Changing track

With boarding having commenced for his early morning flight to Delhi, Dewang Neralla gave his presentation one last glance. It had been a couple of long nights for him and he was looking forward to a nap on the aircraft. Although travel to the capital was infrequent for the Mumbai-based executive, today’s meeting was critical. It was the fag end of 2015 and the famed Delhi winter had already arrived. But none of that seemed to matter to Neralla: all he could think about was his sales pitch to the senior management at the Indian Railway Catering and Tourism Corporation, more commonly called IRCTC. Atom Technologies, of which he is the CEO, had completed a small assignment back in 2009 on the mobile payment platform used by IRCTC. Eventually, Atom moved out of that business, although Neralla kept in touch with the government body, which traces its ownership to the Indian Railways. Less than ten minutes after the flight was airborne, Neralla was fast asleep, only to be roused a couple of minutes before touchdown. “Back then, I didn’t know that my pitch for Atom would lead to something much larger,” he explains. 

At the IRCTC office a few hours later, Neralla was introducing his company to AK Manocha, the undertaking’s chairman and managing director, explaining how Atom had been in the online payment gateway business since 2006, although it was more well known for being a part of the Financial Technologies group. Manocha cut in with a quick question. “Dewang, we have a pain point at IRCTC. I just want to know if you can help us with it,” he said. What was bugging the Indian Railway traffic service officer of the 1980 batch was that people living outside India couldn’t book tickets on the IRCTC website. The hitch was the fear of financial fraud at the time of payment. Manocha wanted Neralla to address this issue and ensure that IRCTC’s growth story wasn’t impeded. “We are losing a lot of revenue because of this issue and it is highly irritating,” Manocha added. Over the next four months, Neralla and his team worked ceaselessly with the IT folks at the Centre for Railway Information Systems (CRIS), an organisation that falls under the Railways ministry. “By April 2016, we were ready with the soft launch. Twenty days later, we were ready to roll,” Neralla explains. 

His one-hour meeting with Manocha was the only time the two men met till the launch of the new payment service: every communication after that was with the IRCTC team over email or a phone call. Neralla says he was impressed with this “classic private-sector approach”. That, in no small part, is due to the continuing influence of 59-year-old Manocha, who has a pretty clear idea about what he wants the 17-year-old PSU to do. Currently, internet ticketing and tourism are the two biggest contributors to IRCTC’s revenue of Rs.1,500 crore. Manocha wants to both beef up revenue and make IRCTC the one-stop shop for travel services, and he has a plan for how to get there. “In ticketing, efficiency and coverage will be increased. We’re also planning commercial tie-ups with start-ups and internet businesses across verticals. Data licensing and e-commerce are two other high-potential areas,” he explains. Manocha’s obsession with internet ticketing seems to have paid off — a 31% jump in revenue and 38% rise in net profit during FY16 has been attributed to the doubling of service charge on tickets by IRCTC. With a new government and an enterprising minister at the helm, the 163-year-old Indian Railways is being pushed into action. But can IRCTC overcome its bureaucratic trappings and emerge as more than just the ticketing arm of the Railways? 

Chugging forward
Sitting in a quintessential government office at Barakhamba Road, New Delhi, Manocha is a picture of calm when the conversation is about IRCTC’s numbers. Each day, IRCTC’s portal sees 50 million-60 million hits, with annual ticket bookings amounting to $3 billion; a Flipkart or an Ola Cabs would kill for such a loyal fan base. In FY16, it sold 199 million tickets, a 9% increase over the previous year, with its user base also increasing by 6 million to touch 42.5 million. There are 15,000 new users coming on board each day, with close to 30,000 bookings happening daily on its app alone. Convert that ticketing story to actual revenue and we are talking of a gross merchandise value of Rs.21,000 crore. For a sexy, page-one start-up, that could mean a skyrocketing notional valuation. But while online shopping sites stay in the news thanks largely due to their valuation stories, IRCTC has been under the radar. Manocha is succinct when comparing the two situations. “They go after valuation; we are after profit.” Given that only over half of its tickets are booked online, the agency still has a long way to go. “Currently, just 55% of people book tickets online. We plan to add 5% each year to eventually get to 100%,” he explains. 

Organisations that deal with the PSU help explain its influence. “IRCTC is the world’s third-largest travel platform and transaction website after Booking and Hostels, and it’s bigger than even Airbnb,” says Kavikrut, chief growth officer at hotel rooms aggregator OYO Rooms. The company recently made it to the top left corner of IRCTC’s website, which makes its hotel room inventory across 170 Indian cities accessible from its ticketing site. Both companies have found synergies with each other: while IRCTC gets a slice of revenue, for OYO, the site is a wormhole to the universe. G Raghuram, professor (public systems group), IIM-A, agrees. “IRCTC has a readymade platform. The task on hand is to ensure that at least 90% of its bookings move online,” he says. Growth has been sharp from the time online ticket booking started on the portal in 2001. “We started with only 29 tickets being booked on the internet, back in 2002. Today, we handle 550,000 tickets on average, which peaked to 1.34 million on April 1 last year,” says Manocha, who took charge in September 2014. 

