IRCTC struggles to stay on track as travel worst impacted due to Covid-19

The pandemic has eaten into the profitability of this govt-owned railway catering and ticketing monopoly

A year after the Indian Railway Catering and Tourism Corporation (IRCTC) became a listed company, recording a stupendous debut on the Bombay Stock Exchange in October 2019, it is waiting for normalcy to return. Though the monopoly government-owned catering and ticketing company has big plans to get into running some of the private trains that the Indian Railways has put up for auction (see interview), for this year at least, it will work on staying on track as the pandemic-induced slowdown impacts revenues and profits.

IRCTC’s bread-and butter-business of catering, which accounts for 46 per cent of revenue in a normal year, is yet to bounce back with overall revenue this year expected to be just 45 per cent of last year’s. The memorandum of understanding the company signed with the department of public enterprises had set a revenue target of Rs 3,000 crore in 2020-21. Then, the national lockdown brought train services to a halt on March 22, 2020. Though the Railways restarted some services, full-scale operations are some time away. This year, most of IRCTC’s revenues are expected to come from its e-ticketing business, which accounts for about 27 per cent in a normal year, principally because reservations are compulsory for any train journey. As a result, IRCTC has had to revise its revenue target to just Rs 600 crore this year.

“Tourism and travel are the worst impacted segments due to Covid-19. People do not want to travel. Only 35-40 per cent of the regular trains are running,” said Mahendra Pratap Mall, chairman and managing director, IRCTC. The last year’s financial was a different story. The company reported a 21.68 per cent growth in revenue from operations, a 71.3 per cent jump in profit after tax and an improvement in earnings before interest, taxes, depreciation, and amortisation of 67.62 per cent over the year before (see chart).

The performance was more than welcomed by the company’s new public shareholders with the stock hitting a 52-week high of Rs 1,995 on February 25. But by March 26, the lockdown dragged that down to a 52-week low of Rs 774.85. Even so, investors see value in the stock. The government’s Offer for Sale for up to 20 per cent of its stake in December (to conform with the stock market regulator’s public holding norm) did well with the government earning 4,374 crore from stake sale after exercising a green-shoe option.

Still, Covid-19 proved an unanticipated derailment. On average, the company was booking 825,000 tickets daily through its platform in 2019-2020 but in April and May, the lockdown rendered those bookings down to zero. Instead, the company had to refund tickets. Mall said traffic on all trains is affected whether or not certain categories of passengers are opting to fly. Only for one month during the festive season did bookings start rising, only to fall with the second wave of the pandemic.

“We were doing an average 850,000 tickets a day just before the lockdown. Now, we are doing 500,000 on an average, but in the last week of November it touched 650,000 since bookings for Holi started 120 days in advance,” he said. Commissions have been hit too. Pre-Covid-19, the air-conditioned (AC) class accounted for about 30 per cent of bookings through IRCTC’s platforms for which it earned Rs 40 per ticket. That percentage has dropped to 10, which means 90 per cent of IRCTC’s bookings now come from the non-AC class, for which it earns Rs 20 a ticket as commission.

Its much-hyped corporate train, Tejas, also came to a halt. The Delhi-Lucknow Tejas launched in October 2019 reached 48 per cent occupancy and was able to break even in five months. “On the Ahmedabad segment (launched in January 2020), we reached breakeven occupancy from the first day. As and when the situation improves, we will restart Tejas,” Mall confirmed.

The setback to the catering business is a major jolt and shows little sign of immediate recovery. For the 140 trains equipped with pantry cars on which IRCTC currently provides catering services, it is required to serve pre-cooked items since fresh cooking is not permitted to minimise human contact. This is less popular with passengers, so sales are not even 10 per cent of normal times.

To adjust to this, IRCTC has reworked licensing terms with its contractor. Mall explains that since the licence fee for all contracts differ and reducing those rate can create a problem, IRCTC decided to keep all the licences in abeyance. Fees were refunded and the contractors could choose to exit or give short-duration quotations, since demand is more predictable in the near term.

For IRCTC, hope of recovery lies in people gaining confidence to travel, which could come through the vaccine. “With the coming of the vaccine, things should improve, though there is the fear of a new virus strain. It is simply a bad year for us, but we will sail through this,” he predicted.

‘We’ll form JVs for private trains’
 

IRCTC Chairman & MD Mahendra Pratap Mall

IRCTC Chairman & MD Mahendra Pratap Mall explains the strategy for the private train foray

Is running trains good business when sentiment is low?
 
Running private trains is a good business and we have experience. It is difficult to forecast traffic right now, but the situation is improving. Our experts are working on the 10 clusters that the Railways have offered.
 
What are the challenges in identifying routes?
 
The problem is the Railways have worked out the routes based on unmet passenger demand, but non-AC 3-tier demand will not convert to demand for these trains because they are expensive.
 
What kind of investment is needed?
 
A rake would cost us Rs 100 crore but we will not go for an outright purchase because there will be a problem if there is outright purchase. We opt for leases for the first few years with the option to purchase. We will not invest much capital because for the first three-four years, there will be losses. It should not be capitalised, but met through internal resources.
 
Would you be partnering with other companies for private trains?
 
We will associate with a partner, which could be a manufacturer, a technical firm or financier. It could be a joint venture or special purpose vehicle. We have called for expressions of interest and 10 companies have qualified. Once the Railways allot the sectors to us, we will finalise partners.