The ministry of railways is all set to withdraw the decision that Indian Railway Catering and Tourism Corporation (IRCTC) has to share 50 per cent of the revenues earned by it from convenience fee. Department of Investment and Public Asset Management (DIPAM) secretary confirmed this decision on social media platform Twitter. This move came after IRCTC stocks had slumped sharply on Friday. On October 28, the railway ministry asked the e-ticketing and catering arm of the Indian Railways to share the revenue with the ministry.
IRCTC share plunged as much 40 per cent to hit an intraday low on the BSE on Friday after the railway ministry’s decision. “…it is to be informed that Ministry of Railways…has conveyed its decision to share the revenue earned from convenience fee collected by IRCTC in the ratio of 50: 50 w.e.f 1st November 2021,” the company said in a filing to the stock exchange on Friday.
The share price of IRCTC recovered most of the losses after railways is withdrawing the decision to share the convenience fees.
In 2014, the IRCTC started sharing the revenue with Indian Railways on 80:20 basis. Later in 2015, the ration was changed to 50:50. However, the revenue sharing system was later withdrawn for three years from November 2016.
IRCTC earned Rs 299.13 crore from the convenience fee during 2020-21, according to the annual report. This was the highest revenue earner for IRCTC in 2020-21 as the income from the catering and comprehensive services fell significantly due to Covid-related restrictions. It must be mentioned that the revenue from convenience fee also dropped due to Covid-19 pandemic in India and subsequent restrictions on travelling. IRCTC had earned Rs 349.64 crore in 2019-20.
IRCTC levies a charge of Rs 15 plus goods and services tax (GST) for a ticket for non-AC classes and Rs 30 plus GST for AC classes (including first class). For BHIM/UPI payments, the convenience fee is being charged at a reduced rate of Rs 10 plus GST a ticket for non-AC classes and Rs 20 plus GST for AC classes.
After the revenue sharing decision, V K Vijayakumar, chief investment strategist at Geojit Financial Services, “Government asking IRCTC to share 50 per cent convenience fee with the railway ministry is yet another instance which should warn investors of undue optimism while investing in PSU stocks. Enhancing shareholder return is not the objective of PSUs. So investors have to be careful while chasing PSU stocks, even if they are cheap.”
IRCTC shares surged 15 per cent to Rs 949.65 on the BSE in intra-day trade on Thursday after the scrip had turned ex-stock split (sub-division of equity shares). IRCTC shares had hit a record high of Rs 1,279 (adjusted to stock split) on October 19, 2021.
The share of IRCTC has been on a rise after the company decided to split the stock. On August 12, the e-ticketing and catering arm of the Indian Railways announced a split of one equity share of the face value of Rs 10 into five equity shares of the face value of Rs 2. A stock split is usually done to make the stock more affordable for the small retail investors and increase liquidity. While there will be no change in the share capital, the number of shares will increase 5 times. IRCTC stock split helped to enhance the liquidity in the capital market and widen the shareholder base. The company also reported a profit of Rs 82.52 crore for the quarter ended June, compared to a loss of Rs 24.60 crore in the corresponding period year-ago.
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