While many attribute IRCTC’s success to its ticketing monopoly, Manocha vociferously disagrees, pointing out an anecdote by MakeMyTrip founder Deep Kalra at a recent conference. “Kalra openly stated that his business came back to life because of IRCTC. Many other internet successes have acknowledged that people became comfortable with the idea of online payment systems only after experiencing IRCTC’s in the early 2000s,” he says. Of course, there is no data that can refute the sheer influence internet ticketing has on the PSU’s revenue, with this arm bringing in Rs.308 crore of the Rs.1,141 crore IRCTC earned as revenue in 2014-15, a 27% chunk. In terms of profit, online ticketing accounts for 70%. FY15 was significant also because the agency’s revenue breached the Rs.1,000 crore mark, climbing to Rs.1,500 crore by 2016, a jump of 31%; net profit also rose 38% to Rs.180 crore. There is little to doubt that revenue from internet ticketing and net profit will continue to rise as online bookings skyrocket. The concern, however, is how the organisation will scale up beyond this. This is especially relevant at a time when businesses like catering and tourism — the two key components of the IRCTC abbreviation — have not demonstrated the same kind of growth.

Hot broth
The biggest loser in the IRCTC equation has been catering, which was one of the reasons the undertaking was originally set up. Since 2010, catering has been under the purview of the rail ministry and not IRCTC, with rail minister Suresh Prabhu announcing — earlier this year — the impending launch of a new catering policy. Currently, the agency operates this arm under two heads, departmental and licensee catering. While departmental deals with direct catering done for the railways in trains, offices and at stations, the licensee arm deals with third-party organisations chosen by IRCTC. Today, IRCTC runs four base kitchens, 36 mobile units (train kitchens), 14 Jan Ahaars (24x7 low-cost cafeterias set up by IRCTC at railways stations) and seven refreshment rooms. For an operation of IRCTC’s magnitude, catering brought in just Rs.366.21 crore last year. And while the licensee arm managed to eke out a profit of Rs.8.2 crore, departmental catering was in the red to the tune of Rs.57.3 crore. Manocha is aware of the challenge and is working towards a solution. A recent initiative in this space was the introduction of e-catering in September 2014; today, it is available at 408 stations. “We currently field 4,000 orders each day, up from just 60 when it started. The plan is to set up 10 base kitchens as and when we get sites from the Railways,” he explains. To his mind, the way ahead for catering is to work on an asset-light model, with third parties involved in the process. 

Going beyond the train pantry, IRCTC has also roped in QSR chains to offer today’s customers the choices that they would have while travelling by road or flying. Since 2014, the Railways ministry has convinced chains such as Domino’s Pizza, Pizza Hut, KFC, Punjab Grill and Copper Chimney to deliver food to railway passengers at their seats. Murugan S, senior vice-president, Jubilant FoodWorks, the company that owns the franchise for Domino’s, says his company launched the service first at Vadodara railway station, with the food being sourced from the outlet closest to the station. “The plan is to scale this up to 130 stations across 60 cities over the next eight months,” he explains. This arrangement works well for IRCTC, since it earns a commission on each order and doesn’t need to take responsibility for the quality of the food. Smaller travel and food aggregators like Travelkhana are happy with this business opportunity as well. This outfit compiles a list of 1,100 restaurants on 160 train routes to deliver foods across stations. After running the site independently for three years, founder Pushpinder Singh in early 2016 got into a commercial relationship with IRCTC. “We generate 2,000 orders each day and IRCTC takes 10% of the base price (excluding VAT and service tax). Our orders have gone up 2.5x since tying up with the agency,” he says. The undertaking is also working on a line of ready-to-eat food. “We have tied up with the Defence Food Research Laboratory in Mysuru for contract manufacturing to improve our catering offerings and have just started trial production,” says Manocha.

While efforts are on to revive catering, it makes sense for the agency to explore other business options. IIM-A’s Raghuram, who is a member of the expert group set up to explore ways to revamp Indian Railways, thinks that a big opportunity for IRCTC is in the proposed modernisation of 400 stations. “It can offer a suite of services such as high-speed Wi-Fi, food plazas or even accommodation for a few hours. Anything relating to people’s mobility is within IRCTC’s domain and its task is to make everything under that umbrella commercially viable,” he says. It is not just necessary but practical for IRCTC to offer a suite of services to travellers. Raghuram points to a successful model like Rail Europe to explain this. “While managing ticketing services across Europe is its basic business, the agency also offers sightseeing tours and group travel. In the US, Amtrak offers an ‘arrive and drive’ service, which offers car pick-ups at its stations,” he explains. Some progress has been made in this direction, with executive lounges opening up at New Delhi, Agra and Jaipur stations. “Six more tenders have been awarded and 21 are in process. We are working on the license fee model and whoever offers us the highest bid wins,” Manocha says, adding that the responsibility of ensuring quality falls on the licensees. 

