Shares of IRCTC fell by 25% to 685.35 when the stock market opened on 29 October 2021. Resultantly, the company lost nearly Rs. 18,000 crores of market cap overnight, just in a flash.
What led to this fall in shares?
Let us find out.
Why Did IRCTC’s Shares Drop During Early Trade?
Shares of IRCTC dropped sharply after the government asked it to share 50% of its revenue from convenience fees. The company earns this charge on railway ticket bookings via irctc.co.in.
Currently, IRCTC charges Rs. 30 per ticket on AC tickets and Rs. 15 per ticket on non-AC tickets. Further, for bookings made via BHIM UPI mode, the company levies a charge of Rs. 20 for AC and Rs. 10 for non-AC bookings.
This convenience fee generates substantial revenue for both Indian Railways and IRCTC. The fee is not a part of the railway ticket price. It is charged for the online ticket booking service provided by the state-owned company.
Moreover, even when earnings were severely affected by the pandemic, IRCTC generated Rs. 299 crores from the convenience fee. This figure was around 38.2% of its gross revenue from operations, which in turn reached Rs. 783 crores.
Interestingly, IRCTC does not have to invest much money to generate this revenue. This is because customers willing to buy online tickets have to pay this fee while checking out automatically. Therefore, a good percentage of the company’s profit is generated through this convenience fee.
Massive Dip in Total Share Value
Viewing IRCTC’s income via convenience fee over the previous couple of years, the Railway Ministry aims to earn as much as Rs. 150-200 crores per year.
This is a seemingly minor change. However, due to this, the company’s total share value or market capitalisation dipped by Rs. 18,272 crores. The reason behind this fall is the company’s drop in share price by 25%.
When we analyse the entire situation, we find that:
- When the market closed on 28 October 2021, IRCTC’s market cap was Rs. 73,100 crores.
- At the time of writing on 29 October 2021, its market cap was Rs. 54,828 crores.
That is a near Rs. 18k crores fall for a gain of Rs. 150-200 crores. Rather, a thousand rupee lost for a hundred rupee gain.
But, why did this happen?
The market knew that a substantial source of revenue for the company was taken away. However, the company’s overall expenditure will remain unchanged. Subsequently, the operating profit of IRCTC will also come down. Viewing these possibilities, the stock market did not accept this minute change in the company.
IRCTC enjoys a robust monopoly attributed to its management of catering services on trains. It is true that with time, the company will increase the convenience fee for revenue restoration. However, for this, railway passengers will have to spend more while buying a train ticket.
Frequently Asked Questions
- How much did IRCTC earn from the convenience fee in 2019-2020?
The company earned around Rs. 350 crores from convenience fee in 2019-20, contributing to 15.4% of its gross revenue from operations.
- What was the sharing ratio of service charge before?
Earlier in 2014, service charge was shared in the ratio of 80:20 between Indian Railways and IRCTC.
- By how much was IRCTC stock down on the NSE on 29 October 2021?
IRCTC stock was down by nearly 15% at Rs. 775.90 on the NSE as of 29 October 2021.