As per the draft prospectus of the initial public offering (IPO) of the Indian Railway Catering and Tourism Corp Ltd (IRCTC), the growth of IRCTC will significantly rely on the Indian Railways, which happens to be its parent company.
The Central Government of India wholly owns the IRCTC and is under the administrative control of the Indian Railways. The IRCTC earns a commission for each railway ticket it manages to sell. Also, it is currently managing the food catering services in trains. IRCTC is opening up for public investments from 30 September.
The initial offering is anticipated to result in the inflow in the range of Rs 635 crore to Rs 645 crore by selling the stakes of the government. The government is looking at giving away 20.16 million shares of IRCTC through the IPO. The holdings of the government will be reduced to around 87% after the end of the IPO.
The IRCTC will not raise more money after the end of the IPO. IRCT discussed with its merchant bankers before setting its price band in the range Rs 315 to Rs 320 per share. The company’s revenue model is entirely dependent on the Railway Ministry’s policies as it charges a commission for its services.
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For example, if the government decides to offer discounts on tickets, then the earning of IRCTC will be affected accordingly. As of now, IRCTC is the only provider of the online train ticket booking facility, packaged drinking water facility, and food catering services in the Indian trains.
With the view of providing world-class services to the passengers, the Indian Railways is planning to bring in private players to manage trains. This move is sure to pose stiff competition to IRCTC. This has turned out to be a worrisome factor for IRCTC as its revenues will be impacted.
The IRCTC’s plan to go public by launching its IPO has come on the back of Indian equity markets shooting up after the government decided to slash the corporate tax rate on last Friday. Various companies saw approvals of IPO lapse in the previous few months due to the markets being volatile.
For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in
Engineer by qualification, financial writer by choice. I am always open to learning new things.
