corporate plan of4.4 rail neer 67 4.4.1 need – gap analysis for rail neer business segment 67...

Corporate Plan of

Indian Railway Catering and Tourism Corporation

Limited Pl

20172017‐2021for Indian Railway Catering

and Tourism

Corporate Plan for Indian Railway Catering and Tourism Corporation

Table of Contents

1 Executive summary 9

2 Analysis of IRCTC’s current business 13 2.1 Company description 13 2.2 Current vision, mission and objectives of IRCTC 13 2.2.1 Vision 13 2.2.2 Mission 13 2.2.3 Objectives 13 2.3 Analysis of the current organization structure of IRCTC 14 2.3.1 Observations for the current organization structure of IRCTC 16 2.4 Financial performance of IRCTC in last five years (FY 12 – FY 17) 16 2.5 Key business segments 18 2.5.1 Internet Ticketing 19 2.5.2 Tourism 21 2.5.3 Catering 27 2.5.4 Rail Neer 32

3 Financial statements assuming “business as usual” scenario 39 3.1 Profit and loss account 39 3.2 Balance Sheet 40

4 Proposed strategic options for future growth of IRCTC 41 4.1 Internet ticketing 43 4.1.1 Knowledge Process Outsourcing (KPO) & Affiliate Marketing 44 4.1.2 Value Added Services 44 4.1.3 Lead Generation Scheme 45 4.1.4 Digital Advertisement 45 4.2 Tourism 46 4.2.1 Customer engagement through various marketing channels 46 4.2.1 Focus on Outbound and Inbound Tourism 55 4.3 Catering 59 4.3.1 Handing over of catering services to IRCTC 59 4.3.2 Improving base kitchen infrastructure and network and using it as an aggregator 60 4.3.3 Improving Food, Quality and Hygiene 61 4.3.4 Un-bundling of catering services 63 4.3.5 Improving operational effectiveness through digitization 64 4.3.6 Innovative marketing strategies for E – Catering 65 4.4 Rail Neer 67 4.4.1 Need – Gap analysis for Rail Neer business segment 67 4.4.2 Operating models for Rail Neer plants 69 4.4.3 Future capacity expansion and demand coverage over IR 71 4.5 Proposed organization structure 71 4.5.1 Creation of a separate subsidiary for a non-railway tourist segments 72

5 Financial Statements after implementation of business plan 75 5.1 Profit and loss account 75 5.2 Balance Sheet 76

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6 Annexures 77 6.1 Outbound Hindu Religious Circuit – Indonesia, Cambodia and Japan 77 6.2 Sensitivity analysis for estimating the revenue potential of catering business based on number of

trains handed over to IRCTC in upcoming years 79 6.3 Financial projections for business as usual scenario 81 6.3.1 Internet Ticketing 81 6.3.2 Tourism 82 6.3.3 Rail Neer 83 6.3.4 Catering 84 6.4 Financial projections after implementation of the business plan 85 6.4.1 Internet Ticketing 85 6.4.2 Tourism 86

6.4.3 Catering 87 6.4.4 Rail Neer 89

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List of Figures

Figure 1: Current organization structure of IRCTC 14 Figure 2: Revenue Growth (FY 12-17) 17 Figure 3: Breakup of the revenue business segment – FY17 17 Figure 4: Gross profit of IRCTC in last five years (FY 12 - FY 17) 17 Figure 5: Gross Margin: Business segment 18 Figure 6: Growth in number of tickets booked from IRCTC website (in lakh) 19 Figure 7: Projected Internet Ticket Bookings by 2021(in Cr.) 19 Figure 8: Growth in total train passengers (in Cr.) 20 Figure 9: Financial Performance FY 17 (INR in Cr.) 20 Figure 10: Expected growth in direct contribution to GDP by travel and tourism industry in India (USD billion) 22 Figure 11: Online Travel Market : Growth in selected countries for 2012-17 22 Figure 12: Key attributes that drive consumer purchase decision in travel and tourism industry 23 Figure 13: Classification of travel and tourism sector in India 23 Figure 14: Key product segments within tourism business segment 25 Figure 15: Tourism Revenue 2012-17 25 Figure 16: IRCTC Travel & Tourism segment share in revenue for FY 2016-17 26 Figure 17: History of IRCTC Catering business 27 Figure 18: Key Issues and Challenges of IRCTC in Catering Services 30 Figure 19: Growth in Packaged Water in India (INR Billion) 32 Figure 20: Classification of packaged drinking water industry in India 33 Figure 21: Packaged water market by type in India in 2014 -15 33 Figure 22: Key players in bottled water industry in India 34 Figure 23: Critical success factors for the bottled water industry in India 35 Figure 24: Existing Rail Neer plants of IRCTC and their respective capacities 35 Figure 25: Revenue & Growth margin in FY 2013-17 36 Figure 26: Supply demand gap for Rail Neer across India 38 Figure 27: Proposed Marketing & Promotion channels across consumer lifecycle 46 Figure 28: Search Engine Optimization 47 Figure 29: IRCTC Website 48 Figure 30: Makemytrip Website 49 Figure 31: Mobile marketing penetration 49 Figure 32: IRCTC's various apps 51 Figure 33: Mobile apps of makemytrip and goibibo 51 Figure 34: Email marketing value chain 52 Figure 35: Key sales channels for air tickets 54 Figure 36: Revenue Passenger Kilometers (RPK) annual growth in domestic airline market 54 Figure 37: Projected Revenue for Airline Ticketing booking segment (INR Cr.) 55 Figure 38: Performance of the Buddhist Circuit Train in last 5 years 56 Figure 39: Key countries in which Buddhism is practiced 56 Figure 40: Major Buddhist tourist destination in India 57 Figure 41: Projected Revenue from Inbound Buddhist Tourism (INR Cr.) 58 Figure 42: Food items in aluminum foils are being loaded in trains 61 Figure 43: Food Items are being transferred in open tray 61 Figure 44: Food Items are being transferred in open trays in Aluminum foils 62 Figure 45: Packed food packed being transferred in insulated meals boxes in Chinese Railways 62 Figure 46: On train food trolleys for serving food 63

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Figure 47: Categorization of services to be unbundled 63 Figure 48: Need Gap analysis for Rail Neer business segment 68 Figure 49: Suggested changes in the current organization structure 72 Figure 50: Proposed structure of the subsidiary for non - railway tourism 74

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List of Tables Table 1: Number of Departmental Trains (including unbundled) Trains as of Nov, 2017 28 Table 2: Yearly Revenues of Departmental Catering (INR Cr) 29 Table 3: Number of Total Trains as of 03 Nov 2017 29 Table 4: Yearly Revenues of Trains having Licensing Pantry Cars (INR Cr.) 29 Table 5: Profit and Loss of Departmental Units in (INR Cr.) 31 Table 6: Year wise details of number of complaints for IRCTC Mobile units 31 Table 7: Comparison of Rail Neer with other players 38 Table 8: Marketing Expense of various companies 52 Table 9: Buddhist population distribution in Japan and Republic of Korea 58 Table 10: Number of Buddhist tourists from Japan and Korea with their average spend 58 Table 11: Summary of different models for manufacturing Rail Neer 70 Table 12: Comparison of various operating models for manufacturing of Rail Neer 71 Table 13: Analysis of various models for Rail Neer 71 Table 14: Tour packages offered by some of the prominent travel agencies and sites for Indonesia and 77 Cambodia

