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- 19 Jun 2023
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WILL ADANI COMPETE WITH IRCTC?
IRCTC - 784 Change: -21.30 (-2.64 %)
IRCTC shares are back in the news. On Friday(16th June'23), Adani Enterprises said it would acquire 100% of Stark Enterprises, a train booking platform, popularly known as Trainman.
Post this news, a section of people said that Adani will now compete with IRCTC. Obviously, Adani competing with any business is big news, and if you are an IRCTC investor, you may be worried.
So before going into the details, make yourself comfortable - Adani is not competing with IRCTC. However, it is crucial to understand what has happened. Let's get started and answer all your questions about this acquisition.
Acquisition Detail
Adani Enterprises' wholly-owned subsidiary, Adani Digital Labs Private Limited, has acquired the online information and train booking platform, Stark Enterprises (Trainman).
Trainman is a decade-old company founded in 2011 by IIT Roorkee graduates Sachin Saxena and Vineet Gupta. They are an authorized booking partner of IRCTC and provide real-time information related to seat availability, live train status, and passenger name records.
This is the second investment in the travel and booking space for Adani Enterprises after it purchased a minority stake in Cleartrip, Flipkart India's online travel aggregator, in October 2021.
Why will Adani not compete with IRCTC?
Before answering this question, let us first understand the business of IRCTC. IRCTC is a 100% monopoly business in railway ticketing, with FY23 revenue of Rs 3,540 crore and a net profit margin of ~30%+. This makes it one of the most profitable e-commerce companies in India.
You can book tickets on IRCTC and also from aggregators like MakeMyTrip, and Paytm. Through whichever platform the tickets are sold, the main beneficiary is IRCTC. For example, of the total ticket sales on Paytm, IRCTC made a profit of Rs 70 crore or Rs 12 per ticket.
Post the news of competition, IRCTC has shared its business model, which states that
- 14.5L daily tickets are booked, of which 81% are done on IRCTC itself.
- Trainman is one of 32 partners of IRCTC to which it provides its API services - contributes only 0.13% of the total reserved ticketing.
We need to understand the competition of IRCTC. As mentioned above, Trainman is one of its partners. Therefore, the question of competition does not arise.
IRCTC has said clearly, "Changing the stake won't make any difference. All integration and operations will continue to be done through IRCTC. It will only complement IRCTC and is not a threat or challenge to IRCTC."
The real competition
The real competition for the IRCTC is offline railway ticketing. Let us see if the competition is increasing or decreasing:
Below is the trend of railway tickets booked online:
- 2010-11: 40%
- 2013-14: 50%
- 2021-22: 80.5%
One can clearly conclude that the competition has gone down significantly.
The risk for investors
Based on the above discussion, one can conclude that IRCTC is one of the better businesses to invest in. However, investors should understand the ownership of IRCTC - which is a risk in some ways.
IRCTC is a government-backed company, which means the government holds the maximum share in the company (a 62.5% stake) and can decide the policies, which may not be favorable for investors.
For example, in October 2021, the government unilaterally announced it would take a 50% revenue share of this fee, sending the stock crashing 20% in a day.
Our take on the IRCTC share price
In CY23, IRCTC has gained almost 4%, and in the 12 months, it has given 16% returns to investors. However, it is still fairly down from its post-listing gains of Rs 1,105 per share - 40%.
At present, the valuation comes in at 53x P/E, - not really expensive for a profitable monopoly in a large category. A re-rating factor for IRCTC can be there if the government reconsiders its policy on fee sharing. In the past, in 2016, as a measure to promote online sales, the government mandated the IRCTC to waive off convenience fees entirely.