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Explained: After stellar market debut, here’s how IRCTC will use the money from sale of its shares

IRCTC IPO: This is part of the government's efforts to meet its disinvestment targets. The money from the sale of the IRCTC's shares will go to the government, and not the company.

Written by Avishek G Dastidar , Edited by Explained Desk | New Delhi | Updated: October 16, 2019 11:57:51 am
Explained: After stellar market debut, here's how IRCTC will use the money from sale of its shares IRCTC IPO: The press release also says that the implementation of the project is already underway and that the Railways has so far earned INR 800 crores in annual savings after 342 trains were fitted with the new technology.

The Indian Railway Catering and Tourism Corporation (IRCTC), best known for selling train tickets and serving food on trains, marked a stellar debut in the stock markets this week.

Through selling its shares, the government offloaded 12.6% stake — over 2 crore shares — in the company in a price band of Rs 315-320 per share. IRCTC has always been a wholly-owned subsidiary of the Indian Railways.

As per the listed value of the shares, the sell-off was expected to garner around Rs 645 crore when it opened on September 30. But by the end of the offer period up to October 3, the issue was oversubscribed 111.85 times, making it the most subscribed among Public Sector Undertakings hitting the share markets ever.

Its share prices skyrocketed by over 100% at both the BSE and NSE, signifying the great market value of the company, which otherwise gets flak and praise in equal measure, depending on the individual user experience on its website while booking tickets, and the quality of food in trains.

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Why did the sell-off of shares happen?

This was part of the government’s disinvestment strategy for many of its PSUs. As far as IRCTC is concerned, the decision to offload part of the government equity in Railway PSUs was taken in 2017. Other Railway PSUs are Rail Vikas Nigam Limited, IRCON (formerly Indian Railway Construction Company Ltd), the Indian Railway Finance Corporation, and the engineering services company RITES.

The finance company’s IPO is not out yet, but the other three have hit the market over the past one year.
As per the Budget presented by then Finance Minister Arun Jaitley in 2017, the idea was to offload 25% stake in rail PSUs, including IRCTC.

How will the money raised be utilised?

This is part of the government’s efforts to meet its disinvestment targets. The money from the sale of the IRCTC’s shares will go to the government, and not the company.

The government needs money for a variety of reasons, including funding infrastructure in the country. Disinvestment is one of the many ways in which the government meets that target. The disinvestment target for In 2019-20 is Rs 1.05 lakh crore.

Finance Minister Nirmala Sitharaman in her Budget speech envisaged a capital spend of Rs 100 lakh crore for building infrastructure over the next five years. For the rail sector, the vision is to spend Rs 50 lakh crore over the next decade, and up to 2030 on projects.

Does this mean the Railways are being privatised?

No, it does not. The Government of India, through the Indian Railways, continues to be the largest and majority shareholder in these PSUs after the sale of shares in the markets.

“There is no question of privatisation of the Railways. The Railways cannot be privatized,” Railway Minister Piyush Goyal told Lok Sabha earlier this year. “However if we have to increase the facilities in Railways, we obviously need investments for it. We have taken a decision to encourage public private partnerships and we will also corporatise some units,” he said.

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