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All Aboard The Gravy Train: Next Stop, IRCTC 🚂

In October 2021, the government suddenly demanded 50% of IRCTC’s revenue generated from convenience fees - the fee charged by IRCTC while booking tickets online.


Although this wasn't implemented, if it were, it would drag out nearly a quarter of IRCTC’s revenue - just like that!


Since then, IRCTC is marred by the risk of government intervention. Who wouldn't want a piece of the state-sanctioned monopoly of the world’s fourth largest national railway system?


De-risking

Following the close call of the ad-hoc revenue demand, IRCTC’s management has focused on increasing its non-convenience fee revenue share and expanding its other businesses segments.


Creating new revenue streams will shield it from the regulatory risk that comes with being a PSU. All of this makes IRCTC an immensely lucrative investment opportunity.


How far are we on diversification?

Internet ticketing has gone from 65% of revenue in October 2021, to 35% now. IRCTC has leveraged its monopoly on catering and water on the railway network.

  • For FY23E, annual revenue from E-catering segment is expected to reach Rs 1,500 crore with EBIT margins being in the range of 14-18% on the back of increase in the number of trains

  • Rail Neer is supplied from 15 of its own manufacturing plants with a total production capacity of 15 lakh litres per day. Construction of four more manufacturing plants is underway to meet rising demand

It has been peddling hard on these opportunities. These fetch lower margins relative to the ticketing business, which is a typical internet start-up like mechanism - low cost and high operating leverage, with the massive volumes that IRCTC sees.

Figures (Q1 FY23)

About

Revenue Share

EBIT Margins

Growth Drivers

Rail Neer

Manufacturing and providing a packaged drinking water to travellers

10% worth Rs. 84 Crore

11%

Mandatory at railway stations

Catering

Delivering food to the passenger on demand and platform

42% worth Rs. 350 Crore

12%

E-catering, licensing to other players

Internet Ticketing

E-ticket booking for railways and airlines on Mobile application

35% worth Rs. 300 Crore

85%

Excellent EBIT margins, low cost

Tourism

Airline tickets, bus tickets, hotels, lounges, tour packages, cruises, and also operates the luxury trains

10% worth Rs. 82 Crore

1%

Low base from COVID delta wave

Other Opportunities

Private trains

  • The public-private partnership in trains has been picking up - we’ve all heard of the fancy Tejas trains.

  • The railways have made a grand proposal two and a half years ago to run 150 trains in the private sector, but the operation proposal has now been shelved because of the losses run by the two Tejas trains launched three years ago.

  • While the losses were caused by increased fares, demand mismatches and COVID-related suspensions. But any expansion here may work out well for IRCTC in the long run.


IRCTC iPay

  • Since the size of transactions on the IRCTC platform is substantial (Rs. 38,000 Crore for FY22), IRCTC has established its own Payment Gateway called iPay.

  • It is a one-stop payment solution that accepts payments via all payment methods (like Internet Banking, Debit Card, Credit Card, Wallets, UPI Account & Autopay).

  • The iPay's overall revenue was Rs. 27 crores, of which the IRCTC's net revenue was roughly Rs. 10.7 crores.

  • The management intends to establish a fintech arm and plan to supply this in-house solution to third party platforms. Because of being a PSU they have an advantage to easily onboard government businesses and capture market share.


Monetisation of Digital Assets

  • To take advantage of it’s huge customer base, IRCTC plans to build a marketplace and cross-sell to it’s ticket buyers. Bill payment / recharge services and other third-party services such as online insurance are available on its website and mobile app through partnerships.

  • This paves the way for continued success in the e-commerce ecosystem and increased customer retention.

  • After gaining experience running a Chatbot enquiry service on its e-ticketing platform, IRCTC will now extend AI-based Chatbot services (such as AI Chatbots, VoiceBots, VideoBots, Virtual Assistants, Intelligent RPA, and Bots, among others) to government and private organisations across various verticals and functions.


Capitalising on the Monopoly

IRCTC seems to be making the most of its monopoly. While the current state of operations provides a massive upside, newer opportunities in private trains, payments and monetisation digital assets may take IRCTC to newer heights.


While policy risk was large at some point, successful diversification has yielded well already.

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