Issue witnesses strong demand from all categories of investors; offering part of govt. divestment plan
Chosen vehicle: Two Tejas trains of the Indian Railways will be operated by the IRCTC. S.KrishnamoorthyS_KRISHNAMOORTHY
The initial public offer (IPO) of Indian Railway Catering and Tourism Corporation (IRCTC), which closed for subscription on Thursday, has created a record in terms of the highest-ever subscription for a public issue of a government-owned company.
As per NSE data, the public issue, that aims to raise ₹645 crore, was subscribed nearly 112 times with bids received for 225.61 crore shares against 2.02 crore shares on offer in the price band of ₹315 to ₹320.
As per data from Prime Database, this is the first time ever that an IPO of a public sector undertaking (PSU) has been subscribed more than 100 times. In 2017, the public issue of Housing & Urban Development Corporation (HUDCO) was subscribed nearly 79 times. In the same year, Cochin Shipyard public issue was subscribed 75.59 times.
Last year, the IPO of Rites Ltd. got subscribed nearly 67 times. Meanwhile, the IPO of IRCTC witnessed strong demand from all categories of investors.
The portion reserved for high net worth individuals was subscribed over 354 times, while that reserved for retail investors got subscribed 14.65 times.
The segment reserved for employees, which historically has seen low subscription numbers, was also subscribed 5.79 times. Incidentally, the company will be offering a discount of ₹10 to applicants in the retail and employees’ categories.
Institutional investors have also put in large bids with the segment getting subscribed nearly 109 times.
IRCTC is the railways’ online ticketing, tourism and catering arm and the only entity authorised by the Ministry of Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India.
The public offering is part of the government’s disinvestment programme and the public offering will lead to the government — which holds the stake through Ministry of Railways — holding coming down from the current 100% to 87.5%.
IRCTC earns the maximum revenue (55%) from its catering operations followed by travel and tourism (23.38%), ticketing (12.35%) and Rail Neer (9.28%).
For the financial year ended March 31, 2019, the company reported a net profit of ₹272.56 crore, which was higher than the previous year’s net profit of ₹220.62 crore.
The company, which is completely debt-free, had cash reserves of ₹1,140.04 crore as on March 31, 2019.
India can use this as leverage with China, says telecom baron Sunil Bharti Mittal
In 3G and 4G, one can separate peripheral parts from central parts but that is not possible in 5G, says Mr. Ross. REUTERSHannibal Hanschke
Founder and Chairman of Bharti Enterprises Sunil Bharti Mittal on Thursday said India should allow Chinese telecom equipment firm Huawei to participate in the 5G roll-out in the country citing superior products than competition, even as U.S. Secretary of Commerce Wilbur Ross asserted that the U.S. position of banning Huawei did not stem from protectionism but due to ‘considerable’ security risk.
“I really feel they should be in play.” Mr. Mittal said at the India Economic Summit.
“India must use this as leverage. There are lots of open issues with China as well and India must take advantage of them, unlike opening it to other western companies... and then having very little leverage.”
He pointed out that over the past 10-12 years, Huawei had become ‘extremely’ good with products “to a point where I can safely say that their products, at least in 3G and 4G, are significantly superior to those of Ericsson and Nokia without a doubt, and I use all three of them.”
Mr. Ross, speaking at the same panel, said, “We do not have a direct competitor to Huawei. So the notion that our views on Huawei are a function of U.S. protectionism is simply incorrect.”
“Our concern is based on our desire that our geopolitical partner India does not inadvertently subject itself to untoward security risk.”
Pointing out that 5G was different from 3G and 4G, Mr. Ross said, “In 3G and 4G, you are able to separate peripheral parts from central parts. In 5G, if there is penetrationvia a back-door, it will infiltrate the whole system. So proportionality of risk is considerable.” He added that Huawei was ‘very dependent’ on U.S. technology so it wasn’t a case of Huawei having found ‘a magical thing’ not available elsewhere. “I believe that in a few years there will be a western alternative that leapfrogs technology.... since 5G is a such a revolutionary thing and is going to take quite a while to roll out anyway. Our feeling is why jump into it.”
Mr. Mittal, however, said, “Huawei has surprised me on how fast they have taken the technology curve to a level where its leading edge, power consumption is a fraction of the Europeans’, the footprint is small if you want to put it on a tower... they are clearly ahead.”
He also pointed out that in 24-36 months, China will become 100% free from any American component.
Post corporate tax cut, more structural reforms are likely, says NITI Aayog CEO
Days after the government cut corporate tax rate for domestic firms and new manufacturing units, NITI Aayog CEO Amitabh Kant on Thursday said the government has done its bit and now, it is for the private sector to respond by reducing product prices and making investments.
He also signalled that more reforms may be announced to further boost economic growth in the country.
“....the government has done its bit. It has brought in one-tax regime across the country...India’s corporate tax regime is the best in the world. Now, the private sector must do its bit. The private sector is sitting on vast inventories,” Mr. Kant said while speaking during a session at the Indian Economic Summit.
