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The Ministry of Railways on Friday withdrew its claim over half the convenience fee collected by the Indian Railway Catering and Tourism Corporation (IRCTC), but not before the stock saw wild price swings as investors expressed their displeasure.
The matter pertains to a notice by IRCTC to the stock exchanges on Thursday, in which it said, “The Ministry of Railways has conveyed its decision to share the revenue earned from convenience fee collected by IRCTC in the ratio of 50:50 with effect from November 1.”
The reversal on Friday came after IRCTC officials engaged with the Rail Ministry and other arms of the government, such as the Department of Investment and Public Asset Management (DIPAM), seeking to protect its revenue stream.
Earlier in the day, DIPAM Secretary Tuhin Kanta Pandey told Business Standard that the Railway Ministry’s decision on convenience fee had been withdrawn. DIPAM tweeted this information at 11.06 am, and at 2.52 pm, IRCTC informed the exchanges of this decision.
These developments significantly impacted IRCTC’s shares. Having closed at Rs 913.75 apiece on Thursday, they opened at Rs 822.15 apiece on the NSE, and plummeted as low as Rs 685.15 by 10 am.
They recovered swiftly to Rs 891.70 by 11.15 am, the highest intra-day price on Friday, and then closed at Rs 845.70 apiece.
According to senior rail ministry officials, the decision to withdraw the demand was taken by Railway Board after the IRCTC management requested it to do so.
“IRCTC said it has suffered during the pandemic due to loss of business and sharing revenue will not be viable at this stage,” said an official, explaining the rationale behind this policy flip-flop.
“There seems to be some lack of coordination between government departments. The gains to the exchequer from this claim on IRCTC’s convenience fee are much lesser than the loss of shareholder value that has been inflicted,” another official aware of the developments said.
A third official said of the reversal: “The step was taken as the move would have created a big uncertainty for investors for PSU stocks. This, at a time when the Centre’s strong steps had created confidence about PSU stocks in the market. Hence, the decision is being reversed.”
Sources said senior IRCTC officials had met Friday morning to discuss the issue and request the government to rethink its position. One of the options on the table was hiking the convenience fee to protect IRCTC’s bottom line.
According to IRCTC’s annual report, it earned Rs 299.13 crore as convenience fee in financial year 2020-21 (FY21). These gains were muted because of the fall in railway ticket bookings on account of the Covid-19 pandemic. The fee collection stood at Rs 349.64 crore in FY20.
Income from convenience fee was the largest revenue earner for IRCTC in FY21. This was because income from catering and comprehensive services fell from Rs 512.45 crore in FY20 to Rs 87.31 crore in FY21.
Responding to a query on whether IRCTC is justified in claiming a convenience fee and keeping all of it with itself, Rakesh Tandon, IRCTC’s former managing director told Business Standard, “IRCTC should continue charging a convenience fee and holding on to it. It has paid for the upgradation of ticketing infrastructure, so it must get income through convenience fee and the government should allow it.”
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