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Will IRCTC make a strong market debut on Monday?

image The consensus among market watchers is that it will. The only question is how much of a premium the stock will command as it lists

If you’re one of the lucky ones who managed to purchase some shares in IRCTC during its recent IPO, brace yourself for a bumper listing of the stock on Monday. If market watchers are to be believed, the stock could see a hefty listing price, helping revive the lost momentum and interest in India's IPO markets this year.

The IRCTC IPO got a tremendous response from investors and was subscribed 112 times. While the government had targeted a mop-up of ₹645 crore, IRCTC’s IPO saw bids amounting to a whopping ₹72,000 crore.

While the upper end of the IRCTC price band is pegged at ₹320, the retail investor portion was priced at a discount at ₹310. So those lucky retail investors who got an allotment can expect to make some tangible gains on listing day.

According to broking sources, the grey market premium for IRCTC IPO started at 100, went up to 220 and is now hovering (settled) at about 160.
Strategic share sales in other PSUs

Already the government has realised that its IRCTC pricing may have been sub-optimal, forcing it to change tack and look at strategic sales for upcoming share sales in other public sector enterprises.

As BusinessLine had predicted last week, the government is now readying for a strategic sale in five other key public sector undertakings (PSU): BPCL, Container Corporation of India, Shipping Corporation of India, NEEPCO and THDC.

On Friday, the Department of Investment and Public Asset Management (DIPAM) invited requests for proposals for advisors for share sales in five Public sector companies. It is widely believed that the five public sector entities that are going to see share sale by the Government are BPCL, CONCOR, Shipping Corporation of India, NEEPCO and THDC.

Except for NEEPCO and THDC, which are likely to go to a public sector buyer as outright 100 per cent sales, the other three are expected to change hands through strategic sales to private sector buyers.

Many market watchers felt the government had squandered a golden opportunity to rake in disinvestment moolah by setting a higher price band for the IPO.

For a government that is desperately trying to shore up its revenues at a time when it has announced a reduction in the corporate tax rate and is coping with falling Goods and Sevices Tax (GST) collections, this definitely was an opportunity missed.

IRCTC enjoys a monopoly over the business of booking railway tickets online. It has a monopoly over the catering of food served on trains. It is exclusively authorised to manufacture and supply packaged drinking water at stations/trains. It even supports booking of flight tickets and holiday packages, among other things.

It has strong fundamentals: a debt-free balance sheet, ₹1,100 crore of cash to support capital expenditure, and decent return ratios (Return on Equity of 20 per cent, operating margins of 20 percent and PAT margin of 15 per cent).

The IRCTC IPO’s success has also breathed new life into an otherwise lacklustre divestment programme so far this fiscal year.

Encouraged by the IRCTC IPO demand, the Government is expected to seek a higher share premium or Price Earnings (PE) multiple for other state-owned entities by following strategic sales in most cases, as it seeks to unlock value in them.
Published on October 13, 2019
initial public offering


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