IRCTC: Incredible government move that burned ₹18,000 cr in market cap

What happened? government wants to earn ₹150-200 crore more than IRCTC. The stock market did not like this.

IRCTC shot itself in the foot yesterday when it decided to share 50% of its earnings for convenience fee with the Indian Railways. The company earns this fee on railway tickets booked through www.irctc.co.in. It currently charges a convenience fee of ₹30 per ticket on AC booking and ₹Per ticket for Non-AC booking 15. If these bookings are done through BHIM/UPI mode, the charges are ₹20 per ticket and ₹10 per ticket, respectively.

Convenience fees are a major money-spinner for the company. In 2020-21, when earnings were badly hit due to the covid pandemic, IRCTC did ₹299 crore from convenience fee on railway tickets or about 38.2% of the gross revenue from operations, which in turn was ₹783 crores.

Earnings from convenience fee in 2019-20 were approx. ₹350 crores and constituted about 15.4% of the gross revenue from operations, which was ₹2,264 crores.

This tells us that convenience fee is an important way of earning for IRCTC. Also, it needs to be remembered here that IRCTC does not have to spend much money to earn this revenue, most of the passengers who want to book tickets can do so by visiting www.irctc.co.in Log in almost automatically. Therefore, a good part of the real profit of the company comes through convenience fee.

Looking at the income through convenience fee over the years, Indian Railways (read Govt.) is expected to earn approx. ₹150-200 crores per year.

This is a small change. In comparison, this morning, the company’s market capitalization or the total value of its shares fell ₹18,272 crore or around ₹18k crores. This was because the company’s share price fell 25% ₹685.35.

The market capitalization of IRCTC when the stock market closed yesterday was ₹73,100 crores. At the time of writing this this morning, it was ₹54,828 crores. it’s almost a fall ₹18k crores for the benefit of ₹150-200 crores, or a loss of hundred rupees for a gain of one rupee. Which owner in his right mind would do something like this?

The market learns that a significant revenue source of the company has been taken away. Also, the total expenses of the company will remain the same. In view of this, the operating profit of the company will also decrease dramatically. The stock market doesn’t wait for things to happen. It gives leeway to prospects, which it has done.

Obviously, the babus who took this decision did not realize that instead of earning a small amount, they were destroying a large part of IRCTC’s value.

an easy way to earn ₹Would have been for the government to sell IRCTC shares worth Rs 150-200 crore ₹150-200 crores and an increase in the budget of Indian Railways by that amount. Instead, the market capitalization of ₹There has been a loss of 18,272 crores.

Of course, over time, IRCTC may increase the convenience fee per ticket and restore its revenue. But this increase in revenue will come from paying more to rail passengers. And it tells us that economics doesn’t have a free lunch.

But the big question remains. Why do all this for justice ₹150-200 crores? Your guess on that is as good as mine.

Vivek Kaul is the author of Bad Money.