IRCTC Asked to Share 50% Convenience Fee
In a high level meeting between the top officials of the IRCTC and the Railway Board, the Ministry of Railways decided to withdraw the decision to ask IRCTC to share 50% of the convenience fee charged from customers on online ticketing. The new rule was to be effective from 01-November but now stands withdrawn.
The secretary of DIPAM, the disinvestment body, Mr. Tuhin Kant Pandey clarified that the decision to ask IRCTC to share 50% of the convenience fee on railway ticketing with the government had been scrapped. This is a major source of revenues for IRCTC and is charged over and above the price of the ticket to finance the online interface.
It was a volatile trading day for IRCTC on the bourses. The stock opened weak on Friday after it had closed at Rs.913.75 on Thursday. However, once the implications of the 50% sharing became evident the stock dropped all the way to Rs.650 on the BSE, a fall of nearly 29% from previous close. However, after the clarification hinted by the government, the stock bounced back and closed at Rs.845.65, still with a loss of 7.45%.
In terms of market cap loss, IRCTC has already lost 33% falling from Rs.100,000 crore in early October to Rs.67,000 crore currently. Even after this sharp fall, the stock quotes at a P/E ratio of 49X and a price to book value of 9.97. Here is why the 50% share could have been significant hit on the numbers of IRCTC.
Sharing of convenience fee is nothing new. The convenience fee was shared 20:80 in FY15 and in that year convenience fees had generated Rs.253 crore. In the next year, the sharing arrangement was moved to 50:50 and the total convenience fee related revenues was Rs.562 crore. Between 2017 and 2019, the convenience fee practice was discontinued.
In the year 2019-20, IRCTC re-introduced the convenience fee to compensate for some of the losses caused by COVID lockdowns. However, at that point, the Railways waived off its share and IRCTC was allowed to retain the full amount of Rs.352 crore in 2019-20 and Rs.299 crore in 2020-21. In the first 5 months of FY22, IRCTC has already earned Rs.224 crore as convenience fee.
The moral of the story is that the 50:50 sharing would have been a huge revenue and profit dent for IRCTC. That has now been set to rest with the Railways confirming that there will be no convenience fee sharing for now.
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