The government which has been holding a 87.40% equity stake in IRCTC has decided to reduce its stake in the company to below 75% to meet SEBI’s public holding norms as well as help the government in meeting its disinvestment target.
The company proposes to sell via OFS up to 24 million equity shares representing a 15% stake with an option to additionally sell 8 million shares, representing 5% of the total issued and paid-up capital at a floor price fixed at Rs.1367 per share. The OFS of IRCTC was lapped up by investors on Friday last with institutional investors subscribing to 1.34 times the issue. Following the share sale, the government’s stake in IRCTC will drop to 67.47%. IRCTC is a Government of India enterprise under the administrative control of the Ministry of Railways incorporated to upgrade and modernise catering and hospitality services on trains, promote domestic and international tourism in the country through public private participation.
The company was listed on the stock exchanges in 2019 wherein the company had raised money through an IPO. The Indian railway has authorised IRCTC to provide catering services, sell online Railway tickets and packaged drinking water at railway stations and trains in the country.
The company became a huge beneficiary when the Railway ministry came out with a catering policy entrusting the entire catering business at railway platforms and trains to IRCTC. Packaged drinking water under the brand name IRCTC Rail Neer has a monopoly of packaged drinking water. The company currently has 10 operational plants with a cumulative capacity of over 11 lakh litres per day.
Due to the huge demand for drinking water at platforms and in trains, the company proposes to set up additional plants to cater to the rising demand. The company also offers tourism services, including luxury train tours, like the Maharashtra express, special trains like the Bharat Darshan and Buddhist circuit trains plus offering other services like hotel bookings, car rental services and international and domestic tour packages. The company has also started a first time private train initiative named IRCTC Delhi Lucknow Tejas express and Ahmedabad Mumbai Tejas express offering quality and time bound services. The Covid pandemic had brought the entire business operations of the company to a halt adversely impacting the 1HFY2021.
Though commercial activities have started in a phased manner, the impact of Covid-19 is still visible presently. The financial results for 1HFY2021 saw revenue declining by 77% yoy to Rs 220 crore and EBIDA showing a loss of Rs 50 crore.
Analysts tracking the company report that post the unlocking of the economy, business has been recovering gradually and expected to recover by mid 2021. Given the monopolistic nature of the company, the long term prospects for IRCTC are quite strong and hence portfolio investors looking at investing for at least a year can look at IRCTC stock for a 25% price appreciation target for portfolio gains..
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.