After market hours yesterday it came out that would have to share 50% of its convenience fee with the government which basically meant one was looking at a 50% depreciation and fall in its earnings. That decision has been withdrawn. What is this going to mean for IRCTC? The stock is recovering but the bigger question is has the nervousness of investors been taken care of?
A disclosure, we own IRCTC but this was a decision that was probably pending because they used to share revenues with railways earlier but right now the timing is terrible because the government has the LIC IPO coming. They are talking about disinvestment of other PSUs. So it gives a really wrong signal.
While the reversal of the decision was not expected in a day, the fact is the whole PSU landscape is frothy and any untoward decision now will affect the prospects. We have seen this in the past also. Plus IRCTC has been very richly valued and a much needed correction that is happening is probably good for the stock in any case. We should expect some knee-jerk reactions by the government and officials in all PSUs regardless.
But does this keep the conviction going on on the entire PSU and disinvestment story because of late we saw some buying coming in the PSU stocks?
The issue with PSUs is that the government officials that make decisions do not really have a stake in this decision and since they do not think of investors, they do not think of other stakeholders. I do not see that changing in the near future. We are still going to get some knee-jerk reactions. You have to be careful of PSUs in general. We do not want to give them very rich valuations and IRCTC is definitely rich. It is a great business and perhaps and as they mature will really be a great corporate entity.
There would be perhaps 10X or 15X business that could be generated from the same properties that they own but PSUs are hindered by the fact that the decision making is going to be dictated by officials who do not really care about other stakeholders? The government is a big stakeholder by itself. We should temper down the valuations. The business is fine. It is just that I do not think like most PSUs there is great potential but the ability to execute and get that potential has always been great in terms of IRCTC and hope is always a good thing but we should just be realistic and say valuations will not sustain. The business has to grow.