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Glossary

ADI Ahmedabad

AGM Additional General Manager

BBS Bhubaneshwar

BIS Bureau of Indian Standards

BOT Build Own Transfer

BPL Bhopal

CAGR Compound Annual Growth Rate

CDG Chandigarh

CMD Chairman and Managing Director

Cr. Crore

CRM Chief Regional Manager

DCS Departmental Catering Services

DMRC Delhi Metro Railway Corporation

ERS Ernakulum

FFU Fast Food Units

FP Food Plaza

FSSAI Food Safety and Standards Authority of India

FY Financial Year

GGM Group General Manager

GHY Guwahati

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GM General Manager

GPRS General Packet Radio Service

HRD Human Resource Development

Infra Infrastructure

INR Indian Rupee

IRCTC Indian Railway Catering and Tourism Corporation

IT Internet Ticketing

JGM Joint General Manager

JP Jaipur

KPI Key Performance Indicator

KPO Knowledge Process Outsourcing

LCC Low Cost Carriers

LCS Licensing Catering Services

LKO Lucknow

MOR Ministry of Railways

NZM Nizamuddin

OTA Online Travel Agency

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PNBE Patna

POS Point of Sale

PPP Public Private Partnership

P&Q Procurement and Quality

RBI Reserve Bank of India

RFID Radio Frequency Identification

RNP Rail Neer Plant

ROI Return on Investment

RPK Revenue Passenger Kilometer

SBC Bengaluru

SEM Search Engine Marketing

SEO Search Engine Optimization

TRAI Telecom Regulatory Authority of India

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1 Executive summary Indian Railway Catering and Tourism Corporation (IRCTC) is a public sector undertaking under Ministry of Railways and a fully owned subsidiary of Indian Railways, which was formed for upgrading, modernizing and professionalizing catering services, managing hospitality services at railway stations and promoting international and domestic tourism in India through public – private participation. IRCTC has diversified into many non - railway businesses such as air ticketing, travel services, bottled water (Rail Neer), budget hotels, food plazas and has recently introduced numerous value added services for the train traveler such as e – catering.

The key business segments in which IRCTC operates are:

IRCTC has grown at 29% CAGR since 2012 powered by internet ticketing and tourism segments. The internet ticketing segment contributed only 37% of the overall revenues (FY 16), but accounted for 83% of the overall gross profits. Other segments have shown low to negative profitability.

Although IRCTC has witnessed strong growth in the past, the company faces new threats especially in the Internet ticketing segment. Some of the key issues and threats that may impact growth in future are:

• Withdrawal of service charge w.e.f. 23.11.2016 to 31.03.2018 is likely to remain.

• The overall market size of the online train ticketing segment is steadily reaching saturation

• Though the tourism vertical has diversified into many new products and services, there is limited market penetration in these highly competitive areas.

• Catering business has been adversely affected due to changes in policy since 2010 consequent to its transfer to IR. Hence, it has not been possible to build a sustainable business model for this business segment. This position has substantially rectified after the promulgation of Catering Policy 2017..

• IRCTC has not able to ramp up its manufacturing capacity of Rail Neer due to issues concerning availability of land and water at the proposed locations and covers just ~37% of overall demand over IR.

• There is a possibility that the current sale monopoly the company enjoys over IR may be repealed or rationalized forcing it to compete in a competitive environment to gain market share on IR. Furthermore, IRCTC is also facing a threat from unorganized players who are able to sell at a lower price.

Key focus is on production and distribution of bottled water and construction of Rail Neer plants

Key focus is catering on trains linked to base kitchens, food plazas, fast food units, executive lounges, retiring rooms, e-catering and budget hotels

Key focus is tourism related products namely holiday packages, train tours, hotel and airline ticketing

Key focus is primarily online train ticket booking through IRCTC website and mobile app

RAIL NEER CATERING TOURISM INTERNET TICKETING

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Considering the issues and threats faced by IRCTC, at present there is an urgent need to redefine strategy in order to mitigate the aforementioned risks and develop a sustainable business model which can leverage the huge potential of the rapidly growing Indian economy and railway passenger segments.

The internet ticketing and tourism segments have huge growth potential and will drive the growth in future. IRCTC’s website and database are extremely valuable assets and offers numerous ways to monetize these assets. The business plan focuses on exploiting the potential with supporting capital expenditure. The identified opportunities will make maximum use of existing IRCTC infrastructure & resources and work on an asset light model. IRCTC will be able to fund these investments through internal cash accruals without requiring external financing.

The key growth and optimization opportunities for the different business segments are listed

below:

Internet Ticketing

• Knowledge process outsourcing & Affiliate Marketing: IRCTC has access to demographic and spend data of millions of users. It has a large user base of more than 4 crore users and daily logins of more than 40 lakh. Joining the hands with e-commerce, the variety and volume of such data may further surge dramatically. Entry into this segment will leverage the huge customer data base with IRCTC and will be targeted at providing customer insights to companies through use of data analytics and data warehousing tools. The use of an in-house analytics team will ensure the privacy and confidentiality of sensitive IRCTC data.

• Value added services: IRCTC hosts 6 lakh+ visits on its booking confirmation page per day. With myriad of Value Added Services that IRCTC already has, and others that it may offer in future, we believe that this a tremendous volume to create leads for online businesses and generate revenues by cross-selling products/services. Value added services will involve delivering various services either directly such as e-bed roll, book-a-meal, airline tickets, concierge service or through alliance with various service providers such as cab aggregators, food aggregators and event ticket aggregators and help in enhancing customer engagement and deriving topline growth.

• Lead Generation Scheme: Lead generation is the method of getting inquiries from potential customers for the purpose of expanding the scope of a business, increasing sales revenues. In the old pre-Internet days of sales, lead generation occurred at places like trade shows – visitors to a company's booth would fill out a card with their contact information and turn it in to receive a call back from that company's sales team. In the present world, this activity has now started happening online. IRCTC hosts 6 lakh+ visits on its booking confirmation page per day and more than 40 lakh daily logins to IRCTC website. There is a tremendous volume and opportunity to create leads for online businesses and generate revenues by providing those leads (inquires) products/services of other merchants

• Digital Advertisement: The large number of daily visitors to the website throws a opportunity of Digital advertising of IRCTC’s Soft Assets. The modern day Digital Advertising techniques though

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https://www.thebalance.com/before-you-attend-that-trade-show-2947181

https://www.thebalance.com/the-four-pillars-of-sales-2917473


Double Click for Publisher (DFP) tool can be used to advertise in most optimal way. Use of Captcha on website for differentiating between humans and machines can also be used for Digital Advertising.

Tourism

• Creation of a separate subsidiary for non-railway tourist segments: Given that tourism is an industry with high competition requiring specialized human resources, IRCTC may consider creating a separate subsidiary for non – railway tourism services and products, as well as a separate marketing team.

• Increasing market penetration in the air ticketing business: The Indian aviation market is the fastest growing major aviation market in the world. A dedicated strategy for this opportunity will enable the company to increase its market share in the rapidly growing air ticketing business.

• Outbound and Religious tourism: The company can generate substantial growth by providing international tour packages customized for tourists travelling both for religious purpose and sightseeing. There is also strong potential to tap inbound tourist for leisure and pilgrimage, especially Buddhist pilgrimage tourism.

Catering and Rail Neer

• Expand E - catering business: Introduce innovative online marketing strategies to ensure a faster growth of the e-catering business. New marketing channels such as Search Engine Marketing (SEM) and Social Media campaigns are recommended based on the behavior of the target segment which is mainly smart phone users. These marketing channels will not only create awareness but also provide more accurate Return on Investment(ROI).

• Improve base kitchen infrastructure and network: The existing infrastructure of base kitchens needs to be improved using modern technology. Furthermore, the base kitchen network should be expanded in order to have greater reach, higher quality control and more cost-effective operations. There is a need to attract reputed private catering players through an improved selection model as envisaged in catering policy 2017.

