Fri. Mar 29th, 2024
Indian RailwaysSource: livemint

The Indian Railway Catering and Tourism Corporation Limited, popularly known as IRCTC was incorporated in the year 1998 under The Ministry of Railways to upgrade and professionalize catering services over Indian Railways and to promote Railways as a kaleidoscope of tourism across the country. This year, IRCTC celebrated its 20 years from the time of inception and is known to be one of the greatest Public Sector Undertaking of the country. 

IRCTC
Source: IRCTC

The government presently holds 87.40% stake in IRCTC. As per the SEBI (Security and Exchange Board of India) guidelines, Public Sector Undertakings need to comply with minimum 25% public share holdings to increase liquidity in the market. 

The Government has to lower its stake in the company to 75% and has plans to stake sales in IRCTC, it intends to disinvest a part of the paid equity capital of IRCTC out of its shareholding through ‘Offer of Sale’, OFS method of shares by promoters through stock exchanges.  

So far in the current fiscal year due to the Covid’19 outbreak, the Department of Investment and Public Asset Management has not been able to sell any stakes and has impacted the equity markets. 

The Department of Investment and Public Assessment Management (DIPAM) today invited Request for Proposal from merchant bankers for managing sales inorder to comply with the SEBIs guidelines. The merchant bankers have to submit their bids by 10th September, 2020. 

IRCTC offer of sale will help the government a bit to meet the 2.10 trillion disinvestment target. As per the government plans, out 2.10 trillion target, 1.10 trillion will come from disinvestment of public sector undertakings and another 90,000 crore from stake sale in financial institutions.  

Initial Public Offering details: 

The issue comprises an offer for sale of 2,01,60,000 shares (representing 12.50 percent of total paid-up equity) of the face value Rs 10 each by the President of India. 

Out of the total issue size, 1,60,000 equity shares are reserved for eligible employees. The company has offered a discount of Rs 10 per Equity Share on the Offer Price for the retail category and to eligible employees. 

The minimum bid lot is 40 equity shares and in multiples of 40 equity shares thereafter.

IPO price band and size: 

The company aims to raise Rs 635.04 crore at Rs 315 per share, the lower end of price band and Rs 645.12 crore at Rs 320 per share, the higher end of the price band. 

Objects of Issue 

The objects of the offer are to carry out the disinvestment of 2,01,60,000 equity shares by the selling shareholder constituting 12.60 percent of company’s paid-up equity share capital and to achieve the benefits of listing the equity shares on the stock exchanges. 

The company will not receive any proceeds from the offer and all proceeds shall go to the selling shareholder, the Government of India.

Competitive Strengths 

  • IRCTC is the only entity authorized by Indian Railways to offer railway tickets online through the website irctc.co.in and mobile application, ‘Rail Connect’. 
  • As a CPSE under the Ministry of Railways, it is the only entity authorised to manage the catering services on board trains and major static units at railway stations under the Catering Policy 2017. 
  • It is a comprehensive tourism and hospitality service provider in India. 
  • It is the only entity authorised by the Ministry of Railways to manufacture and distribute packaged drinking water at all railway stations and trains, subject to availability of Rail Neer. 
  • It has a robust operating system and internal controls that has enabled it to deliver quality products and services to customers across different segments of operation. 
  • It has a diversified board and senior management team with significant experience. 

Business Strategies 

  • Diversifying and offering new services to the passengers of Indian Railways and others. 
  • To strengthen and enhance the services provided by Indian Railways, and tap opportunities presented by digital payments in the Indian economy which are growing at a significant pace. 
  • To continue capturing new opportunities arising from the Catering Policy 2017, such as providing catering services on trains having pantry car service. 
  • To leverage the significant number of visitors on the website, it intends to continuously develop online offerings with enhanced product design capabilities and other value-added services in order to offer customers a personalised experience.
  • Strengthen operational efficiencies. 
Indian Railways
Source: livemint

Shareholding 

Currently (pre-issue), promoter, the President of India holds 100 percent of the equity shares of company, out of which 15,99,99,944 equity shares are held by the President of India and an aggregate of 56 equity shares are held by VK Yadav, Purnendu Sekhar Mishra, Vijay Kumar, Vishwesh Chaube, Sushant Kumar Mishra, Sunil Mathur and Anurag as the nominees of the President of India. 

After the public offer, the promoters will hold 87.40 percent of the post-offer paid-up equity share capital of the company.

Financials 

The internet ticketing segment contributed 12.35 percent to its total FY19 revenue against 13.63 percent in the previous year and catering business 55 percent to total revenue against 48.70 percent. 

Meanwhile, packaged drinking water under the ‘Rail Neer‘ brand’s contribution to revenue stood at 9.28 percent against 11.13 percent in the year-ago period and travel and tourism 23.38 percent against 26.54 percent. 

Total revenue from its four segments at Rs 1,899.4 crore grew by 25 percent compared to FY18. 

The company does not have any outstanding or sanctioned fund-based facilities. However, it has availed certain bank guarantee facilities from Kotak Mahindra Bank and IDBI Bank aggregating to Rs 8.66 crore, in order to be able to meet contractual obligations towards clients. 

The company has Rs 1,140 crore cash in books as of FY19-end against Rs 834 crore in the previous year.

Risks and Concerns 

Here are some risks and concerns highlighted by several brokerage houses: 

  • The company’s business and revenues are substantially dependent on Indian Railways. Any adverse change in the policy of the Ministry of Railways may adversely affect profitability. 
  • The company does not have the ability to pass on any increase in raw ingredient costs due to price regulation by Indian Railways. 
  • The company uses PET bottles and other plastic items for its packaged drinking water and food, which is subject to various regulatory requirements and increasing public scrutiny. 
  • Indian food service industry and package water industry have both historically been fragmented and unorganised, lacking sufficient reliable industry data. 
  • If the Government were to permit open competition in any of the business segments, it may impact the financial results adversely for IRCTC. 
  • Failure to manage online security, the security of customers’ personal information and credit card fraud may expose the company to litigations and liabilities. 

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