railways spokesman K. Shyama Prasad said that the ministry had no information on this and that there would be more meetings before anything is finalised. n it.

According to the potential tender conditions though, private operators will be given freedom to either purchase new trains or acquire it from the Railways on lease. Since this is the first time in the country that the public transporter is allowing private train operators to run passenger services, the government is approaching the final process with caution.

While private players are keen to import customised trains and are seeking dedicated routes to ensure punctuality, the Railways has to take a final call on the issue.

However, the national transporter will still be in control on the safety front, giving away only pricing decision to private train operators.

While the signalling system, loco pilots and platform will remain with the Railways, catering, onboard housekeeping, ticket pricing and checking, infotainment and other amenities will be the train operator’s responsibility.

IRCTC, the Railways subsidiary, which was being divested of 12.5% of its shares through an IPO, will pay nearly Rs 13 lakh per day in haulage and lease charges and is expected to generate about Rs 16 lakh to 17 lakh per day in revenue from the Delhi-Lucknow Tejas Express.

Arun Kumar Das is a senior journalist and can be contacted at akdas2005@gmail.com

Nirmala Sitharaman Announces Corporate Tax Cuts Worth Rs 1.45 Lakh Crore

To address the slowdown, basic corporate tax rates for domestic companies were slashed to 22% from 30%, provided they don’t avail of any other exemption or concession.

New Delhi: Finance minister Nirmala Sitharaman announced her latest round of measures aimed at boosting the sluggish Indian economy: slashing corporate tax rates for domestic companies and setting up a new 15% rate for manufacturing companies set up after October 1.

It is unclear at the moment how many companies will face an effective reduction in their tax burden, but Sitharaman said the revenue foregone as a result of the measures announced today would be Rs 1.45 lakh crore annually.

In a press conference held just before the meeting of the Goods and Services Tax Council, the finance minister announced that the corporate tax rates for domestic companies would be 22% if they did not avail of any other exemption or concession.

Thus, the effective rate for these companies will be 25.17% including cess and surcharge, she said. Firms that opt for the 22% tax slab will also not have to pay any minimum alternate tax (MAT).

India’s current corporate tax rate for companies with over Rs 400 crore turnover is officially 30%, but the effective tax rate (lowered by various concessions and exemptions) often ranges between 24% and 28% for different sectors.

Companies that have a turnover of less than Rs 400 crore come under the 25% corporate tax bracket.

Also read: With Advance Tax Mop-Up Posting Sluggish Growth, Centre’s Revenue Target Looks Tough

Sitharaman also announced that an even lower official corporate tax rate of 15% will apply to new manufacturing companies set up after October 1, 2019, Sitharaman said.

The effective tax rate for these firms will be 17.01%, inclusive of surcharge and other taxes.

All these changes, the finance minister said, will be applicable for the current fiscal year, which began on April 1, 2019.

Besides this, Sitharaman also announced a series of mini tax bonanzas: Listed companies that announced a buyback of shares before the Union budget (July 5) will not be charged. Similarly, the higher surcharge announced in the budget will not apply on capital gains on sale of security including derivatives held by FPIs.

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Lastly, to also provide some relief to companies that avail of various tax concessions and benefits, a MAT sop has also been announced by reducing it from 18% to 15%.

“Revenue foregone for the reduction in corporate tax rate is Rs 1.45 lakh crore per annum,” Sitharaman told reporters. However, she added, the economic buoyancy brought about from the reduction of these rates will make up for any revenue loss and it is believed that the tax basket will also expand with a reduction in rates.

Watch: Do We Tax Enough? And Do We Tax the Right People?

“The government has taken a bold and proactive step to bring the much-needed tax reforms, which will boost investment and also aid to private cycle capex. The lowering of corporate tax rates will widen the tax net and gradually bring in more revenues to the government. Overall, the move will make Indian companies globally competitive, a welcome step to arrest slowdown and lift up the market sentiments,” said Sanjeev Hota, Head of Research, Sharekhan, in a statement.

Markets react enthusiastically

Indian equity markets roared on Friday morning, largely in response to Sitharaman’s announcement.

At 11:48 am, the 30-share benchmark Sensex was up over 3% or 1,600 points. The Nifty 50 was up 2.31% at 10,951.95 points. If this trend holds, it will be the biggest one-day gain in over 10 years.

Most players in the Sensex pack were trading in the green, with Tata Steel gaining the most at 5.19%. It was followed by Maruti Suzuki (up 5%), HDFC Bank (up 4.86%), and Reliance Industries (up 3.50%).