IRCTC IPO: Not enough to repair
investor disinterest in PSUs (The Hindu)
Mains Paper 3: Economy
Prelims level: IRCTC
Mains level: Reasons behind IRCTC privatisation success
- The runaway response to the IRCTC Initial Public Offer, where the
₹645-crore offer was deluged by applications worth ₹72,000 crore, has
infused renewed cheer into India’s moribund primary market and prompted
market watchers to revise their opinions on the fate of the public sector
disinvestment programme this year.
- Unlike other public sector IPOs before it, where subscription numbers
were massaged by obliging domestic institutions such as LIC, the response to
the IRCTC offer appears to be genuine, with the foreign institutional
investor, retail and employee quotas all boasting good over-subscription
- But if the Centre is hoping that it can simply replicate IRCTC’s success
with its future offers, it would be quite mistaken.
- It would take a lot more than the subscription numbers to one IPO to
repair Indian investors’ disillusionment with PSU stocks as a class.
Key reasons behind IRCTC’s success
- There are three reasons why IRCTC’s success is unlikely to presage a
bumper response to future PSU offers.
- Unlike a majority of PSUs which operate in capital-intensive, cyclical
and B2B sectors, IRCTC is a consumer-facing and asset-light e-commerce play
on Bharat’s rising travel spends.
- The Centre left money on the table with its unambitious asking price
valuing IRCTC at 19 times its past earnings and less than 15 times forward
- This is at a steep discount to the prevailing market multiple of 26
- While IRCTC’s business model or its prospects needed little promotion
given consumer familiarity with the brand, both the government and its lead
managers have been quite poor at showcasing the strengths of more complex
PSU businesses in the past.
- Offers from IRCON, RITES, MIDHANI or GIC had wound up even before most
retail investors could come to grips with their business.
- Even PSU offers that have flaunted big over-subscription numbers have
delivered poor post-listing performance to their investors in the past.
- Seven out of the 10 PSU IPOs preceding IRCTC’s languish below their
issue price, with some (GIC and New India Assurance) sporting losses of over
75 per cent.
- While institutional investors often exploit discounted PSU IPOs by
flipping them for listing gains, retail investors staying long-term have
burnt their fingers.
- The government’s own lackadaisical attitude towards minority shareholder
rights has actively contributed to PSU businesses in general quoting at
steep valuation discounts in the secondary market to their private sector
- As the promoter of disinvested firms, the government has gleefully
trampled over public shareholder interests by regularly raiding PSU balance
sheets for dividends and buybacks (Coal India, NTPC, ONGC), forcing them
into arranged marriages (ONGC with HPCL) and co-opting them into social
projects without the concurrence of their Boards (PSU bank loan melas).
- Staying off such interference is critical to make sure that future IPOs
from public sector firms can command a good response.
Q.1) Consider the following statements regarding impact of climate change
in South Asia:
1. Asian Development Bank has recently released South Asia’s Hotspots Report
to assess the Impact of climate change on Living Standards in South Asian
2. The report identifies climate “hotspots” as a small area of the Earth’s crust
where an unusually high heat flow is associated with volcanic activity.
3. As per the Report, if preventive measures are taken along the lines of the
Paris Agreement, India’s average annual temperatures are expected to rise by
1-2°C by 2050.
Which of the statements given above is /are correct?
(a) 1 and 3 only
(b) 1 and 2 only
(c) 3 only
(d) 1, 2 and 3
Q.1) What are the key reasons behind IRCTC’s success?