Indian Railway Catering and Tourism Corporation : On The Right Track
IRCTC works with a mission to establish itself as a leader in the areas of hospitality services, travel and tourism, packaged drinking water and internet ticketing by providing value-added products and services for passengers, tourists and other customers. It has a resilient business portfolio that is scaleable and based on core competencies.
Incorporated on September 27, 1999, the Indian Railway Catering and Tourism Corporation (IRCTC) is an extended arm of the Indian Railways to upgrade, professionalise and manage the catering and hospitality services at stations, on trains and other locations. IRCTC as a public sector undertaking provides a single-window solution to all travel, tourism, internet ticketing and hospitality-related services. It has completely redefined travel and tourism in India. With a host of services ranging from online ticket bookings to hotel and flight bookings, the online portal meets varied travel needs with just a few clicks.
IRCTC also promotes domestic and international tourism with special tour packages and advanced e-ticketing services. It is the only entity authorised by the Indian Railways to sell railway tickets online, provide catering services on trains, and deliver packaged drinking water at railway stations and trains in India. The company operates through four major divisions – catering and hospitality, internet ticketing, travel and tourism and packaged drinking water (Rail Neer), offering a comprehensive range of products and services that meet the needs and expectations of millions of travellers.
Sector Overview
The Indian Railways (IR) is the economic artery of India, spanning over a network of 67,580 route km. It operates 9,146 freight trains, 13,523 passenger trains and manages more than 8,000 stations. The network positions itself to be the secondlargest in the world under a single management and provides an economical mode of transport for commodities and passengers. IR employs more than 1.4 million people and is the eighth-largest employer in the world. The IR contributes significantly to nation-building efforts and acts as a facilitator for urbanisation and integration of economy, culture and polity. During the pandemic, the passenger train services of Indian Railways were completely suspended due to the lockdown, only the second time since its inception in 1853.
To maintain the supply of essential commodities, it introduced special parcel trains which continued operations even beyond the lockdown period. In FY 2021, the IR carried 924.82 million tonnes of freight and 443.3 million passengers till December 2020, making it the fourth-largest freight carrier and the largest passenger carrier in the world. Indian Railways recorded a gross revenue of Rs 2,17,460 crore in FY21. Freight earnings, comprising a significant portion of the revenue, remained at Rs 81,764.68 crore in Q3FY21. Meanwhile, passenger earnings in the same period stood at Rs 6718.3 crore on the back of countrywide lockdown and general restrictions on movement.
Financial Overview
Analysing the performance of the company from a financial point of view, for the first quarter of FY22, on standalone basis, the company recorded net sales and other operating income of Rs 243.37 crore which increased by 85.31 per cent from Rs 131.33 reported crore in Q1FY21. The operating profit recorded at Rs 126.08 crore in Q1FY22 as compared to an operating loss of Rs 18.71 crore in Q1FY21. Q1FY22 recorded a net profit of Rs 82.52 crore against net loss of Rs 24.61 crore in the same quarter in the previous year. On the annual front, its net sales and operating income de-grew by 65.42 per cent from Rs 2,264.31 crore in FY20 to Rs 783.05 crore in FY21. The operating profit contracted by 64.55 per cent in FY21 as compared to FY20.
The net profit declined by 62.99 per cent in FY21, recording Rs 189.90 crore as compared to Rs 513.11 crore in FY20. The company saw steady improvement in the profitability of its internet ticketing segment. The EBIT saw an improvement from Rs 100.6 crore in FY18 to Rs 494.7 crore in FY20. High profitability and debt-free operations are driving healthy return ratios for the organisation. Return on net worth has improved to 39.8 per cent in FY20 from 23.2 per cent in FY18. The company has recorded healthy dividend and payout ratio.
Business Segment Overview
• Internet Ticketing: IRCTC currently has a monopoly on online ticketing services for the Indian Railways. With a transaction volume of more than 14.5 million per month and 2.6 million logins per day, the IRCTC operates one of the most highly populated and transacted websites in the Asia-Pacific region. As of March 31, 2021, more than 0.83 million passengers travelled on Indian Railways on a daily basis, which consisted of approximately 79.63 per cent of Indian Railways’ tickets booked online.
• NGET System: The company has launched the nextgeneration e-ticketing (NGeT) system interface containing various passenger-friendly features, offering a clutter-free experience with easier login, site navigation and enhanced security. Therefore, ticket bookings have increased from 7,200 per minute in 2014 to more than 26,000 tickets per minute as on March 31, 2021.
• New User Interface (UI):
IRCTC thrives in contributing to enhance customer experience and convenience while booking reserved rail e-tickets through its website and Rail Connect mobile app to retain its customer base and cater to their needs. Keeping in mind the same, IRCTC has launched the new user interface of e-ticketing website and mobile app with modified functionalities and some additional features.
