Flipkart, India’s largest online retailer, is valued at an astonishing $7 billion (over ₹42,500 crore) on the basis of two key numbers: its 2.2 crore registered users and the ₹6,000-crore revenue it earns annually. This, via an estimated 33,000 sales per day, across the 15 million products it has on offer.
But the Government appears oblivious to the fact that it may be sitting on a Flipkart of its own. And one that could be worth far more.
IRCTC, the Government-owned enterprise that manages the online ticket booking portal of Indian Railways, more than matches Flipkart in numbers. It has 2.7 crore active users (and an even higher registered user base of 3.5 crore people). And it has logged peak transaction volumes of nearly 4 lakh ticket bookings per day on its website — more than 10 times Flipkart’s volume. Tickets account for just a fourth of IRCTC’s revenues. It also earns a big chunk from catering services.
In 2013-14, IRCTC’s earnings on ticket bookings alone — via the service charge levied on each ticket booked — were almost ₹247 crore. Its total revenues are estimated at ₹1,000 crore, though results have not been released for the previous fiscal year. IRCTC could turn out to be a hidden jewel in the Government’s asset basket, with market experts valuing it from a conservative ₹6,000 crore to ₹12,000 crore. Other travel portals have been valued at five to ten times their revenue by private equity players, who typically look to get three-five times of returns on equity in five to seven years, said sources. While redBus.in was valued at 10 times its revenue, makemytrip.com is valued at five times its revenues.
Monopoly position IRCTC’s value gets a boost because of its monopolistic position in front-ending Indian Railways’ online ticket booking site, as well as the substantial revenues from its offline catering business.
“The valuation of IRCTC can be in the range of $1.1-2 billion (₹6,600 crore-₹12,000 crore) based on only the travel business. Moreover, being a monopoly, there are no threats to IRCTC,” said Alok Goel, CEO of Freecharge.com. Goel was former COO of redBus.in.
Nandini Chopra, Managing Director (Corporate Finance), Alvarez and Marsal India, compared IRCTC to makemytrip.com and cleartrip.com, which are valued at, or are trading at 4-5 times their current revenue.
“While IRCTC should fetch a premium for its exclusive railway booking platform, it also carries the risk of Indian Railways permitting other online travel agents to sell railway tickets directly, if ever IRCTC were to be privatised. Overall IRCTC would more likely fetch a sum-of-parts value for its e-ticketing, online shop and offline catering business,” said Chopra.
Another consultant involved in mergers and acquisitions transactions said: “If I were in the shoes of IRCTC, I would try to show whether I could grow by 10-15 per cent both in revenue and margin terms. This could help IRCTC get a valuation of 15-20 times its future earnings. Another parameter would be to evaluate the share of total tickets booked.”
Both these measures work in favour of IRCTC. Its online ticket booking registered a growth of almost 12 per cent in 2013-14 against the previous fiscal year. Moreover, online ticket booking accounts for less than 50 per cent of the total reserved train tickets, reflecting a growth potential.
In a poll involving 1.2 lakh citizens, conducted by two citizen online governance groups — Transform India and Make Railways Better — improving online and offline reservation systems emerged as one of the top concerns. The question is, will the Government cash in?
(with inputs from Ashwini Phadnis, KR Srivats, S Ronendra Singh)