Explained: Why IRCTC's Share Price Plunged, Govt Reverses Decision

The government has reversed its decision to ask the Indian Railways Catering and Tourism Corporation (IRCTC) to share 50% of its internet ticketing revenue or convenience fee revenue from November 1, the Secretary of the Department of Investment and Public Asset Management announced on Friday. The reversal of the order came less than 24 hours after it was announced on Thursday.

The decision, conveyed by IRCTC through the Ministry of Railways on Thursday, faced backlash from investors who responded by heavy selling of the stock. The stock lost nearly 29% at its lowest point, touching ₹650.10. However, post the decision to scrap the order, the stock quickly recovered, trading at ₹856.35, 6.26% lower as of 2:48 pm. An estimate by the Livemint puts this fall at more than ₹18,000 crore lost in market value overnight, all for a cash gain of ₹200 crores.

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The timing of the decision has also been questioned. The decision came on October 28, when the stock of IRCTC split five for one, meaning that an investor would get 5 shares for every one share, with the value of each share being a fifth of the original price. This keeps the market capitalisation (which is the shares outstanding multiplied by the price per share) and its underlying fundamentals unchanged. Investors are yet to receive the additional shares after the split to normalise their holding of the company, which will happen sometime next week. Till then, selling could also be muted that could inhibit profit booking or cutting losses.

Analysts said that this decision by the government would have reduced IRCTC FY23 earnings by 27% to 30%, calling it a negative development, and they expected a sharp correction in the price of the stock.

For context, the stock has seen a record rally this year, increasing nearly three times this year in a frenzy. It hit a high of ₹6,393 per share on October 19, from where it fell to ₹4,200-levels (all prices pre-split).

Currently, the company's latest financials show that internet ticketing segment was the largest of the four segments under which IRCTC - a monopoly in the railway ticketing space - generated revenue. This is the segment of which the government wanted a 50% share, which in turn would have reflected in reduced profits for the company. The company charges every user ₹30 for air-conditioned booking and ₹15 for non-AC bookings, plus tax. If paid through Unified Payment Interface (UPI), the charges are ₹20 and ₹10 per ticket respectively, plus tax.

IRCTC's unaudited results for the quarter ending June 30 this year (the first quarter of the ongoing financial year) showed that the internet ticketing revenue stood at ₹149.97 crores, nearly 61.7% of the total revenue amounting to ₹243.37 crores. The remaining segments are catering (₹56.1 crores in revenues), Rail Neer (₹29.3 crores) and tourism (₹7.41 crores).

Internet ticketing is also the largest component in terms of the profit before tax, interest and investment income from each of these segments. Internet ticketing had a revenue of ₹116.86 crores, and Rail Neer ₹1.81 crores, with the latter segment turning a profit in just the last quarter. With interest income of ₹11.59 crores, IRCTC's total profits stood at ₹111.07 crores.

"The market realizes that a significant revenue source of the company has been taken away. And at the same time, the overall expenditure of the company will continue to remain the same. Given this, the operating profit of the company will also come down dramatically", reported the Livemint.

IRCTC's first quarter declaration with the Bombay Stock Exchange can be found here. It is expected to declare its second quarter results of the ongoing financial year on November 1.

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