IRCTC IPO: Today the IPO of the government company IRCTC will open, what should be the investment? Learn plus-minus: The Initial Public Offer (IPO) of the Indian Railway Catering and Tourism Corporation (IRCTC) is opening on Monday 30 September. The company is expecting to raise Rs 645 crore from this IPO. This offer will close on October 03 and its price has been kept from bank 315 to 320 rupees. Should you invest in a company, what are its strengths and what are the risks? Let’s know the main things about this offer and the company.
The government intends to sell 2.01 crore shares, or 12.6 per cent stake, of the company through this offer through its disinvestment program. Its minimum bid size will be 40 shares, that is, it can be invested in at least 40 shares. Currently, the government holds 100 percent stake in this company, but after the sale of shares, the government’s stake will be reduced to 87.4 percent. Its face value is Rs 10 and the floor price is 31.5 times and the cap price is 32 times. With this, IRCTC is expected to raise Rs 635 to 645 crores.
Small investors will get discounts
50% of the shares being issued under the IPO will be allocated to Qualified Institutional Buyers (QIBs), out of which 2 lakh equity shares will be given to mutual funds. Similarly, 15 per cent shares will be for High Networth Individuals (HNIs) ie big investors. In this way, a 35 per cent share will be available for small or ordinary investors. The company has also announced an additional discount of Rs 10 per share to small investors and its employees.
SBI Capital Markets Limited, IDBI Capital Markets & Securities Limited and Yes Securities Limited are the lead managers of this IPO.
Mini Gem Company
Significantly, IRCTC was established on 27 September 1999 and got the status of Mini Ratna Company from the Government of India on 1 May 2008. It also does business in segments such as e-catering, executive lounge, budget hotel, apart from the railway’s catering service. However, its business is mainly dependent on Indian Railways, and any policy change by the Ministry of Railways affects its profitability.
What is the company’s strength
The brokerage has maintained a positive outlook for IRCTC and is looking to improve its business going forward. IRCTC operates on four types of business models – Internet ticketing, catering, packaged drinking water and travel and tourism. Apart from this, it has started segments like e-catering, executive lounge, budget hotel, diversifying its business.
It is the authorized catering service provider of Indian Railways. According to brokerage Anand Rathi, “IRCTC has a unique business model and the company is not going to have any competition in any segment.”
The company’s business is very strong. In the financial year ended 31 March 2019, the company’s income increased by 24.66 per cent to Rs 1956.7 crore. It is a profitable and debt-free company since its formation. Since 2017, the return on its shares, ie Return on Equity, is more than 23 percent. Its catering service revenue grew by 41 percent, travel and tourism increased by 10.1 percent. Internet ticketing revenue has also increased by 13 percent.
What is the risk?
Its business is completely dependent on the Indian Railways, so if there is any adverse policy of the Ministry of Railways, it may hurt its profits. Apart from this, the food supply industry in the country is very unorganized, due to which the business of IRCTC can also be affected if there is any problem in the local supply. The company may use PET bottles and other plastic items for packaged water and catering, which may have regulatory tightening effect.
What is an IPO?
Whenever a company proposes to sell its shares to outside people and institutions for the first time, this process is called an initial public offer or IPO. When you buy these shares, you are given a stake in the company. After this, these shares are traded on the stock exchange. IPOs are issued after approval from SEBI.
How to invest in IPO?
To invest in an IPO, you must have a demat account. There is an option to invest in an IPO in this account. Selecting this option can be applied after filling some information related to the pricing of the IPO. According to your application, the same amount is blocked from IPO to listing.