Thread by @tusharbohra

#IRCTC in simple terms: Assume 800 Cr. convenience fee next year, ~85% EBIT, so 680 Cr., tax on this (~no interest) would be 170 Cr. (at 25%), if full PAT given as dividend, ~340 Cr. Govt. share (at 67%) + ~25 Cr. tax on dividend. So total accrual to govt. 170+340+25=535 Cr. 1/n

With 50% revenue share, 400 Cr. to govt. + 25% tax on 280 EBIT (400-120) = 70Cr., + 140 govt. share of profits as dividend and ~10 Cr. dividend tax. So, 400+70+140+10 = 620 Cr. ... 2/n

To gain ~85 Cr. delta yearly, Govt. making minority shareholders suffer & also willing to see 50,000 Cr.+ loss in PSU market cap (est.). Plus the loss of multiples in future "strategic" divestments!

As they say...Penny wise, Pound foolish! 3/n

@RailMinIndia @IRCTCofficial

Surprising that govt. doesn't even understand the basics of business economics and does not respect the tenets of wealth creation.

A 5% OFS at 1 lakh Cr. mcap would have yielded more than the NPV of a lifetime of this "85 Cr. delta"! 4/4

It is likely that #IRCTC increases its convenience fee to compensate for revenue share. In the past when Railways had introduced 50:50 sharing, IRCTC Board had increased fees, and the decision to reduce fee post Demon was also taken by IRCTC Board due to non sharing with govt.

Now with govt asking a revenue share again, the company should be able to raise convenience fee to atleast previous levels. This will restore profitability back to previous levels, enhance confidence in their pricing power & remove the concerns of convenience fee going altogether

Unfortunately, by the time these decisions are taken (if they're taken) the volatility will hurt a large number of investors across PSUs. Wish the entire episode was managed a bit better! And hope that good sense prevails the necessary offices sooner than later...