Halloween horror: How railway officials spooked IRCTC investors

The railway bureaucracy did not consider it crucial enough to seek Railway Minister Ashwini Vaishnaw’s views on re-imposing the revenue-sharing agreement with IRCTC, multiple sources have told Moneycontrol. Vaishnaw was only made aware of the decision when a copy of the order was sent to his office. It was already too late by then.

“The Minister was not briefed on the impact that the revenue sharing decision would have on the company’s stock price. Probably because it is something the railway bureaucracy did not consider while taking the decision,” said a senior government official.

However, while the IRCTC revenue sharing ‘fiasco’ shows that there is still perhaps a lack of holistic thinking in certain sections of the bureaucracy, it also illustrates the fact that this is a government willing to listen, as the decision was withdrawn in less than 24 hours once the investor backlash dragged the stock down.

Travel recovery prompted revenue sharing decision

“The revenue sharing model was reintroduced keeping in mind the fact that IRCTC’s daily bookings have now surpassed pre-pandemic levels,” said a second official.

The official also added that the latest numbers from IRCTC shows that the company is now booking around 13 lakh tickets daily, higher than the 7 lakh or so tickets it was booking at the same time last year.

Before the COVID-19 outbreak, the company was booking an average of 12-13 lakh tickets daily, but bookings had fallen sharply due to the pandemic.

Railway officials concede that they were not expecting a backlash from the investors of IRCTC.

Shares of IRCTC fell 27 percent intra-day on September 29. They recovered later in the day after the decision was withdrawn.

Essentially, in a bid to earn an average revenue of Rs 500 crore annually, the Railway Ministry’s decision led to market cap worth Rs 18,000 crore being wiped out.

Revenue sharing saga

“When IRCTC was allowed to reintroduce convenience fees on sales of tickets, the plan was to always bring back the revenue sharing agreement with the ministry,” the second official said, asking not to be named.

However, six months after IRCTC reintroduced the service charge on online booking (it was reintroduced on September 1, 2019), the COVID-19 pandemic hit and IRCTC’s revenues crashed due to restrictions on travel across the country.

“IRCTC was allowed to keep 100 percent of the convenience fee to help it get through the pandemic,” another official said. Sources said that in principle, there were always discussions to reintroduce the revenue sharing agreement.

An IRCTC official said that the company had not charged a service charge or convenience fees for two-and-a-half years after demonetisation in order to promote online bookings.

He added that when the fee was reintroduced, IRCTC had appealed to the Railway board to let the company recover some of the revenues it had lost out in the past few years to help its operating margins grow.

IRCTC currently charges Rs 15 for non-AC and Rs 30 for AC tickets (Rs 10 and Rs 20 for non-AC and AC classes if payments are made through UPI/BHIM) as a convenience fee from its customers.

In 2014, IRCTC started sharing revenue from convenience fees with the government in an 80:20 ratio. This was changed to 50:50 in 2015 after the fee was doubled. However, in 2016, after demonetisation, the Ministry of Railways scrapped convenience fees on online payments in order to promote online booking of tickets through IRCTC's portal.

DIPAM Steps In

IRCTC officials were well aware that the revenue sharing decision would impact the share price. They had to play it smart with the powers-that-be in New Delhi in order to get the decision withdrawn.

On the morning of October 29, as the stock price started to tumble, IRCTC management reached out to the Railway Ministry, and to the Department of Investment and Public Asset Management (DIPAM).

Of all Central government departments, DIPAM, a department of the Finance Ministry, works closest with capital market participants. Its role is to privatise PSUs or take them public through initial public offerings, and shed stakes in listed PSUs through offers for sale. It also monitors dividends paid and share buybacks by PSUs.

Railway officials may not understand the impact any sort of investor backlash would have on a PSU’s stock price, but DIPAM officials do.

“At a time when the government has an ambitious privatisation plan, including for state-owned banks, and is trying to push through the IPO of LIC, which could be the biggest Indian IPO, the revenue sharing decision would create deep mistrust between the government and market participants. DIPAM understands that,” said the first official quoted above.

Things moved fast after the IRCTC outreach. It is learnt that DIPAM Secretary Tuhin Kanta Pandey himself intervened and spoke to top officials in the Rail Ministry.

Shortly after 11 AM, it was Pandey who tweeted: “Ministry of Railways has decided to withdraw the decision on IRCTC convenience fee.”

In an interview with Moneycontrol soon after, Pandey said that his department’s advice to other ministries has been that in the case of listed state-owned companies, they should be mindful of the interests of minority shareholders.

“Our clear advice to all departments has always been that any policy decision with respect to listed PSUs should be taken with the interest of minority shareholders in mind. The railways has evaluated the pros and cons and withdrawn its decision,” Pandey said.