IRCTC Ordered To Share Revenues With Govt; Will It Impact IRCTC Share Price? (Updated)

Update: Govt of India has scrapped its decision of ordering IRCTC to share revenues with Govt. This has impacted positively for the share prices.

Earlier..

Share Market works on two things, Reputation, and Trust. The more good reputation a company has with investors, the better it will perform in attracting investors. The same goes with trust as well. The higher the trust investors have in the management of the company, higher the goodwill of investors it will attract. And it takes a long time and hard work to earn both these things in the dynamic share market.

And it looks like with just one move, the government might have just given a share market a chance to doubt its intentions for PSUs.

IRCTC will be sharing its revenue with the Government

In a recent development, the Ministry of Railways has ordered the Indian Railway Catering and Tourism Corporation (IRCTC) to share 50% of the revenue that is generated from service charts on e-ticketing, i.e., convenience fees, with the government.  So far, IRCTC did not share revenues from this segment with the Indian government

This decision will be implemented from November 2021.

According to IRCTC’s website, income from the convenience fee is recognized on the basis of the value of the convenience fee earned on the tickets booked by domestic customers through its website.

This move might have a widespread impact

This latest development will impact the IRCTC’s revenue coming from the e-ticketing service charge segment. In FY21, IRCTC earned ?299 crores from this segment, which is almost 40% of its revenue from operations of ?783 crores.

Apart from Financial implications, other effects of the government’s decisions are far greater. To begin with, this decision 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.

Investors have already taken to Twitter to express their uneasiness with this move from the government. According to them, this move has brought back the distrust factor for state-owned companies. According to some analysts, this soured mood among retail investors can make the stock of other PSUs collateral damage.