• Unbundling of catering services: The policy envisages unbundling of food preparation and distribution to achieve quality in catering deliverables over IR. Operational efficiencies in delivery of catering services over the food production, logistic and distribution cycle will be enabled through a variety of IT and quality tools. The latter will assist in positioning a robust feedback mechanism to ensure customer friendly catering services.

• Improving food quality and hygiene: Food quality will be an outcome oriented aim by duly implementing a Comprehensive Quality Assurance Programme (CQAP) over the food production and distribution cycle. Use of IT tools and quality processes will be an important component of the CQAP initiative. Hygiene initiatives will involve implementation of all food and beverage regulatory standards at onboard and off board locations.

• Capacity enhancement and improved demand coverage over IR: Faster capacity enhancement to achieve 70% demand coverage over IR by 2019. Achieving cost efficiencies in Rail Neer

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operations through PPP combining capital support from IRCTC will be strategic aim to grow and consolidate the business.

Considering the “business as usual” scenario, IRCTC revenues should grow at CAGR of 9% over the next 5 years with gross profits increasing to INR 461.5 Crores by FY 21 from INR 372.5 Crores in FY 17

Revenue projections for ”business as usual” scenario

Parameter FY 17 FY 18 FY 19 FY 20 FY 21

Estimated Revenues (INR Cr.) 1599.20 1842.5 2015.0 2194.9 2303.9

Estimated Gross Profits (INR Cr.) 352.50 407.9 432.8 453.0 461.5

After the implementation of the business plan with new opportunities, IRCTC revenues are expected to grow at CAGR of 16% over the next 4 years. Most of the additional growth will come from the tourism and internet ticketing segments as per this plan. Gross profits are expected to increase to INR 1,322.5 Crores by FY 21 from INR 352.50 Crores in FY 17.

Revenue projections after implementation of growth options

Parameter FY 17 FY 18 FY 19 FY 20 FY 21

Estimated Revenues (INR Cr.) 1599.20 2,410.4 2,779.7 3,159.2 3,584.2

Estimated Gross Profits (INR Cr.) 352.50 726.4 891.9 1,069.7 1,322.5

The new business plan will operate on an asset light business model with low capital requirements. The funding for these new initiatives will be through internal cash accruals and not require financing from external sources.

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2 Analysis of current business 2.1 Company description

Indian Railway Catering and Tourism Corporation (IRCTC) is a public sector undertaking under Ministry of Railways and a fully owned subsidiary of Indian Railways. It was established in 1999 with an aim of upgrading, modernizing and professionalizing catering services, managing hospitality services at the railway stations and promoting international and domestic tourism in India through public – private participation. Since then IRCTC has grown rapidly and diversified itself into many non - railway businesses such as air ticketing, travel services, bottled water (Rail Neer), budget hotels, food plazas, food kiosks and has introduced numerous value added services for the train traveler such as e – catering.

2.2 Current vision, mission and objectives of IRCTC

2.2.1 Vision

To be the leading provider of high quality travel, tourism and hospitality related services for a range of customer segments, with consistently high level of customer satisfaction.

2.2.2 Mission

IRCTC to establish itself as a leader in the area(s) of hospitality services , travel and tourism, packaged drinking water, and Internet Ticketing by providing value added products and services for passengers, tourists and other customers, targeting Indian Railways and Non – Indian Railways related services alike, building a resilient business portfolio that is scalable and based on core competence.

2.2.3 Objectives

The following are the key objectives of IRCTC:

• To provide high quality catering services directly as well as through network of professionally competitive licensees and franchisees.

• To be a significant player in the hospitality business.

• To produce bulk food manufacturing facilities like food factories etc.

• To provide high quality package drinking water (Rail Neer).

• To promote tourism across the country especially for all segments of Rail Passengers.

• To provide single window solution to its customers including train travel, road travel, air travel, hospitality, hotel accommodation and catering etc.

• To develop and operate Executive Lounges, Multi-functional complexes, budget hotels etc. through participation by professionals.

• To maintain leading position in internet ticketing, e-commerce and technology for customers interface for railway passengers/ customers.

• To be a technology driven customer oriented company through constant

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Zonal Group General Managers

Company Secretary

Chief Vigilance Officer

GGM – Tourism

GGM – Services

GGM – IT (Project)

GGM – IT

• GGM – Group General Manager • HRD– Human Resource Department • DCS – Departmental catering Services • LCS – Licensee Catering • RNP – Rail Neer • PQ – Procurement & Quality • IT – Internet Ticketing

Director

(Catering)

Director (Finance)

Director (Tourism Marketing)

Chairman and Managing Director

GGM – Finance

GGM – Finance

innovation and human resource development.

• To promote private sector participation and expertise to improve quality of products and services.

• To imbibe strong customer friendly, professional and ethical work culture.

• To adopt strong Corporate Governance practices and best and transparent industry practices.

• To work towards creation of additional infrastructure on Railway or non-railway premises in their mandated line of business with a view to improve the Gross Block.

2.3 Analysis of the current organization structure of IRCTC

Figure 1: Current organization structure of IRCTC

GGM - HRD

GGM - DCS

GGM - LCS

GGM RNP

GGM - Infra

GGM – P&Q

GGM -RNP

GGM RNP

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Key highlights of the current organization structure :

• The organization is headed by the Chairman and Managing Director (CMD), who is responsible for overseeing and managing the overall operations of the organization.

• The organization structure is broadly divided into two groups - Corporate and Zonal.

• The corporate group is mainly focused on planning and coordinating work with the zonal group. The zonal group is focused on implementing the plans proposed by the corporate group and handling day to day operations.

• The human resource activities are guided by Department of Public Enterprise (DPE) rules.

• Within the corporate group there are three business directors - Director Tourism, Director Catering Services and Director Finance.

The Director Tourism oversees tourism, air ticketing and internet ticketing .

Director Catering Services oversees departmental catering ,licensee catering , e-catering services and budget hotels.

Director Finance supervises the overall financial aspects of company operations. These directors are members of the board and report directly to the CMD.

• Each director has Group General Manager(s) (GGM) reporting , who in turn are supported by General Manager (s) (GM), Additional General Manager (s) (AGM) and Joint General Manager (s) (JGM).

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• At the zonal level, the Group General Manager (s) (GGM) are responsible for implementing the business plan and all on-ground activities. There are five zonal GGM (s) (GGM - North, GGM - South, GGM - East, GGM - West and GGM – South Central). These GGM (s) are supported by Chief Regional Managers (CRM) and Area Managers.

• Unlike the corporate GGM (S), the Zonal GGM (s) report directly to the CMD.

2.3.1 Observations for the current organization structure of IRCTC

The following are the key observations for the current organization structure:

• Representation of shared services functions at corporate level: There is no separate representation of the shared service functions (such as Human Resources) in the current organization structure. In the existing structure, the GGM – Human Resource Development reports to Director Catering Services. There would be a need to review this aspect in case staff strength increases substantially.

• Alignment of a position with work role: The GGM – Infrastructure looks primarily into budget hotels and other construction works for IRCTC. The budget hotels falls under tourism vertical whereas the GGM – Infrastructure reports to the Director Catering Services. Moreover, GGM – Infrastructure is also responsible for other activities such as purchase of office furniture and other corporate office requirements. There is a strong case to combine the infrastructure and budget hotel function under GGM Services.

• Dedicated marketing function: There is no dedicated marketing team for advertising tourism products, air ticketing products, travel packages, budget hotels and other promotional schemes related to tourism creation of such marketing teams is therefore essential.

