Is IRCTC travelling to Multibagger Destination ?

Indian Railway Catering and Tourism Corporation is a public sector company controlling the complete railway structure in India from ticket booking & hospitality to catering. IRCTC official website (www.irctc.co.in) is one of the most transacted website in the Asia-Pacific region (Average transaction volume is 25 to 28 million transactions per month during the five months ended August 31, 2019).

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• Record Breaking IPO by IRCTC
• Shareholding Pattern
• Competitive Advantage of IRCTC
• Business Segments of IRCTC
• Segment Wise Revenue Structure of IRCTC
• Cost Structure of IRCTC
• Recent Business Strategies by IRCTC
• Other growth opportunities for IRCTC
• Risks/Concerns for IRCTC
• Key Trends

(A) Record Breaking IPO by IRCTC

The company started On 27 September, 1999 in order to provide just catering in Indian Railways. IRCTC fully came into operation on 3rd August, 2002. In 2002, IRCTC started issuing tickets online.

IRCTC received the ‘Mini-Ratna’ status in 2008.

In 2017, IRCTC started a service to provide information to passengers through (SMS) regarding status of delayed trains. Initially, it covered Rajdhani, Shatabdi, Tejas & Gatiman Trains. Eventually, now this service is available in around 250 trains.

2019:

IRCTC entered the listed space by launching its IPO in October 2019. The IRCTC IPO issue size aggregated Rs. 645 crore. Total of up to 20,160,000 equity shares by way of an Offer for Sale by existing shareholders offered which constitute 12.60% of the post offer paid-up equity share capital. The price band for the issue was Rs. 315-350 per share.

IPO oversubscribed by 112 times, highest for an IPO of a state-owned company. The institutional investor segment of the IPO subscribed over 100 times, the high networth individuals (HNI) segment subscribed 355 times and the retail investor segment around 15 times.

(B) Shareholding Pattern

Before IPO, IRCTC was completely a Government company. Post IPO shareholding pattern:

(C) Competitive Advantage of IRCTC

• IRCTC is the only entity authorized by Indian Railways to provide catering services to railways, online railway tickets & packaged drinking water at railway stations & trains in the country. There is no competitor in this area.
• It has also diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges and budget hotels, which are in line with its objective to build a “one stop solution” for its customers.
• IRCTC operates one of the largest websites with a transaction volume of more than 2.5 crore per month and with approximately 0.72 crore logins per day. 72.60 % of the total Indian Railways' ticket bookings were online through the company’s website/mobile application during the five months ended August 31, 2019.
• IRCTC has a strong database of over 21 million customers.
• It has a pan India presence & wide agent network.
• IRCTC has a strong support of Indian Railways.

(D) Business Segments of IRCTC

(i) Internet Ticketing

For FY19, IRCTC’s e-ticketing services accounted for 70% of the reserved tickets on Indian Railways booked online. This ratio is 72.60% as of 31 Aug 2019. Through the website, on an average more than 7.78 lakh tickets sold daily in FY19. It has transaction volume of more than 250 lakh per month and 72 lakh logins per day.

The site offers round the clock ticket booking services except for 35 minutes from 2345 hrs to 0020 hrs.

Service Charges on internet ticketing:

The company suffered a loss of revenue of Rs. 804 crore in FY19. This is because earlier it charged a service charge of Rs. 20 per ticker for Non-AC classes & Rs. 40 per ticker for AC classes. Ministry of Railways withdrew the same on 23rd Nov 2016 to promote digital payment. Also, this was followed by demonetization.

Now from 1 September 2019, the company restored charging Convenience Fee of Rs 15 per ticket for Non-AC and Rs 30 for AC classes.

(ii) Catering

The company provides services through:

• Mobile Catering: These are on board catering services. For FY19, the company managed on board services in 360 trains.
• Train Side Vending: These are contracts on Mail/Express & Superfast trains with no pantry.
• Pantry Car Design & Development: The company is in process to rollout 10 new pantry cars with modern equipment once approved by Railways.
• Static Catering: Refreshment rooms, Jan ahaars & cell kitchen offering low budget eatables.
• Others include base kitchens, food plazas, food courts.
• The company also provides E-Catering service through mobile application 'Food on Track' and its e-catering website, ecatering.irctc.co.in.

