The successful divestment of Air India, probably the toughest asset the government had to sell, was proof of that intent and its ability to execute. But, just as the headlines of that transaction were only starting to fade, the government on Thursday threw a googly.
Indian Railway Catering and Transportation Corporation (
), owned 67 per cent by the government, announced on Thursday that it has received a letter from the Ministry of Railway mandating it to share half of its revenues from convenience fee charged on internet ticketing with the ministry.
The move will have an instant impact on IRCTC as it will shave off 50 per cent of its convenience fee revenues generated from its biggest revenue contributor – internet ticketing. Analysts expect an instant de-rating for a stock that was already trading at valuations that were far ahead of its fundamentals.
According to some back-of-the-envelope calculations, the loss in value of its stake in IRCTC and the valuation multiples for one of the most sought after stocks will be multiple times the revenue that the government hopes to generate from the sharing of the convenience fee with IRCTC.
Leaving the financial implications aside, the second order effects of the government’s move are far greater. For starters, it has partly undone years of hard work put into convincing the market that sudden interventions in the functioning of the state-owned enterprises were a thing of the past.
Already investors took to twitter on Thursday evening to cry foul over the government’s move and how it has brought back the distrust factor for state-owned companies. While other PSU stocks may not have much to do with the IRCTC incident, the soured mood among retail investors will make the stock of other PSUs collateral damage.
IRCTC, however, can negate all revenue base lost to the government via sharing of the convenience fee revenue by simply raising the fee going ahead. However, with the government already under fire for soaring fuel prices, raising railway ticket prices sharply in a sudden fashion ahead of critical state elections will be a tall ask.
In the meantime, the uncertainty bred by the government’s move will steadily erode investor confidence not only on IRCTC till clarity emerges but, perhaps, on the entire PSU pack.
