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.
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.
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