October 14 marked the grand debut of India s most popular railway entity IRCTC. It was so well received by the public at large that it got listed in BSE at a price of Rs. 644 and Rs. 626 in NSE against an issue price of Rs 320/- The main objective of listing IRCTC is to carry out the disinvestment of equity shares and to achieve the benefits of listing the equity shares. So how did this company manage to quote its share at a premium of 110% in the grey market?
Indian Railway Catering and Tourism Corporation Limited ( IRCTC) is a central public sector enterprise wholly – owned by the Government Of India under the administrative control of the Ministry of Railways. It was conferred the title of Mini Ratna Category 1 PSU and which is a wholly-owned subsidiary of Indian Railway .it currently operates with a transaction volume of 25 million per month and 7.2 million logins per day.The promoter of this company is the President of India acting through the Ministry of Railways, Government Of India. The 4 major services offered by the company includes
Internet ticketing
Catering
Packaged drinking water under the brand Rail Neer
Travel and tourism
Internet ticket booking holds a share of 14 % of IRCTC revenue. Catering offers 48% out of which 30% is through the outsourced contracts and the remaining 18 % is self-operated. Packaged drinking water ( Rail Neer) constitute 27% and Travel and Tourism holds 11%.
It also offers other non-railway services including budget hotels, e-catering, and executive lounges.
Initial public offer (IPO) consists of 3 different categories of buyers
Qualified Institutional Buyers (QIB)
Non-Institutional Investors (High Net Worth Investors )
Retail Investors
The subscribed portion of QIB is 108.8 times HNI got subscribed by 54.4 times, retail and employees got subscribed by 14.6 times and 5.8 times. The price band of IRCTC is Rs 315-320 per share. The company offered Rs 10/ share discount to employees and retail investors. The total IPO size raised 20,160,000 shares aggregating up to 645.12 crores and the minimum lot size is 40 shares.
The company commands such premiums because of its dominant market position of having a monopoly which will act as a barrier for the new prospective firms to enter at least for some time. Also, this will enable the company to enjoy and maintain huge profits. Diversified service offerings by the company stop you from being dependent on only 1 line of business and reduce financial risk. Favorable industry dynamics like IRCTC has priced its products and services strategically so as to be affordable by a common man and also can be enjoyed as a luxury for a consumer with high-end needs. Customer segmentation include general destination trains to luxury travel trains through the-maharajas.com which gives the customers to experience grand royalty and explore the rich Indian culture. IRCTC surely holds a competitive advantage and a positive outlook on the market. However, it would depend upon the company how well it can hold this position. Over time we have seen that the only competitive edge which the PSU holds has declined due to the entry of private players. Companies like Coal India LTD, Air India, MTNL, BSNL enjoyed the monopoly only for a limited period – till the private players came in. We have the private sector operating the container trains in India. So the day would not be far when they decide to enter this line of business too. And when the private sector companies run the passenger train will IRCTC still continue to hold the existing position?
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