• Skill based selection process: For certain specialized functions, people with right experience are selected or deployed from Indian Railways. However, for some functions such as Procurement, Infrastructure, Tourism and IT, recruited employees do not have the required skills. Training programmes to be dovetailed to this requirement.

2.4 Financial performance FY 12 – FY 17

The total revenues for IRCTC has grown at a CAGR of 24% since 2012. The year – on – year growth has also been consistent except for the financial year 2015, when the revenues grew only by 20%. The primary reason was lower growth in the fastest growing segments of IRCTC i.e. internet ticketing and tourism. In financial year 2017, Internet ticketing grew by (34%) (i.e. from INR 551 Cr. in 2016 to INR 362 Cr. in 2017).

The internet ticketing and tourism business segments have been the largest contributors to revenue in 2017, (approximately ~ 55%). The proportion of the contribution of two segments to the overall revenue has also been growing consistently since 2012. The figure below shows the financial performance of IRCTC in last six years.

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Figure 2: Revenue Growth (FY 12 - FY 17)

Figure 3: Breakup of Revenue- Business Segment - FY 17

The gross profits of IRCTC has grown at a CAGR of 32% between 2012 and 2017. Gross profit has grown consistently since 2013, except in 2016 & 2017. This is primarily because the cost of operations grew by 29% in2016 due to a substantial increase in the share of Indian Railways in revenue from online tickets (i.e. from INR 20 Cr. in 2015 to INR 291 Cr. in 2016) and withdrawal of service charge.

Figure 4: Gross profit of IRCTC in last five years (FY 12 - FY 17)

543716

9531141

1503 1599

2012 2013 2014 2015 2016 2017

362

523

221

168

158

167

0 100 200 300 400 500 600

IT

TOURISM

DEP-CATERING

RAILNEER

LECENCEE CATERING

OTHER INCOME

AMOUNT IN Cr

91 108144

234

327352

0

100

200

300

400

2012 2013 2014 2015 2016 2017

Amount In Cr

17


The overall Gross Margin registered INR 352.39 crores in FY 17 of which internet ticketing 56 %, positive, like all other segments except departmental catering which contributed negative 15% of Gross Margin. The latter posted negative margin due to transfer of catering to IR in 2010 until 2017 wherein the business was rendered unsustainable due to high operating and administrative costs.

Figure 5: Gross Margin* : Business Segments FY 17

* Overall Gross Margin FY 17 : INR 352 Crores

The departmental catering services (DCS) business segment has not been able to make profits since past five years. Catering business has been affected due to changes in policy regarding ownership of catering activity by IRCTC and therefore, it has not been possible to build a sustainable business model for this business segment.

2.5 Key business segments

According to the current structure, IRCTC is divided into four main businesses: • Internet Ticketing • Tourism • Catering • Rail Neer

The following diagram elaborates on the key business segments:

198

60 6732

-52

47

-100-50

050

100150200250

IT TOURISM LECENCEE CATERING

RAILNEER DEP-CATERING OTHER INCOME

AMOUNT IN Cr

• Procurement of raw

material • Manufacturing of Rail

Neer o 5 IRCTC

owned plants o 2 PPP based plants

• Sales and distribution o Railways o Kiosks at stations

on Trains

• Departmental catering o 5 Base kitchens o 1 Central kitchen o Food kiosks for DMRC o RRs,Jan Ahaars & Cell

Kitchens

• Licensee Catering o Serves food in trains o Food Plazas o Fast food units

• E catering / Food on track

• E bedroll

• Executive lounge

• Retiring Rooms

• Budget Hotels

Air Travel

• Air ticketing

• Travel and tour packages (outbound and inbound)

• Domestic air packages Train Travel

• Train tour packages

• Special trains / Luxury trains / Semi luxury trains

• Other tours and services

• Internet train ticket

booking o IRCTC website o Mobile App

• IRCTC Wallet • IRCTC SBI Cobranded

Credit Card

RAIL NEER CATERING TOURISM INTERNET TICKETING

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2.5.1 Internet Ticketing: An overview

IRCTC currently has a monopoly in Indian Rail Internet Ticketing. Its current strength includes the volume of daily portal visitors and ticket bookings. It currently experiences 40 lakh+ daily logins on its website and 6 lakh+ ticket bookings per day. Such huge volumes bring myriad opportunities for innovative ways to generate incremental revenue from its digital real estate.

Figure 6: Growth in number of tickets booked from IRCTC website (in cr.)

In 2017, 61% of total Indian Rail tickets bookings were online, through IRCTC. This proportion is expected to increase to approximately 75% over next 4 years, before it stabilizes.

Year 2017 2018 2019 2020 2021 Online Booking % 61 65 69 72 75

This volume is therefore expected to grow at a CAGR of 3.1% to become 26+ Cr. online tickets bookings annually through IRCTC.

Figure 7: Projected Internet Ticket Bookings by 2021(in Cr.)

Another key strength of IRCTC is the volume of passengers that travel every day on IR, who book their tickets through IRCTC. It is expected to grow over 42 Cr. + IRCTC passengers travelling on IR in 2018, which translates to nearly 12 lakh passengers a day.

5.57 6.16 7.01 7.49 7.85

8.50 9.6411.29 12.44 13.08

0.00

5.00

10.00

15.00

20.00

25.00

2013 2014 2015 2016 2017

NON AC AC

7.85 9.03 9.3 9.58 9.86

13.8014.90 15.37 15.83 16.31

0

5

10

15

20

25

30

2017P 2018P 2019P 2020P 2021P

NON AC AC

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Figure 8: Growth in total train passengers (in Cr.)

Around 2.2 Cr. passengers travel on IR each day, of which nearly 8% are “Reserved” passengers. Such huge numbers and web traffic provide exciting opportunities for e-commerce players. Over the last 5 years, staggering growth has been witnessed in e-commerce and m-commerce to penetration in India. Mobile internet penetration has now reached 372 million users. E-tailing industry is already witnessing over 1 Million transactions per day. Average order value in India is already INR 1950, and is expected to grow sharply over next 5 years.

Financial performance of internet ticketing segment

The internet ticketing segment generated 467 Crore revenue for IRCTC in FY 2017.

Figure 9: Financial performance FY17 (INR Cr.)

The internet ticketing segment generated a total revenue of INR 467 Cr. in FY 2017, 77% of which constituted service charge. Service Charge on e-ticketing has been withdrawn w.e.f. 23-11-2016 up to 31-03-2018. There is no clarity on its restoration in near future.

0.0

10.0

20.0

30.0

40.0

50.0

2013 2014 2015 2016 2017 2018

25.4 27.932.9 36.0 37.3

42.5

467

181.1

30.4 28.0 0.1 29.0

268.6 198.37

050

100150200250300350400450500

20


Projected Ticketing Revenue & Margins: Business as usual (INR Cr.) FY 2017-21

Key Issues & Threats

Critical Issues

• User Interface Interface streamlining and re-categorization of products/services required to ensure coherence with user lifecycle to enhance visibility and thereby overall top line for various captive IRCTC offerings.

• Customer Engagement The average time spent on the IRCTC website stood at ~4 minutes and 23 seconds for the period of July 2014 to June 2015 against the industry standard of 6 minutes. This indicates that customer engagement is a critical area of concern for IRCTC.

• Partnerships/ Alliances Existing partnerships and alliances are not being able to garner desired amount of traction for IRCTC.

Critical Threats

• Withdrawal of Service Charge Service Charge on e-ticketing was withdrawn from 23.11.2016 and current withdrawal is up to 31.03.2018. There is no certainty on the revival of IRCTC surcharge in coming financial years. Withdrawal of service charges levied per booking has adversely impacted the overall revenue and profit margins.