He added, “We have, by one stroke of pen, improved the bottom line of these companies. This year itself, many companies, their balance sheets will jump very hugely and significantly. And therefore, the onus on them is to cut prices, reduce inventories, become competitive, sell off all the stocks and create new capacities in this country. The government has done its part, the private sector must respond.”
Shobana Kamineni, executive vice-chairperson, Apollo Hospitals, in her address, pointed out that one of the reasons that the private sector is holding back investments is uncertainty in government policy.
Replying to a question on what was holding the private sector back, Ms. Kamineni said, “...I think it is also because of the scare that the governments can midway, after you’ve made all these investments, suddenly pull the rug under you... that is keeping a lot of people away. I see it even in us making investments, suddenly, if there are price caps...”
She, however, added, “I still believe that we’re entrepreneurs, we’re in it for risk, we don’t expect a red carpet, we expect some potholes...we’re taking risks so that we can make profit at the end of it... but there has to be some amount of certainty...when the government stands behind anything...”
Mr. Kant said steps such as reduction in corporate tax are bringing in “predictability and consistency.” Talking about the economy, Mr. Kant pointed out that both the RBI and the government have taken a series of measures to take India back to a high trajectory of growth rate and more measures could soon be announced.
“I think many more structural reforms are in the offing. The government has pushed for public sector disinvestment. I can tell you, we have pushed for asset monetisation in a very big way...Our belief is that instead of greenfield projects, investors must come into brownfield projects and government must keep itself out of business. Government must be a facilitator and catalyst,” he said.
Signals appetite for good PSU stocks
The rush for a piece of Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) is unprecedented for any PSU disinvestment. In the 112 times subscription for the initial public offering (IPO), there is a significant message.
The government hoped to raise ₹645 crore from the IPO. But it has been flooded with subscription amounting to a cool ₹72,195 crore! On offer were 2.02 crore shares to the public; the subscriptions received were for 225.61 crore shares.
This is as much a comment on IRCTC’s fundamental strengths and monopoly position in its business as it is for the appetite for good PSU stocks in the market. The response to IRCTC should be seen in the backdrop of the volatile markets, depressed investor sentiment and supposed liquidity constraints in the market. The market’s signal is clear: it is hungry for quality PSU stocks and can generate the resources for the right candidate. For the government, which has set a target of ₹1.05 lakh crore from disinvestment this fiscal this is certainly good news.
But why the mad investor rush for IRCTC? Imagine a company that is a monopoly in issuing online tickets for the Railways. Though online ticketing accounts for just over 12% of total revenues, it accounts for over a third of profits before tax.
And, this is despite the removal of service charges for online bookings in 2017. With the re-entry of service charges from September this year in the form of ‘convenience fee’, IRCTC’s revenues will rise; importantly, its profit will soar because unlike earlier, the convenience fee will not be shared with the Railways and will go through straight to the company’s bottomline.
Second, IRCTC is the chosen vehicle for the Railways’ experiment with ‘private trains’. Two of its Tejas trains — one of which will be flagged off on Oct. 5 from New Delhi to Lucknow — will be operated by IRCTC, and there is promise of more to come.
The company has the freedom to set fares on these trains and will pay a licence fee to the Railways for use of its infrastructure. IRCTC can hope to grow its revenues and earnings significantly from this business if it can maintain quality and punctuality of its trains.
Third, IRCTC has almost a monopoly share of on-rail food catering which it does on over 350 trains.
It also has outlets in over 500 stations apart from food courts.
A little more than half its revenues and about 28% of its profits come from catering and travel segments. Finally, IRCTC is a debt-free company with a high marginal tax rate and will be one of the big beneficiaries of the corporate tax cut announced last month.
Want to remove artificial barriers by partner nations: Ross
Following Prime Minister Narendra Modi’s return to India from the U.S. without having signed any sort of trade deal, as was widely anticipated, Commerce Minister Piyush Goyal and U.S. Secretary of Commerce Wilbur Ross played down expectations, saying any news of a potential deal during the U.S. trip was just speculation.
“The first time I was able to meet and really further the talks actively was only on the Monday following Howdy Modi, so I don’t know where all the speculation around an announcement in Houston came from,” Mr. Goyal said while speaking at the India Economic Summit 2019 by the World Economic Forum on Thursday.
Mr. Ross reiterated Mr. Goyal’s point, adding, however, that there was no structural reason why a trade deal between the two countries could not be signed soon.
Regarding the U.S.’ efforts to reduce trade deficits with its trading partners, including India, Mr. Ross said that the U.S. was only concerned with reducing deficits that arose out of artificial barriers imposed by governments. Mr. Goyal, however, highlighted the fact that India has in fact been very accommodative. “India has been one of the most benign countries in terms of opening up the economy, and liberalising FDI norms,” Mr. Goyal said.
He added that the “spirit of Indian law is protecting small retail”., and so, the e-commerce rules on FDI enabled e-commerce companies to operate as agnostic marketplaces.
“We understand the political sensitivities of protecting small retail,” Mr. Ross said. “But if, in 100 years, India has the same number of small retailers as it has now, it would have held back growth.”