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IRCTC shares tank on asked to share convenience fee with Railways – Mint

Shares of Indian Railway Catering & Tourism Corporation (IRCTC) plunged to 10% to 822 apiece in Friday’s opening deals after the Indian Railways’ online ticketing arm has been asked to share half of its convenience fee with the Railway Ministry.

IRCTC has been asked to share 50% of its revenue earned as convenience fee from bookings on its website with the national transporter, an arrangement that had been discontinued since the pandemic. IRCTC informed that the Railways Ministry has said the revenue-sharing arrangement would be enforced from November 1.

“Government asking IRCTC to share 50% convenience fee with the Railway Ministry is yet another instance which should warn investors of undue optimism while investing in PSU stocks. Enhancing shareholder return is not the objective of PSUs. So investors have to be careful while chasing PSU stocks, even if they are cheap,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Convenience fees charged from customers generated a sizable revenue for both IRCTC and the Railways. The fee is not part of the rail fare. It is for the service of online ticket booking offered by the IRCTC.

“The sentiments were improving for PSU stocks after a positive attitude by the government but this news may hurt the sentiment badly. It will be difficult to take action after a big gap down opening therefore existing shareholders are advised not to act after a big crackdown because other fundamentals are still strong and we can see a dead cat bounce if government reverse its decision however it will be difficult to gain previous valuations for IRCTC because investors will always have risk factor in their backup of mind,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

The company enjoys a strong monopoly as it is the only entity authorised to manage catering services on trains and major static units at railway stations. IRCTC shares turned ex-split on Thursday after the board had approved a 1:5 stock split on August 12, to help enhance liquidity in the capital market, widen shareholder base and make the shares affordable to the small investors.

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