• Market Size Saturation Although online share of ticketing has increased (from 40% in 2012 to 61% in 2017), the overall growth in train ticket bookings (online and offline) has not grown at an attractive rate. Therefore, going forward, the rate of growth for internet ticketing may decline significantly.

2.5.2 Tourism: An Overview

Travel, tourism and hospitality is the third-largest sub-segment of the services sector in India. It contributed nearly USD 43 billion directly to the Gross Domestic Product (GDP) in 2015 and expected to

467

187 182209

236198

8762 69 76

050

100150200250300350400450500

2017 2018 2019 2020 2021

Total revenue Operating Profit / Gross Profit/EBITDA

21


grow at a CAGR of 10.2% to reach USD 86 billion in 2025.

Figure 10: Expected growth in direct contribution to GDP by travel and tourism industry in India (USD billion)

2006 2009 2011 2013 2015 2025E

The industry is segmented into offline and online segments. India’s online travel segment grew by ~18%

during 2013–2016 and outperformed the overall travel market. Online travel (gross bookings) now constitutes an estimated 41% of the overall Indian travel market.

India has the third largest internet population in the world. India also has a high mobile penetration with more people having mobiles than people having personal computers. Online travel industry has huge potential from these customers. Indian online travel market has shown comparatively higher CAGR compared to other countries.

Figure 11: Online Travel Market : Growth in selected countries for 2012-17

31%

US China Russia India Brazil Australia

Indian consumer travelling for leisure & pilgrimage has been further sub-categorized into the following segments

• Visiting Friends /Relatives • Celebrations • Scenic Beauty • Adventure • Weekend Getaway • Pilgrimage

18% 14%

7% 10% 7%

10 % CAGR

86

40 43

31 26

18

22


Travel Frequency and Seasonal impact

Indian consumers like to plan their travel well in advance. Travels are mainly planned around personal vacations, special occasions like birthdays and anniversaries, festivals & kids vacations. Marketing of service offerings is required to be aligned with the pattern of consumer buying traits.

Purchase Decision

Major attributes contributing to purchase are price, service quality and personal experience as per “Octane e-Travel India Study 2015”.

Figure 12: Key attributes that drive consumer purchase decision in travel and tourism industry

Classification of travel & tourism industry in India

India travel & tourism industry is segmented into three major segments namely hotel booking, tour packages and tickets.

Key industry players in India

The industry is currently divided into the online & offline market. Major competitors for IRCTC in Indian Travel and Tourism market are

Figure 13: Classification of travel and tourism sector in India

Travel & Tourism

Hotel Booking Tours & Packages Tickets

Air Tickets Non Air Tickets

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• MakeMyTrip

• Cleartrip

• Thomas Cook

• Cox & Kings

• Yatra

• SOTC

• Goibibo

• Expedia

• Travel guru

• Akbar Travels of India Pvt. Ltd.

Tourism segment business in IRCTC

IRCTC Tourism offers the following services:

• Travel Ticket Booking: IRCTC provides services for booking Air tickets through its online air ticketing portal and app. Air tickets are being provided at highly competitive prices for both domestic & international airlines.

• Online Hotel Booking: IRCTC provides online booking for Rail Yatri Niwas (IRCTC Hotels), lounges and Railway retiring rooms. IRCTC is trying to tie up with hotels for providing booking services for hotels across India.

• Tours and Packages: Services offered includes various land & air tour packages for different themes like leisure, pilgrimage etc. Packages currently provided are domestic packages, international (both inbound & outbound packages) and customized packages.

• Railway Tour Packages and Special Trains: IRCTC operates special trains and semi luxury trains for different themes and itineraries such as Buddhist Train on Buddhist sector, Desert Circuit on Rajasthan sector, Tiger Express covering Ranthambore Tiger Reserve and City of lakes- Udaipur. IRCTC also runs a super luxury train “Maharajas' Express”.

Charter Train booking services are also provided by IRCTC. In addition Election Special trains are operated by IRCTC for movement of paramilitary forces during General and Assembly elections. State Specials trains are operated by IRCTC in accordance with the requirement of state government sponsoring the trains. These trains offers packages on nominal charges of Rs. 900/- per pax per day for sightseeing and pilgrimage purposes.

• Miscellaneous: IRCTC also provides travel services for individuals a n d Corporates such as LTC (Leave Travel Concession) and customized packages & other miscellaneous travel related services like travel insurance, visa processing etc.

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Segmentation of various tourism products is depicted below.

Figure 14: Key product segments within tourism business segment

Financial performance of Tourism segment

Figure 15: Tourism Revenue* (FY2012-2017)

*Total Revenue: INR 1599 crore

99

189

324362 374

529

0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017

Amount In Cr

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The total revenue earned from sales of Tourism segment accounted for 34% of the total revenue of IRCTC in FY 2017. The growth rate has sharply increased to nearly 40% in FY 2017 from 3% earlier mainly due to increase in state and election special trains in 2016-17.

Railway related tourism products accounted for approximately 80% of the total revenue. IRCTC has entered in all major tourism segments such as hotel, holiday packages, airline bookings etc. It is also planning to enter/expand into other segments such as helicopter travel, medical tourism etc.

Figure 16: IRCTC Travel & Tourism Segment share in Revenue for FY 2016- 17

Issues and threats

The key issues and threats being faced by the tourism segment are as follows:

Issues Threats

• Low market share in major sub-segments such as airline ticketing

• Low brand recall amongst consumers.

• IRCTC’s holiday package segment has lower profit margin

• High dependency on government and Indian Railways

• Lack of skilled human resources

• High Competition

• High uncertainty in sales volume due to dependency on government requirements and election schedules for railway related travel products.

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2.5.3 Catering

2.5.3.1 Key developments in the catering business since the establishment of IRCTC

IRCTC was formed in 1999 by Indian Railways to improve Catering and Tourism services. The objective was to professionalize catering services and by introducing the best technology and human resources with better logistics and professional expertise. In 2002-03, catering service of Indian Railways was handed over to IRCTC on ‘as is where is’ basis along with the staff in catering department of Indian Railways.

IR issued a catering policy in 2005 wherein, the Ministry of Railways gave directions to IRCTC on several catering related mandates such as menu, prices, the process of hiring contractors etc. This policy restricted the flexibility of IRCTC to fulfill its mandate.

Further, a revised catering policy was announced in 2010 by Indian Railways which took away mobile catering services including base kitchens and mobile catering from departmental catering. The policy also stated that the Railway Board would determine the menu and tariff for the standard meals, breakfast, tea, coffee and catering charges for meals, etc., Zonal Railways would be responsible for fixing the menu and tariff for all other items including a-la-carte items and Jan Ahar outlets.

IRCTC was to be primarily responsible for running of Food Plaza, Food Courts and fast food units within the ambit of this policy.

As per 2016-17 Rail Budget, IRCTC has been restored the responsibility for the entire catering services on IR. As per the new catering policy 2017, IRCTC will unbundle catering services by creating a distinction primarily between food preparation and food distribution. 10 more IRCTC operated, mechanized, sophisticated base kitchens are be added to ensure fresh and hygienic supply of food on trains.

Figure 17: History of IRCTC Catering business

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2.5.3.2 New Catering Policy Feb-2017

SALIENT FEATURES

• IRCTC has been mandated to carry out the unbundling by creating a distinction primarily between food preparation and food distribution, In order to upgrade quality of food preparation IRCTC shall be setting up new kitchens and upgrade existing ones.