Incredible India
It is, however, tourism — a Rs.821,000 crore business — where Raghuram insists IRCTC has a natural ability and opportunity. Nothing can rival the Railways’ vast network and internet ticketing can act as the base on which businesses like tourism are built. Amit Taneja, Cleartrip’s chief revenue officer, points out an interesting fact. “A person booking a train ticket on our website demonstrates at least a 20% higher probability of buying another service compared with one looking to fly,” he says. Attributing this to the preferences of the younger generation, Taneja adds that a large chunk are first-time users. “They do not have any fixed brand preferences and are quite open to suggestions or new ideas compared with well-informed travellers,” he reasons. Cleartrip, he says, was the first online travel site to go live with IRCTC for internet ticketing, for which it was eventually linked to IRCTC’s servers. According to Raghuram, IRCTC’s strength is its market access complimentarity, starting with the huge number of people coming to its site to book tickets. “This can be easily matched with the expertise of a firm like Thomas Cook, where a person travelling by 3-tier AC might want to book an affordable holiday experience overseas. In such cases, IRCTC should step back and allow Thomas Cook to exploit its brand equity in an area that it understands well,” he explains. 

This kind of experiment is not new to IRCTC, which in 2008 entered into a 50:50 joint venture with Cox & Kings to form Royale Indian Rail Tours with the objective of operating a luxury tourist train called Maharajas’ Express. While existing ones like The Deccan Odyssey and Palace on Wheels were region-specific, this one was meant to traverse multiple states. The agreement was terminated in mid-2011, with the operation and maintenance of the train across five itineraries handed back to IRCTC. Even today, Manocha seems keen to explore the tourism story, especially in the form of hotels at locations such as Khajuraho and Lucknow. “Hotels are linked to tourism and it is important to increase our business manifold. Besides, there is very little money to be made in catering,” he quips. For now, the financial viability of the Khajuraho property is being ascertained, while a tender has been floated for Lucknow. 

From being in the red in 2014 to touching Rs.362 crore in 2015 (profit of Rs.18.7 crore), tourism — which includes tour train offerings, educational tours and hill charters — continues to be the biggest revenue driver for IRCTC. To supplement this, as recently as June this year, IRCTC launched the Tiger Express, a five-night, six-day trip to spread awareness about tiger conservation, with a base tariff of Rs.38,500. The biggest concern here is that luxury trains depend on prevailing global growth sentiment. Last March, for the first time in 34 years, Palace on Wheels had to be cancelled for want of passengers. Manocha, however, remains unfazed by such developments. “If you run a weekly train, cancelling it once or twice a year does not imply that there is no business or market for it. For us, occupancy levels of even 20-25% indicate financial viability and if we don’t get that, a cancellation is justified,” he argues. 

In line with its dreams of being a one-stop travel portal, IRCTC offers users the option of booking flight tickets — and even a US holiday package — from its site. Sharat Dhall, president of travel portal Yatra Online, calls this “a bit of stretch”. “IRCTC is deeply entrenched in rail tickets and for the brand to stand for anything else will be a huge challenge. Established players already exist in the hotels, airlines and holidays space. From a consumer point of view, IRCTC doesn’t add value,” he says. But Manocha illustrates his point with numbers. “We sell close to 3,000 air tickets each day and want to treble that.” The question is why anyone would book air tickets through IRCTC. Manocha thinks the differentiators are honest pricing and prompt refunds. MakeMyTrip’s Kalra thinks IRCTC should take the alliance route for growth. “Scaling up such businesses won’t be easy and will require a lot of focus,” he says. 

Perhaps the way ahead could be by innovating around IRCTC’s core area, internet ticketing. Ankur Bhatia, India head for Amadeus, a global leader in ticketing technology, illustrates this with an example. “If a user is unable to get a rail ticket on the Delhi-Jammu route, it can upsell an air ticket,” he says. Bhatia thinks IRCTC should open its network to more people, enable more points of sale, develop B2B channels and experiment with alternate payment methods. Some of this work is in progress — Manocha talks about the newly introduced e-wallet. “It can be linked to Aadhaar or PAN cards to simplify the booking process,” he adds. In many ways, growth in services like ticketing could remain incremental since these items are central to IRCTC’s business. Even a well-established player like Cleartrip draws 65% of its revenue from air ticketing, while standalone hotels bring in 25%. Meanwhile, MakeMyTrip has increased its revenue from hotels and packages to 50%, reducing its dependence on air tickets. Rail ticketing, where Cleartrip has had a presence for a decade, accounts for 5%, with an equal proportion coming from travel-related insurance. Of course, IRCTC does have one key growth area — bottled water brand Rail Neer.