(iii) Packaged Drinking Water (Rail Neer)

IRCTC is the only entity authorized by the Ministry of Railways to manufacture & distribute packaged drinking water at all railway stations/trains. Currently, it operates ten Rail Neer plants located at Nangloi, Danapur, Palur, Ambernath, Amethi, Parassala, Bilaspur, Hapur, Ahmedabad and Bhopal. The installed production capacity is ~1.09 million litres per day, which caters to ~45% of the current demand of packaged drinking water at railway premises & in trains.

(iv) Travel & Tourism

It is mandatory by Indian Railways for IRCTC to provide tourism & travel related services. It has footprints in across all major tourism segments such as hotel bookings, rail, land, cruise and air tour packages & air ticket bookings.

The company offers domestic tourism, Inbound Tourist Targeted Tours (Maharajas’ Express, Buddhist Circuit Special Train, Rajasthan Tourist Train), Outbound tour packages (air ticketing), Mass Tourism (Bharat Darshan, State Special Trains), Theme Based Tourist Trains & others.

(E) Segment wise Revenue

• Catering services contribute the highest in the the revenue of IRCTC. Total revenue from catering amounted to Rs. 1,06,510.64 lakh for FY19, which is 46% higher than FY18. Catering revenue includes sale of food & beverages, income from on-board catering, gross concession fee, gross license fee, gross user charges & license charges from food plaza (including share paid to Indian Railways). Such fees are charged under expenses as share to Indian Railways.
• Catering revenue is followed by Travel & Tourism revenue and then Internet Ticketing. Travel & Tourism revenue increased 36% in FY19 YoY. On the other hand, Internet Ticketing revenue increased 17%.

(i) Internet Ticketing Revenue Breakup

(ii) Catering Revenue Breakup

(F) Cost Structure of IRCTC

as a % of total expenses of IRCTC

(G) Recent Business Strategies by IRCTC

(i) iMudra Wallet & iPay

In August 2019, IRCTC launched iMudra Wallet. It allows users to seamlessly book train tickets, shop online & send money to friends/family without requiring card details. Earlier in Feb 2019, launched its own payment aggregator system, IRCTC iPay, to help promote Government's Digital India initiative. IRCTC iPay provides payment options like credit card, debit card, UPI, International Card.

(ii) IRCTC as Private Train Operator

Tejas Express, India's first private train, started operating from October 4, 2019 between Lucknow-Delhi. IRCTC runs this train and has full control for its operations. IRCTC launched the train with newer features like partial refunds for delayed train, free travel insurance, household theft insurance, baggage pick up-drop facility on a payable basis. Tejas Express is the first private train to run on Indian Railways’ network paving way for more private operators.

(iii) New Government Policy for Newer Opportunities

As per Catering Policy-2017, IRCTC has to upgrade the quality of food preparation, set up new kitchens and improve existing facilities. For this, it is mandatory to unbundle catering services by creating distinction between food preparation & distribution. During 2018-19, IRCTC up-graded 30 base kitchens with newer equipment & modern devices.

In addition, it is also planning to serve more than 1,500 non-pantry car trains through train side vending (TSV). Moreover, it is planning to roll out at least 10 new pantry cars in FY20 once the design is approved by Indian Railways.

Thus it is an actual opportunity for IRCTC to improve its services & financial position.

(iv) Station Based 'E-Catering'

The purpose is to leverage travelling passengers to order food of their choice from leading private caterers to be delivered at these stations (not moving trains).

(v) Plans to meet 100% bottled water demand

IRCTC is commissioning 6 new Rail Neer plants by 2020 and 4 new plants by 2021. With such plans, IRCTC is set to fulfil 100% of demand of bottled water of the Indian Railways. Currently 45% of the total demand is fulfilled by 'Rail Neer' by IRCTC.