• IRCTC shall be responsible for catering services through mobile catering units, Base Kitchens, Cell Kitchens, Refreshment Rooms at A1 & A category of stations, Food Plaza, Food Courts, trains side vending, Jan Ahaars.

• IRCTC shall manage catering service on all mobile units having pantry car service presently with IRCTC. IRCTC shall also take over management of catering services on train for which contracts have not been awarded by Zonal Railways due to various reason or trains are being run departmentally by Zonal Railways.

• IRCTC shall determine the menu of standard meals as also of Rajdhani/ Shatabdi/ Duronto, in consultation with Zonal Railways, keeping into consideration the local taste and cuisine. The standard meals served in trains shall be within fixed tariff approved by Railway Board.

• Sale of a-la-carte items, Ready-to-Eat (RTE)meals shall be permitted both through e-catering and onboard services by IRCTC

2.5.3.3 Existing business model of IRCTC’s business, Catering services is segregated into two departments:

a. Departmental catering services b. Licensing catering services.

Departmental Catering Services (DCS)

This functional department of IRCTC catering service manages all the operations related to mobile units either departmentally or through Licensing. Mobile catering is being managed under the Departmental catering services department. As of 03rd Nov'17, around 25 trains were running departmentally:

Table 1: Number of Departmental Trains (including unbundled trains) as of Nov'17

Type of Trains Number of Trains Rajdhani 08 Shatabdi 01 Duronto 10

Mail/Express 06 Total 25

DCS also manages three base kitchens namely, Central Kitchen at Noida, Base Kitchens at New Delhi and Howrah. Base kitchens at Ahmedabad & Patna used to be managed departmentally and have now been outsourced. Base kitchen at Mumbai Central has been taken over from IR and has now been outsourced.

Departmental Catering services generated revenue of INR 221.8 Cr13 in FY 17 which is 7% lower than revenue in FY16 and generated an operating loss of INR 52.1 Cr13 in FY17. Railway Business contributed 93% of total of sales turnover while non-Railway Business contributed 7% in FY17.

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Table 2: Yearly Revenues of Departmental Catering (INR Cr)

Sub Segments 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Railways Business 172.41 193.55 226.85 249.25 211.06 203.9 Non Railways Business 10.79 28.64 37.42 35.17 27.36 15.9 Other income 1.40 3.50 0.55 0.85 1.73 2 Total 184.60 225.69 264.82 281.31 240.15 221.8

Pantry services also include Suvidha and Holiday special trains which run on temporary basis for few trips.

Table 3: Number of Total Trains as of 3rd Nov'17 Type of Trains No: of Trains

Rajdhani (incl. Tejas & Gatiman) 20 Duronto 19 Shatabdi 23

Mail/Express 237 Others 30 Total 329

Income from licensing services of mobile units has increased significantly since FY 2015 which clearly signifies the shift in focus of the Departmental Catering model towards Licensing model.

Table 4: Yearly Revenues of Trains having Licensing Pantry Cars (INR Cr.)

Sub Segments 2012 2013 2014 2015 2016 2017 Railway's Business 7.85 3.73 1.84 38.36 40.88 120.03

Total 7.85 3.73 1.84 38.36 40.88 120.03 The revenue of mobile trains has increased 3 times due to temporary licensing during the FY2016-17.

Licensing Catering Services (LCS)

Licensing catering services department of IRCTC handles the operations of all the static units, which include 122 Food Plazas, 109 Fast Food Units, 2 Executive Lounges and E-catering services as on 31’Oct 2017.

Combined income from these services was INR 37 Cr 18 in FY 2016-17 as compared to INR 31 Cr 18 in FY 2015-16. Presently IRCTC is Operating 231 Units and is expected to rake in Rs.45 Cr. in FY 2017-18. Another 90 Units are expected to be commissioned by the end of FY 2018-19 generating additional revenue of Rs 30 Cr (approx.). There are about 200 A1 and A category of stations to be covered and it is proposed to commission 40 units on an average every year for the next five years.

E-Catering

E-Catering services have commenced in September 2014 which now covers around 300 stations with participation by major industry players such as Dominos, KFC, McDonald's etc serving 7000 meals per day on the IR network and will progressively cover 408 "A-1" and "A" class stations.

Executive Lounges

This pre departure - post arrival facility commenced in Nov 2012 with two working lounges at New Delhi and Vishakhapatnam providing services such as F&B, Hotels Concierge, Wifi, Recliner facility, Dormitory

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beds, Wash and change, travel desk etc grossing 1.01 cr p.a. The business is on the uptick with 8 lounges planned next fiscal over 49 stations earmarked over IR in the first phase.

Retiring Rooms

Indian Railway currently managing around 2000 Retiring Rooms spread across more than 600 Railway stations all over Indian Railways network. The facility is meant for providing reasonable, safe transit accommodation to bonafide railway passengers. The reservation of the Retiring rooms can either be made through counters available at Railway stations and also through online booking facility available at www.irctc.co.in.

Currently the facilities included in the Retiring Rooms are AC and non AC rooms with attached/common bathrooms, AC and non AC dormitories with common bathrooms, limited food and beverages services, lockers etc. For the upgradation and maintenance of retiring room at Railway Stations, service providers will be engaged on Public Private Partnership (PPP) basis and they have to invest in infrastructure. The existing complex can be expanded by constructing more rooms/other facilities wherever feasible subject to approval of IRCTC and Railway authorities. Service providers have been empanelled agreement signed with Zonal Railways and tenders are under finalization in FY 18.

Budget Hotels

The business is part of IRCTC's mandate as enshrined in its articles. Four properties are in operation at New Delhi, Howrah, Puri and Ranchi, the latter two being heritage properties. The revenue slated to be earned for FY-18 is 2.98 cr approximately. A hotel project at Lucknow is planned during the current fiscal through PPP with budgeted investment of 37 cr.

2.5.3.4 Issues and challenges with the catering business segment: IRCTC faces the following major challenges.

Figure 18: Key Issues and Challenges of IRCTC in Catering Services

Proposed Infra upgradation & networking of Base Kitchen

& Pantry Cars

Catering Waste

Management System

Dependency on Indian Railways

E-Catering Business

Food Quality and Hygiene

30

http://www.irctc.co.in/


Frequent policy changes

Catering business has been adversely affected due to policy changes in 2010 leading to transfer of catering to IR. Since then, it has not been possible to build a sustainable business model for this segment. IRCTC has invested in manpower, infrastructure, technology, systems and processes when catering services were first in 2001. Catering has been transferred back to IRCTC pursuant to a new catering policy rolled out in 2017 and the takeover process has gathered momentum with an appropriate strategy and implementation plan in place.

Table 5: Profit and Loss of Departmental Units in (INR Cr.)

Parameter 2012 2013 2014 2015 2016 2017

Profit and Loss of Departmental Units

-50.94 -57.96 -66.03 -54.9 -66.49 -54.18

Food Quality and Hygiene Issues

As per IRCTC data, out of 1,878 complaints received from 1st Jan 2017 to 31st Oct, 2017, 529 complaints were related to poor quality of food, 55 for less quantity and 35 for hygiene. Also around 35% of complaints in last year are related to poor quality of the food alone. This clearly indicates the need for quantum improvement in quality of food served in trains.