• Catering Business
It is the continuous endeavour of Indian Railways to provide quality and hygienic food to passengers. As per Ministry of Railways’ new catering policy of 2017, IRCTC has been assigned the responsibility for catering services across the entirety of Indian Railways – mobile and static – on a revenuesharing model. IRCTC has started a new initiative of e-catering which allows passengers willing to pay higher prices for variety in food options to order food items from partner restaurants, which pay IRCTC a 12 per cent commission on order value, inclusive of GST. The revenue from e-catering services has grown at a strong CAGR of 157 per cent from FY16 to FY20. As (Source: Annual Report 20-21, IRCTC) of March 31, 2021, e– catering is available at approximately 202 stations and served by more than 650 food outlets. For its static catering business, the company manages 56 ‘jan ahaars’, 176 refreshment rooms, 17 cell kitchens and 11 base kitchens. The company also operates 134 food plazas and 146 fast food units and has increased the total number of operational units to 287.
• Packaged Drinking Water
IRCTC is the only entity authorised by Indian Railways to provide packaged drinking water at railway stations and trains in India. There is a consistent increase in the number of bottles produced each year. The number of bottles produced jumped from 125 million in FY17 to 187 million in FY20. With an installed production capacity of approximately 1.41 million litres per day, it caters to approximately 70 per cent of the current demand of packaged drinking water at railway premises and in trains. To increase its market share and to meet the growing demand, the company set up and started commercial operations of the new ‘Rail Neer’ plant at Una on July 31, 2021. Further, three new plants have been approved at Bhubaneswar to be commissioned by 2021-22 and Visakhapattanam and Kota to be commissioned by 2022-23.
• Travel and Tourism
As per the requirements of Indian Railways, IRCTC provides a wide array of travel and tourism services. It has firmly established its position among India’s leading travel and tourism companies, catering to diverse travel needs. The company is all prepared to steadily commence tourism activities following all safety health protocols issued by the Government of India and travel restrictions issued by the respective state governments and guidelines from time to time. Travel advisories have been uploaded on the IRCTC tourism portals and are periodically updated as a ready reckoner for its valued guests.
Future Outlook
In line with making India self-reliant and a USD 5 trillion economy by 2025, Indian Railways has embarked on a mission to transform the industry with a focus on infrastructure development, safety and private sector involvement. The government, in its Union Budget FY 2022, allocated Rs 1.1 trillion for the Indian Railways with a capex of Rs 1.07 trillion. IR strives to consistently improve the punctuality of its mail and passenger trains to ensure customer satisfaction and enable passengers to reach their destination on time.
Some of the initiatives undertaken by the government include the following:
• The National Rail Plan aims to increase the modal share of railways in transportation through infrastructure development and capacity expansion to fulfil the increased demand for railway services by 2050.
• The government has allowed private participation for operating passenger trains to improve punctuality as well as reliability.
• NRAI and maintenance of the railway network. It is expected to be a revenue-sharing model and 109 pairs of origin destinations in 12 clusters have been selected for the bidding. It is expected to attract Rs 30,000 crore of investments from the private sector.
• To ensure passenger safety and prevent virus infection, the Indian Railways has developed post-pandemic coaches with copper-coated handles and locks, handsfree water tanks and flushes.
• The Ministry of Railways also has charted collaborations with other modes of transport to develop a multi-modal transportation network.
• A feasibility study on seven bullet train projects was approved by the Ministry of Railways.
• To encourage FDI investments, the government has started a Project Development Cell (PDC).
Talking about the latest developments by IRCTC, it is soon introducing a path-breaking and unique concept in hospitality services by commissioning pod retiring rooms at Mumbai Central Railway Station in association with Urban Pod (P) Ltd, Mumbai. A POD hotel features a large number of small bed-sized rooms known as capsules. Pod hotels provide affordable, basic overnight accommodation for guests who do not require or who cannot afford larger, more expensive rooms offered by the conventional hotels. In the equity markets, the stock of IRCTC has declined a massive 38 per cent from its record high of Rs 6,369 per share on October 19, 2021.
The stock qualified to be a consistent performer since it stepped into the equity markets in October 2019, rising nearly 900 per cent since listing till October 19, 2021. In the past three months the stock surged over 100 per cent, aided by rise in ticket bookings and travel plans as the economy opened up after the pandemic-triggered restrictions. A sudden plunge in the stock price since October 19, 2021 could be due to valuation concerns after a steep run-up in the last few months. While the fundamentals of the stock remain strong, the increasing stock price of the company may have led to massive profit booking. Other reasons for the decline can be the reduction in stake by mutual funds and foreign investors.
The expansion plans of the firm indicate signs of potential upside in the stock in the long run. Besides, the company has been expanding its business to bus, air tickets as well as tour and travel planners. This is likely to build up new potential opportunity for the firm to harden its position. Further, application to the Reserve Bank of India for a payment aggregator license will not only make it easier for customers but also bring in additional revenue. Hence, we recommend investor readers to HOLD the position taken in IRCTC.