What you learn from the IRCTC’s dizzying journey


Shares of public sector companies (PSUs) in India are generally considered boring bets for investors, as they operate in old economy companies, rarely embark on exciting corporate moves such as new business forays, buyouts or mergers, and faithfully maintain a high dividend yield by spitting out payments at the behest of their promoter.

But Indian Railway Catering and Tourism Corporation (IRCTC), the monopoly ticketing arm of Indian Railways, behaved very differently from the PSU since its IPO in October 2019. With the offer made at a disposable price of 320 yen, the share more than doubled on listing and quadrupled in fifteen months, reaching ₹ 1,400 in January 2021.

A dizzying climb….

He had good reason to do so. Although two waves of Covid reduced IRCTC’s revenue and profits in FY21 to one-third of FY20 levels, the IRCTC continued to generate new revenue streams during the pandemic .

It flagged ticketing services for hotels, buses and airlines, launched domestic and international tourism packages, launched its own payment gateway, and stepped up its co-branded insurance and credit card business, all by bidding on private train routes blocked by railways. It has also taken the first steps towards monetizing its gigantic 6 crore user base with cross-selling and advertising.

This helped the investment community to forget its pathological aversion to PSUs, to imagine a bright future for the IRCTC. The stock’s PE rose to triple digits as analysts modeled a five-fold rebound in earnings by FY23. This was based on the railways returning to the status quo (which would restore revenues to IRCTC Internet ticketing, catering and bottled water) and increasing its bottom line through its new fledgling businesses. Discussion of new AC 3 coach ticketing opportunities and the pricing power IRCTC enjoys over convenience fees added to its bull case, helping the costly EP of the action 150 to 200 times in the middle. 2021, to reach dizzying heights of over 320 times by October 2021, sparking entertaining Twitter showdowns between IRCTC fans and foes.

And a brutal setback

But while private developers in this situation would have done everything to keep the narrative rosy, the promoter of PSUs – the Indian government – is operating in mysterious ways. An after-hours stock market announcement from the IRCTC on October 28, implying that the Ministry of Railways had “decided” to “share” 50 percent of the IRCTC’s convenience fees from November, reported caused a bad surprise to his fans.

Although internet ticketing only generated 27% of its revenue in FY2020 and sharing it would only deprive it of 150-300 crore per year in convenience costs (as forecast for fiscal year 23/24), ticketing is the IRCTC’s main margin generator. representing more than three quarters of its income. Much of the bullish narrative around an expanding profit pool for the company has also been built around its ticketing business.

The filing therefore prompted analysts on the seller’s side to burn the midnight oil to revise their Excel models. Overnight, the IRCTC found its profit projections for fiscal year 23/24 lowered from 25 to 30%, with a sharp depreciation of the PE expected.

Friday’s stock action did not disappoint the bears, with the stock losing 25% shortly after opening to a post-split price of 639, wiping out nearly 20,000 crore in market cap. Even though it sparked some gnashing of teeth about the government’s madness in giving up 13,000 crore of market wealth (it owns 67%) to earn 150 to 300 crore in revenue, talks before noon between the company and the Railway Board seemed to deliver results. At 11 a.m., the commercial channels broadcast “breaking news” on the change of mind of the Ministry of Railways, the secretary of DIPAM (formerly Ministry of Divestment) confirming that the Ministry of Railways had rethought her decision. This caused the stock to forge an equally steep climb.


The IRCTC saga reiterates some age-old learnings about PSU stocks that make seasoned investors very picky about them.

First, the left hand of government may not know what the right hand is doing. Even if the Center is the majority shareholder of a listed PSU, the controlling ministry may take actions hostile to shareholders who prioritize its own interests over those of shareholders.

Second, state monopolies, unlike private monopolies, often lack pricing power. They operate at the mercy of their respective ministries, which may prioritize social good or political popularity rather than consolidating PSU profits. The lost battle between UK-based The Children’s Investment Fund and Coal India over government interference in pricing decisions and NMDC’s inability to take full advantage of global iron ore rallies is the proof. The IRCTC’s own convenience costs and the railways’ share of them have changed quite often in the past. Pre-registration, the Ministry of Railways shared the IRCTC convenience fee at 50:50. Just before its IPO, the Center made the decision to completely “waive” IRCTC fees, thus decimating a key source of revenue and profit. The fees were then partially restored by mail. Even last year, the changing policies of the railways on restoration contracts have raised doubts about the sustainability of IRCTC’s restoration profits. The latest cost-sharing saga should therefore inspire IRCTC fans to keep the risk of the promoter in mind, while also modeling profits and giving the title tantalizing valuations.

Third, despite the Centre’s willingness to divest itself, the ministries there often turn out to be ignorant of the concept of corporate governance which requires giving minority shareholders fair treatment after listing. The heads of ministries often continue to regard the listed PSUs as their fiefdom. The IRCTC saga has at least shown that DIPAM, under this government, does not sleep behind the wheel and can act quickly to reverse the alienating decisions of the babudom market.

All that aside, the IRCTC roller coaster also underscores the importance of investors in good companies, not giving in to backlash, when reacting to market events. Investors who panicked low on their IRCTC shares would ruin their decision to jump off a still running train.

The fact that the stock showed an increase in buying volumes before the official announcement of the withdrawal from the sharing agreement also shows that the market (or insiders) often know a lot more about a company’s shares than it does. you wouldn’t imagine it. If you find that an action behaves in a way that you think is completely irrational after a news event, take the time to digest it and put all the information together, without acting impulsively. Expect the possibility that the market is right and you are wrong.

The IRCTC saga also demonstrates the brutality and speed with which the market can punish a highly prized (and expensive) “quality” title when there is a tampering with the bull case it envisioned. Making the right decisions (own, sell or buy) during such times of pain is an essential part of a multi-bagger journey, which is why stock returns are never easy to achieve.

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