Table 6: Year wise d etails of number of complaints for IRCTC Mobile units

Parameter 2017 (Till 31.10.2017) 2016 2015

No. of

% of total

No. of complaints

% of total

No. of complaints

% of total

Overcharging 710 37.81% 281 16.02% 1 0%

Quality 529 28.17% 648 36.94% 620 49%

Quantity 55 2.93% 58 3.31% 73 6%

Misbehavior 40 2.13% 59 3.36% 52 4%

Hygiene 35 1.86% 27 1.54% 31 2%

Miscellaneous 509 27.10% 681 38.83% 476 38%

Total 1878 100% 1754 100% 1,253 100%

Limited Infrastructure in Base Kitchens and Pantry Cars

There is a need for developing base kitchens as per modern standards (ISO 22000). Water used in the pantry cars for cooking is same as that used in toilets. There are no RO plants installed in the pantry cars. Space for stacking of food in coaches is a cause of concern.

Catering Waste Management System

Leftovers and other catering waste have to be properly disposed of. In general, waste is being thrown out of the trains. This causes degradation in the quality of the tracks. In railway stations, catering waste is being thrown on the tracks which causes a bad perception from the point of cleanliness of stations.

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Also a mechanism for proper waste disposal according to the type of waste (biodegradable, non-biodegradable and recyclable) has to be developed.

Low penetration in E – Catering Business.

As on 1st May, 2016, E- catering services are live on 221 stations with 2,976 meals being sold daily on average. 209 vendors and 8 food aggregators have registered with the E – catering service.

E-Catering services have shown sharp growth from 299 average meals per day in Oct-15 to 2,976 average meals per day in May 2016. However, the growth has been low compared to what was anticipated by IRCTC inspite of the coverage of 408 stations.

2.5.4 Rail Neer: Industry Overview

Packaged drinking water is one of the largest growing markets in India, mostly driven by rising awareness about health issues and scarcity of clean drinking water. Other factors that drive the growth of this industry in India are:

• Increasing population and growing urbanization

• Increasing scarcity of safe drinking water and ease of availability of bottled water

• Increasing on-trade consumption of packaged water due to wide availability of a variety of bottled water brands in all on-trade channels including small kiosks and premium restaurants

• Rise in per capita income and rapidly changing lifestyles of people

• Rapid growth of Travel & Tourism sector

Figure 19: Growth in Packaged Water in India (INR Billion)

FY13 FY14 FY15 FY16 FY17

The packaged water market in India was estimated to be around INR 150 billion in FY 17 and has grown at CAGR of 18%. It is expected that the packaged water sector will continue to maintain its past growth rate momentum until FY21 and beyond as water is essentially demand inelastic.

The Bureau of Indian Standards (BIS) has formulated Indian Standard (IS) for packaged water and premium natural mineral water under mandatory BIS certification as per Food Safety and Standards Authority of India (FSSAI). Packaged water manufacturers need to acquire ISI and BIS certification prior to commencing production.

CAGR ~18%

150

135

125

100 80

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2.5.4.1 Classification of packaged drinking water industry in India

The organized packaged water industry can broadly be classified as bottled water, premium water, and herbal water.

Figure 20: Classification of packaged drinking water industry in India

2.5.4.2 Packaged drinking water industry in India

Bottled water accounts for ~ 87% of the total packaged water market in India. The overall market for bottled water in India is estimated at INR ~10934 Billion in FY 15 and has grown at CAGR of 22%

Figure 21: Packaged water market by type in India in 2014 -15

Packaged Premium Natural Mineral Water

12%

Others 1%

Total packaged water market in

India: INR 125 Billion

Bottled Water 87%

India’s per capita consumption of bottled water was about 15-2012 liters in 2013 and is expected to increase to 30 liters by 2020.

2.5.4.3 Key players: Bottled water industry in India

The packaged water industry in India is highly fragmented. The organized packaged water segment comprises of national players having pan India presence as well as regional players. There are more than 3,500 registered players in the organized sector.

Almost 83% of the total market for bottled water in India is dominated by branded players like Bisleri, Kinley, Aquafina and Bailey. Smaller brands and fragmented unorganized players (more than 1800 players in India) form ~16% of the market.

Rail Neer accounts for ~ 1% of the total market for bottled water in India.

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Figure 22: Key players in bottled water industry in India

2.5.4.4 Critical success factors for the bottled water industry in India

Bottled water industry in India is highly competitive. Considering the low product differentiation it is obligatory for any player to possess certain essential capabilities in order to gain a considerable share in the market and compete effectively with the competitors. Some of the critical success factors of the bottled water industry are as follows:

Packaging and branding: The brand recall and association plays an important role for getting customers to choose one brand over others. Attractive packaging and advertisement also helps in higher brand recall.

Marketing: To survive in the competitive market, each brand strives to outperform competitors by focusing on targeted promotions and marketing campaigns. Further, as the product has low differentiation, therefore for greater market penetration it is essential for any player to spend considerably on the effective marketing of their respective products.

Distribution and customer reach: Vast and well spread distribution network ensures that the company’s product reaches maximum retailers and customers thus increasing volumes. Considering the bulkiness of the product the transportation and logistics require considerable expenditure, yet it is essential for any player to have a strong delivery and distribution network.

Operational excellence and economies of scale: Efficient operations lead to lower costs incurred during manufacturing process and hence greater margins for manufacturers. It also provides flexibility to a player to offer a lucrative deal to the retailer for selling its products to end consumers.

SKU depth: Multiple SKUs help in catering to a large number of customer segments like weddings, social and business events and airline industry. Product Variants: Having a variety of products is also essential for a company to create a wider presence in the market by catering to the requirements of different types of customers.

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Price and Quality: Pricing plays an important role in creating a perception in the minds of the customer regarding the brand. Further, as water is a basic necessity of any human being therefore price plays an important role in targeting the right set of customers.

Figure 23: Critical success factors for the bottled water industry in India

Rail Neer is a packaged water brand from IRCTC and is sold only at the railway stations and in trains.

IRCTC has seven Rail Neer plants located at Delhi, Patna, Palur, Ambernath, Bilaspur, Amethi and Parassala. The combined production capacity of all the plants is 6 lakh liters per day. These plants cater to ~ 37% of the total estimated demand of average of 16 lakh litres per day over peak and non peak periods at railway stations and trains across India.

Figure 24: Existing Rail Neer plants of IRCTC and their respective capacities

Plants completely owned by IRCTC

Plants on PPP model

.

Effective Marketing

Customer Reach Branding

Critical Success Factors

Efficient Operations

Product Variants

and depth

Price & Quality

PARASSALA, KERALA (Capacity: 0.72 Lakh L/D)

AMETHI, UTTAR PRADESH (Capacity: 0.72 Lakh L/D)

NANGLOI, DELHI

DANAPUR, BIHAR (Capacity: 1.02 Lakh L/D) PALUR, TAMIL NADU

(Capacity: 1.80 Lakh L/D) AMBERNATH, MAH (Capacity: 2.0 Lakh L/D)

BILASPUR,CHATTISGARH

(Capacity:0.72 Lakh L/D)

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2.5.4.5 Financial performance of Rail Neer segment

The total revenues of Rail Neer accounts for 12% of the total revenue of IRCTC in 2017. Rail Neer revenues have grown at a CAGR of 23% over the last 5 years.

Figure 25: Revenue and Growth margins : FY 2013-17

The margin of Rail Neer business segment has grown substantially last year (i.e. 14% in FY 16 to 17% in FY17) due to setting up of two new PPP plants in Amethi , Parasala and consolidation of production at Ambernath plant.

Issues and challenges

Supply Constraints

Although IRCTC has complete monopoly on selling bottled water at the railway stations and in trains (except in Mumbai) across India, it is unable to cater IR demand. The total demand for bottled water is about 25 lakh liters per day in peak season and on average(peak and non-peak) is 16 Lakh litres per day. IRCTC presently caters to only 37% of the total demand based on the existing production capacities of its 7 plants (i.e 6 lakh liters per day).

