A State-Run Company Just Delivered India’s Best Trading Debut in Two Years

(Bloomberg) -- Indian Railway Catering & Tourism Corp. doubled on the first day of listing, the best debut for a local company since 2017, after its public float emerged as the most sought after for the nation’s state-run companies.

Lured by IRCTC’s monopoly status, investor demand exceeded shares on offer by 112 times, eclipsing the government-owned Housing & Urban Development Corp. and Cochin Shipyard Ltd., whose maiden offerings were oversubscribed more than 75 times in 2017, a record year for Indian IPOs.

The company garnered 6.43 billion rupees ($91 million) for the government, which sold 20.1 million shares, or a 12.5% stake, in a price band of 315-320 rupees apiece. IRCTC’s IPO is also the biggest and the most successful among the four companies from the Indian Railways stable that have gone public.

Key Insights

• The company’s core business is spread across four verticals -- railway catering, tourism services, online ticketing and packaged drinking water. It is the only authorized firm by the Indian Railways to provide these services in trains.
• Catering service is the largest contributor to IRCTC’s top line and the company controls about half the bottled water sold on stations.
• Even so, it is internet ticketing that adds the most to its bottomline. About three-quarters of 1.4 million people who traveled by train daily in the April-to-August period booked tickets online.
• Starting Sept. 1, the company has resumed charging a fee on tickets booked online, which is expected to add 4.5 billion rupees to revenue annually, said Arafat Saiyed, analyst at Mumbai-based brokerage Reliance Securities Ltd.
• “The company’s sheer dominance in the catering, e-ticketing and packaged water business with the Indian Railways is the key reason behind the investor interest,” he said. A clean balance sheet and debt-free status also lured investors, he said.

• IRCTC’s shares surged as high as 675 rupees versus the sale price of 320 rupees, the best performance by a debutante since 2017. The premium valued the company at $1.5 billion.
• Before IRCTC, Avenue Supermarts Ltd., owned by Indian billionaire Radhakishan Damani, more than doubled on listing in March 2017 after the company’s IPO got bids for 106 times the quantity offered.
• Some of the top gainers among mainboard IPOs since January 2017 are:

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• The stellar response may help bolster the government’s drive to raise a record 1.1 trillion rupees ($14.8 billion) selling state assets this financial year, as it seeks to raise resources to spend on infrastructure and welfare programs.
• IRCTC’s debut is a bright spot in the nation’s IPO market that has seen 11 companies raise a little over 100 billion rupees in the first nine months of the year, the fewest issuers since 2014, according to PRIME Database. That compares with about 310 billion rupees raised via 24 public floats in 2018.
• More than 20 companies shelved IPO plans this year, thanks to the general election in May and as the lingering crisis in the nation’s credit market damped risk appetite.