Flipkart, India’s emerging e-tailing giant, is valued by private equity investors at around $11 billion. In its next round of funding, it could get a valuation of $15 billion (that’s more than Rs 95,000 crore at current exchange rates).
Snapdeal, another e-tailer, is currently valued at around $4-5 billion. Like Flipkart, it has only made huge losses all its short life, but that has not deterred investors from putting millions of dollars in its kitty for funding growth.
Makemytrip, an e-tailer focusing on the travel segment by allowing users to book airline tickets, hotel rooms and cars online after comparing prices, is valued at around $800 million currently. It is struggling to break even in a crowded market for such services.
Now, what if I were to tell you that there is a future Flipkart-cum-McDonald’s-cum-Makemytrip-cum-brand merchandiser in the government’s kitty and – more importantly – makes money on most things it does, how should it be valued?
When last heard of, the boringly named Indian Railway Catering and Tourism Corporation (IRCTC) was given a valuation of Rs 6,000-14,000 crore. Thanks to its public sector status, it is punching far below its weight and worth.
It should be valued around $5 billion now, and, with technology and other investments, could easily be worth $10 billion in five years.
IRCTC is the undiscovered, uncut diamond in the government’s haystack. If its profile is raised and it is allowed to raise money to invest in technology and traffic growth, it could even be worth more than Flipkart at some point.
IRCTC is the Indian Railways’ online ticketing agent, and makes Rs 10-20 on every ticket sold from its website. In 2013-14, it sold more than Rs 15,000 crore worth of tickets, earned revenues of Rs 955 crore, and net profits of Rs 72 crore.
That profit figure may sound tiny, but the real jewel in the IRCTC diamond mine is not the cool profits on e-tickets, but the hot customer data it owns and which can be mined to sell even more products and services. IRCTC Managing Director AK Manocha on these stats once said: “We have 3.1 crore customer data, get over two million hits a day, and book 5.5-6 lakh tickets a day.”
IRCTC knows which of its customers live, and their annual spends on railway or airline tickets. It can leverage this information for growth in multiple directions.
The valuation of Flipkart, Snapdeal or Makebytrip is derived not so much from their sales margins or profits, but from the knowledge they have of their customers and their purchase habits. By this yardstick, IRCTC is India’s real e-commerce giant and future Flipkart.
Consider IRCTC’s many pluses.
First, it is a monopoly. There is no competitor in two core areas of operations –- railway catering services and e-ticketing.
Second, even in online ticketing, half its market is waiting to be tapped. Currently just over 50 percent of railway users buy tickets from IRCTC. This means railway ticketing sales could potentially double. And as the railway network grows, more passengers means more organic growth possibilities.
Third, IRCTC can use some of the vast railway station real estate to not only set up food and other retail operations, but also to vend its own labels. It already has its own mineral water bottling facilities (brand: Rail Neer), and from here to creating packaged food brands is just a step away. At the very least, it can create own labels and franchise them for a fee to scores of small manufacturers across India. Rail travelers are big consumers for your market is captive for several hours during long-distance train journeys.
Fourth, IRCTC can potentially diversify into all forms of ticketing. It is already selling airline tickets, but there is almost no marketing here. Moreover, there is no reason why it can’t sell movie or concert tickets online. A few sensible acquisitions can boost its turnover multi-fold.
Fifth, since it already has a database of more than three crore users, it can cross-sell small everyday products to anyone in any place in India. Remember, it already knows where they live. All it needs is a logistics tieup – it is already owned by India’s biggest logistic company, the Indian Railways – for local deliveries, and it could become a poor-man’s Flipkart. If the Flipkarts can use IRCTC to sell, isn’t it time IRCTC itself used its database to discover new profits?
Sixth, with the right acquisitions, and strong investments in technology, it can become the Godzilla of Indian e-tailing and e-commerce.
Seventh, an obvious area for diversification is finance – payment banking and e-wallets. One wonders why IRCTC has not applied for a payment bank licence. Railway Minister Suresh Prabhu should do this pronto. If an e-wallet company like PayTM can be valued at $1.5 billion, an IRCTC payment bank can be worth more.
When last attempted, IRCTC was given a potential valuation of Rs 6,000-14,000 crore – that is, $1-2 billion.
This is nonsense. With the right investments it can be worth at least $5 billion in the next one year, and much more than that over three to five years.
Suresh Prabhu is sitting on huge potential wealth here. If he invests in it, IRCTC can be a potential source of not only future revenues, but huge disinvestment cash in future. IRCTC can provide the fuel for further investment in Indian Railways.
Of course, he has to make a deal with Arun Jaitley to ensure that any IRCTC disinvestment money comes into his pocket and not Jaitley’s.