Watering it up
Rajesh Sharma’s midtown office in Mumbai offers an incredible view of the sprawling, 225-acre Mahalaxmi Racecourse. “Even as we speak, there are 1 crore people travelling on our train networks. Even if 25% of them consume Rail Neer, think of the market opportunity,” he says. Sharma is CMD of the Rs.870-crore Ion Exchange, and his company’s relationship with IRCTC goes all the way back to 2003, when Rail Neer only existed as a concept. Starting off handling the operations and maintenance work of Rail Neer’s plants, it was only early this year that Ion Exchange inked a public private partnership (PPP) with IRCTC to set up a plant in Amethi, UP. “We churn out 72,000 litre of Rail Neer each day from this plant. Our next PPP plant at Ambala should be ready in a year’s time,” says Sharma. Priced at Rs.15 for a 1 litre bottle, this product directly competes with well-known brands such as Bisleri and Aquafina. The arrangement is simple: the land is given by IRCTC and Ion Exchange sets up the plant, which entails a Rs.10-crore investment. “Quality is our responsibility and we sell the water at cost+margin to IRCTC. It in turn adopts the same formula to finally sell the bottles at Rs.15 apiece,” explains Sharma. Under a 10-year agreement, Ion Exchange supplies the technology, while being assured of a captive market. 

So far, IRCTC has set up five plants to manufacture Rail Neer and the plan is to set up six more by 2017. While the initial approach was to own the plants, the PPP model means that the third party is responsible for quality, while IRCTC will use its distribution strength across railways stations to sell the final product. In fact, Rail Neer has a monopoly in many parts of Mumbai, a city with a large local train network. In January 2016, the Bombay high court even pulled up Indian Railways about the same. The potential game changer, though, could be IRCTC’s vending machine project, which is still at a relatively early stage. Under this programme, 1 litre of water will be sold at Rs.8 in a container and at Rs.5 if users have their own containers. Ion Exchange has so far installed 14 such vending machines, all in Chennai, with plans to put up another 176. “We manufacture the machines and are responsible for their maintenance as well,” says Sharma. By his own admission, IRCTC contributes much less than 1% of Ion Exchange’s turnover. “The potential is huge and the big advantage for us is the visibility for our products,” he insists. On a revenue of Rs.81 crore, Rail Neer brought in a modest profit of Rs.5.4 crore for IRCTC last year.

Besides Rail Neer, advertising is another revenue driver that IRCTC can build on. Naresh Gupta, managing partner of creative design agency Bang In The Middle, estimates that IRCTC can easily make Rs.70 crore-80 crore each year in ad revenue from its daily traffic. “IRCTC is a premium site and works from the visibility perspective. It offers brands a wide audience,” he says. It is precisely for this reason that IRCTC and Amazon India got into a co-branded marketplace model for two years. Here, the total annual guarantee for FY15 was Rs.18 crore. How this opportunity plays out, however, remains to be seen. There are also those like OYO Rooms, which truly see value in tying up with IRCTC. The company claims that bookings through IRCTC make up its fastest growing channels. “These are customers who may not have ever booked hotels online. For them, the choice is not between other online travel aggregators and IRCTC but between a physical search and online booking. For instance, we get a lot of bookings for our Katra property from people who book tickets to the pilgrimage spot via IRCTC,” says Kavikrut of OYO. 

For Manocha and IRCTC, this is a time of transformation and learning. The agency also has the option of monetising and licensing its treasure trove of traveller data. “IRCTC has very strong heuristics on how Indian travellers book, at what price, and from where to where. It can use and offer that data,” says Kavikrut. IRCTC is currently conducting a detailed study in this space through private consultants. However, Manocha adds a note of caution. “Being a government agency, we have to be cautious; we cannot share everything.” Looks like it will be a while before IRCTC realises its true potential, once it finishes experimenting with all its verticals and partners. It currently earns low revenue per ticket of around Rs.990 compared with Rs.13,464 for MakeMyTrip and Rs.10,956 for Yatra. And while he is raring to build up IRCTC, Manocha is cognisant of the undertaking’s limitations. “Being a public sector company, we are governed by rules and regulations. Besides, we also need to change our work culture and become more aggressive.” If that doesn’t happen soon, IRCTC’s dream of being a travel behemoth runs the risk of being waitlisted.