IRCTC shares tank 25% when asked to share convenience fee with Railways

IRCTC has been asked to share 50% of the revenue it receives from bookings on its website with the national transporter, an arrangement that was put on hold since the pandemic. IRCTC said that the Railway Ministry has said that the revenue sharing system will be implemented from November 1.

“Government asking IRCTC to share 50% convenience fee with Ministry of Railways is another example that should warn investors of undue optimism while investing in PSU shares. Increasing shareholder returns is not the aim of PSUs. So investors have to be careful while chasing PSU stocks, even if they are cheap,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

The convenience fee charged from the customers generated a huge revenue for both IRCTC and Railways. The fee is not part of the rail fare. This is for the online ticket booking service offered by IRCTC.

“This decision creates a huge dent in confidence for investors in PSU entities as it reflects uncertainty in business continuity for such companies. For this decision, we expect an EPS cut of 28% for IRCTC and Investors should avoid this stock. Uncertainty persists,” said Divam Sharma, Co-Founder, Green Portfolio, SEBI registered Portfolio Management Services.

The company has a strong monopoly as it is the only entity authorized to manage catering services in trains and major stationary units at railway stations. IRCTC shares got pre-split on Thursday after the board approved a 1:5 stock split on August 12 to help increase liquidity in the capital market, widen the shareholder base and make shares affordable for small investors. .