
The government wants IRCTC to emulate Flipkart.
The Indian Railway Catering & Tourism
Corporation (IRCTC), which operates one of the country's biggest e-commerce
portals, plans to hire a consultant to help it assess and increase its
valuation, a move seen as the first step to a public listing. "We are
trying to exploit the site. Our growth will come from there. We have been asked
by the government to grow like Flipkart," chairman and managing director
AK Manocha told ET.
"The government wants to monetize railways
assets. IRCTC has started speaking to consultancies. For now, it is just
evaluating and seeing how much it can fetch if it goes for an initial public
offering (IPO). It wants a ballpark figure. It hasn't got into the IPO mode
yet," a source, who did not want to be named, said separately. Manocha
declined to comment specifically on listing plans, saying it's up to the
government to take that call.
The unit of Indian Railways expects to post its
highest-ever net profit of Rs 85 crore on revenue of Rs 1,000 crore in the year
ending March 31, on the back of growth in e-ticketing and the introduction of
several trains last year, director finance MP Mall told ET. Profit is expected
to increase 35% to Rs 115 crore in the next financial year, driven by new
services and advertising revenue, said Manocha.
IRCTC is targeting Rs 10,000 crore of revenue by
2025. IRCTC stands as a contrast to other e-commerce companies. Flipkart, the
country's largest etailer, is valued at close to $11 billion even as it
continues to post losses after six years of operations. Other online portals
including MakeMyTrip, Yatra and Cleartrip are also in the red.
For IRCTC, the most valuable part of the business
is the e-ticketing segment, industry sources told ET. The corporation sells
e-tickets worth Rs 20,000 crore annually compared with Flipkart's gross
merchandise sales of about Rs 25,000 crore. IRCTC earns a commission on each
ticket sold, which makes up for 30% of its revenue and 60% of profit. Other
segments — catering and tour packages — which account for 30% of revenue each
will get lower valuations.
"If I was to do a fair value of this, it will
be somewhere in the $500 million-$ 750 million (Rs 3,150 crore-Rs 4,700 crore)
range. Though it is a conjecture, the government will expect at least 3-4 times
that number," said an investment banker on condition of anonymity.
Industry sources sounded cautious, given that
IRCTC is heavily dependent on one customer — Indian Railways — for the bulk of
its business. According to them, the value of this asset in the government's
hands would be very different than if it was with a private entrepreneur.
Government control may drive down valuations, said Sudhir Sethi, founder and
chairman of IDG Ventures, one of the investors in Yatra.com.
"Also, it has only one customer — Indian
Railways," he said, adding that investor appetite will depend on whether
Indian Railways is willing to sign a substantial long-term contract with IRCTC.
The exit route also will be crucial, he said.
Generally, such businesses are valued at 10 times
the net revenue of the e-commerce business in the steady state, when the
business model is proven, the company is profitable and there is steady growth,
according to Tarun Davda, director at venture capital firm Matrix Partners
India, which has backed companies such as taxi-hailing app Ola and online
accommodation booking marketplace Stayzilla.
The total Indian internet market of $11 billion in
2013 was dominated by travel at $8 billion, followed by e-commerce at about $3
billion and classifieds/online advertising at $800 million, according to a
Morgan Stanley report. IRCTC accounts for almost 40% of India's online travel,
it said.
IRCTC's strategy is aimed at increasing traffic to
the website and cashing in on it by selling online space to advertisers.