(H) Other Opportunities for IRCTC

1. Increase in Passenger Traffic

During FY 19 passenger traffic in the county increased to 8.44 billion. Growth is at a CAGR of 2.71% during FY07 to FY19. Increase in demand is supported by increase in urbanisation and improving income standards. Though, the growth in number of passengers is stagnant but the trend of online ticket booking is increasing.

During June 2019, an average of more than 1.40 million passengers reserved online tickets and travelled on Indian Railways every day.

According to CRISIL, 2.56 % data, online rail bookings are expected to grow at about 8 per cent CAGR to reach 425-435 million in FY24, with e-booking penetration improving to 81-83 per cent in the same period.

2. Opportunity in Packaged Drinking Water

India’s packaged drinking water market is expected to grow 16-17 per cent CAGR and to reach Rs 18,000-18,500 crore by FY24. IRCTC is also expanding its capacity by setting up new plants.

3. Monopoly position to secure Catering Industry Growth

IRCTC holds monopoly position in Railway Catering Industry. Also catering service is the highest contributor in revenue of IRCTC. As stated earlier, New Catering Policy is a great opportunity for improvement in IRCTC's service quality and expansion. Besides, the rail catering industry is expected to grow at CAGR of 7.5-8.5% to Rs 1,450-1,550 crore in FY24 from Rs 1,100-1,200 crore in FY20.

E-catering is still a small part of IRCTC's services. But the same is expected to continue a strong growth with increasing restaurants' listing and growth of preference by travelers for ease in on-seat food delivery.

(I) Risks/Concerns

1. Government Interference

As a Government company, adverse change in policy of Ministry of Railways can impact business and revenues of IRCTC. IRCTC is under the administrative control of the Ministry of Railways and its scope of services & the fees are determined by the Ministry of Railways. Last instance was the change in rule for levy of service charges which impacted the revenue of IRCTC heavily. Although Government made reimbursement, but there is always a chance for shift in circumstances.

2. Future Competition

IRCTC now enjoys monopoly position in Catering because of Catering Policy 2017. Company generated 25.62%, 48.70% and 54.99% of revenue from railway catering in FY17, FY18 and FY19, respectively, and 10.22%, 11.13% and 9.28% of revenue from packaged drinking water in FY17, FY18 and FY19, respectively. In future, if government allows the entry of private players in catering then this can pose a risk to the IRCTC revenue at a large scale.

3. Plastic Ban

If the government frames stricter regulatory requirements for use of plastic then it ca impact its business. IRCTC uses plastic for packaged drinking water which includes PET bottles, shrink-wrap films, plastic closures and labels. Governmental bodies have introduced policies to discourage the use of plastic products. The Ministry of Railways, Government of India have directed the company to implement return of plastic drinking water bottles as part of an effort to increase responsibility on the part of companies that produce such bottles. Also, Maharashtra Pollution Control Board directed its West Zone to create a separate fund for discharging its liability by crediting an amount of 15 paisa per bottle introduced or sold by the company directly or through its distributor/wholesalers/retailers or partners. Any inability on the company’s part to implement the directives may materially and adversely affect Rail Neer business.

In addition, in case stricter environmental protection policies enact or market trends emerge to phase out the use of plastics, particularly in relation to plastic bottles, company’s business and financial performances can have adverse effect.

(J) Key Trends

Click to enlarge the image

1. Railway Passenger Traffic

2. Online Tickets Booking (IRCTC Data)

3. E-catering Services Order Volume

4. Infrastructure Investment by Government

• Railways, one of the 34 infrastructure sub-sectors, expects to get boost as a result Government's initiatives.
• Railway infrastructure investment is expected to grow Rs. 3.8 lakh crore to Rs. 8.0 lakh crore.
• For FY 2019-20, Rs 1,580 billion, is the highest ever capex allocated.
• As per Union Budget 2019-20, Ministry of Railways have been allocated Rs. 94,071 crore in 2019-20.
• The Government suggested Rs. 50,00,000 crore in Budget 2019-20 for railways infrastructure between 2018-30.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications, Mutual Funds Industry, Few Inputs from ICICI Direct Research.

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