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After IRCTC Shares Tumbles 25 Per Cent, Railway Ministry Withdraws Convenience Fee Order. Should You Buy?

Convenience fees charged from customers generated a sizable revenue for IRCTC. The fee is not part of the rail fare. It is for the service of online ticket booking offered by the IRCTC.

After IRCTC Shares  Tumbles 25 Per Cent, Railway Ministry Withdraws Convenience Fee Order. Should You Buy?
After IRCTC Shares Tumbles 25 Per Cent, Railway Ministry Withdraws Convenience Fee Order. Should You Buy?
outlookindia.com
2021-10-29T13:00:38+05:30

The Ministry of Railways has decided to withdraw its decision on sharing of convenience fee earned by Indian Railways Catering and Transportation Corporation (IRCTC) on online bookings of train tickets, DIPAM Secretary said on Friday.

“Ministry of Railways has decided to withdraw the decision on IRCTC convenience fee," DIPAM Secretary Tuhin Kanta Pandey tweeted.

IRCTC on Thursday said that the Ministry of Railways has asked it to share 50 per cent of its revenue earned as a convenience fee from bookings on its website with the national transporter.

Convenience fees charged from customers generated a sizable revenue for IRCTC. The fee is not part of the rail fare. It is for the service of online ticket booking offered by the IRCTC.

The latest move came after the IRTC stock plunges 25 per cent in the opening trade on Friday. The stock dips to a low of Rs 650.10 on BSE, taking its fall to 49 per cent from the October 19 high of Rs 1,278.60, according to The Economic Times.

However, IRCTC shares regained nearly all losses after the withdrawal of the decision. The share were trading 3.15 per cent lower at Rs 885/share at 11.17 am.

On October 28, IRCTC had announced that it would now be sharing revenues acquired from convenience fees for bookings made on its platform in a 50:50 ratio with the Ministry of Railways. The company had informed the Bombay Stock Exchange in a regulatory filing on Thursday. 

The revenue-sharing arrangement was to be enforced from November 1.       

An analyst at a large brokerage had stated that by sharing the convenience fee revenue, the investor confidence will be hit hard. The government will earn roughly Rs 350-400 crore as additional revenue, but the impact on the valuation of IRCTC is likely to be big,”

“These moves will hurt sentiment as regards other public sector stocks,” he added

As per the IRCTC’s annual report, it earned a service charge or convenience fee of Rs 552 crore in 2015-16 and Rs 362 crore in 2016-17, after which service charge was withdrawn by the Ministry of Railways from November 2016 till August 2019 for promotion of digital transactions, as per The Hindu.

It restarted the collection of convenience fees on e-ticket bookings September onwards, earning Rs 352 crore in 2019-20 and Rs   299 crore in 2020-21. “Due to the Pandemic, the bookings during FY2020-21 have dropped by 42.35 per cent over FY 2019- 20. Therefore, there has been a substantial decrease in the Convenience Fee also,” the company has said in the report.

Check what analysts are saying:

Deepak Jasani of HDFC Securities

Existing investors, who bought the stock at highs, should be on a wait and watch mode. This analyst had expected 35-40 per cent impact on EPS in case convenience fee was to be shared on a 50:50 basis.

Dalal & Broacha Research

The revenue sharing model of IRCTC with the Ministry of Railways would have had a Rs 138.5 crore impact on the revenues of IRCTC in 2021-22 and a Rs 495.7 crore impact of the company's topline in 2022-23.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Service

Earlier in the day, he had said the government asking IRCTC to share 50 per cent convenience fee with the Railway Ministry is yet another instance that should warn investors of undue optimism while investing in PSU stocks. Enhancing shareholder return is not the objective of PSUs. Investors have to be careful while chasing PSU stocks, even if they are cheap.

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