Figure 26: Supply demand gap for Rail Neer across India

Total Demand (Lakh L/D) Gap (Lakh L/D) Supply (Lakh L/D)

2013 2014 2015 2016 2017

6%

8%7%

14%

17%CAGR ~23%

72 88 17213496

Gross Margin (%) Revenue (in INR Cr.)

16 10

6 -

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Limited marketing and branding of Rail Neer

Rail Neer is a high quality bottled water that conforms to the strict quality standards and specifications from the Bureau of Indian Standards (BIS) and also conforms euro norms with respect to pesticide residue. It is low in dissolved solids and free from all pathogenic bacteria and viruses as well as other harmful contaminants like fluoride, arsenic, nitrate or iron.

But due to limited marketing and branding of Rail Neer the customers do not perceive it as a product comparable to the quality of bottled water from the prominent brands in India (such as Bisleri, Kinley, Aquafina and Bailey etc.).

The prominent brands, on the other hand spend a substantial amount on marketing their product. For instance, Bisleri spent ~ INR 50 Cr15 in 2011 on just one TV campaign and a social media marketing campaign in order to increase the sales.

Lack of a level playing field for Rail Neer

I R has prescribed strict quality standards for Rail Neer in order to make Rail Neer comparable to the finest bottled water available in the market. However the same standards have not been applied to any unorganized player (who is allowed to sell bottled water at only those stations where Rail Neer is not available) and therefore, such players compromise on the quality of the bottled water in order to produce a cheaper product.

2.5.4.6 Key threats to the Rail Neer business segment

Loss of monopoly at railway stations and in trains

Indian Railways has mandated that Rail Neer has to be mandatorily sold at all the railway stations and in trains and therefore IRCTC has a monopoly on selling bottled water at all the railway stations across India and in trains. However, an order by the Supreme Court of India has allowed other players to sell bottled water at stations in Mumbai CSTM division for a temporary period of three months which impacted the sale of Rail Neer adversely. If such a situation is extended across other geographies, then IRCTC will lose its monopoly on selling bottled water at railway stations and in trains and hence will have to compete with other small and large players in the open market.

Threat of unorganized players

There are more than 1,800 unorganized players in the bottled water segment in India. These unorganized players use substandard processes and technologies to produce bottled water that is much cheaper compared to Rail Neer and doesn’t comply with the prescribed quality standards.

In case IRCTC loses monopoly on selling bottled water at the railway stations and in trains, Rail Neer will face a big threat from these unorganized players as their products will offer higher incentives to retailers and hence these retailers will be motivated to keep stocks of these unorganized brands in their shops.

A one liter bottle of Rail Neer costs around INR 8 - 9 on an average, whereas the same from a local unorganized player costs around INR 6.

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2.5.4.7 Comparison of Rail Neer with other players in bottled water

The table below provides a comparison of Rail Neer with the other key players in the bottled water industry in India (including the unorganized players) on the critical success factors of the industry:

Table 7: Comparison of Rail Neer with other players

Based on the comparison provided in the table above it can be inferred that

2.5.4.7.1 Although Rail Neer is a high quality product, customers don’t perceive it as a high quality product due to limited marketing spend.

2.5.4.7.2 Unorganized players have a cost advantage over other players in the market, even though they have a much lower quality. Therefore, they pose a threat to Rail Neer and other players in the market.

2.5.4.7.3 The customer reach of Rail Neer is low.

2.5.4.7.4 Due to the defined customer segments for the Rail Neer i.e. passengers travelling in the trains and the railway stations, Rail Neer has a limited SKU depth (only 1 liter and 500 ml bottles) that is focused at catering the requirements of these customers.

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Particular Units 2017 (Actual) 2018 2019 2020 2021Revenue from operations (net of excise duty) INR Cr.

Revenue from internet ticketing 362.3 100.0 120.0 140.0 160.0Revenue from Departmental catering 219.8 233.0 246.0 259.0 272.0

Revenue from Licensee catreing 158.2 299.4 457.6 500.1 535.0Revenue from Tourism 523.4 396.0 595.0 744.0 943.0

Revenue from Rail Neer 168.3 184.7 233.8 361.0 385.1Total revnenue from operations INR Cr. 1431.9 1213.1 1652.4 2004.1 2295.1Other Income INR Cr. 120.1 100.8 78.2 87.1 96.1Interest Income INR Cr. 47.2 39.9 52.6 63.6 72.7Total revnenue INR Cr. 1599.2 1353.9 1783.1 2154.7 2463.9

Expenses INR Cr.Internet Ticketing

Railway Share (Mfg.Expenses) INR Cr. 181.1 0.0 0.0 0.0 0.0Maintenance & Internet Charges (Mfg Exp.) INR Cr. 30.4 44.0 54.0 65.0 75.0

Human Resource Cost INR Cr. 28.0 28.0 31.0 35.0 40.0Ticket Dispatch Expenses (Selling Exp.) INR Cr. 0.1 0.1 0.1 0.1 0.1

Administrative,Selling and Distribution Exp. INR Cr. 29.0 27.9 34.9 39.9 44.9Total expenses from internet ticketing INR Cr. 268.6 100.0 120.0 140.0 160.0

Departmental CateringMaterial Consumed 144.5 157.4 166.4 175.1 183.5

Power & Fuel (Mfg & Direct Exp.) 6.5 42.3 44.7 47.0 49.3Human Resource Cost 101.9 44.8 46.1 47.5 48.9

Commission paid to vendors (Selling Exp.) 3.3 5.0 7.0 9.0 11.0Administrative,Selling and Distribution Exp. 17.6 20.4 22.4 26.1 30.1

Total expenses from Departmental Catering INR Cr. 273.9 269.9 286.6 304.7 322.8

Licensee CateringLicencee Business other than Food Plaza INR Cr. 66.0 129.6 219.0 230.0 241.0

Direct Exp. & Railway share - Food Plaza* INR Cr. 15.6 18.0 19.8 21.8 24.0Railway share - Book Stalls INR Cr. 0.0 0.0 0.0 0.0 0.0

Human Resource Cost INR Cr. 7.4 67.1 69.2 71.3 73.4Administrative,Selling and Distribution Exp. INR Cr. 5.5 7.6 9.9 12.4 15.0

Total expenses for licensee catering INR Cr. 94.5 222.3 317.9 335.5 353.4

TourismDirect Expenses - Ticket & Service Provider INR Cr. 415.6 320.0 480.0 600.0 760.0

Human Resource Cost INR Cr. 34.7 36.0 38.0 40.0 42.0Administrative,Selling and Distribution Exp. INR Cr. 19.1 20.7 25.0 30.0 35.0

Total expenses for tourism INR Cr. 469.4 376.7 543.0 670.0 837.0

Rail NeerMaterial consumed INR Cr. 67.0 125.7 146.0 156.7 167.2

O&M charges (Mfg & Direct Exp.) INR Cr. 8.7 20.4 23.7 25.4 27.1Other direct expenses INR Cr. 26.7 21.6 25.1 26.9 28.7Human resource cost INR Cr. 9.1 16.5 19.2 20.6 21.9

Freight outward & CFA charges (selling exp.) INR Cr. 23.6 47.5 55.1 59.2 63.1Administrative,selling and distribution exp. INR Cr. 5.1 16.5 19.2 20.6 22.0

Total expenses for rail neer INR Cr. 140.2 248.2 288.3 309.3 330.0

Total Expense INR Cr. 1,246.6 1,217.1 1,555.8 1,759.5 2,003.2

Operating Profit / Gross Profit / EBITDA INR Cr. 352.6 136.8 227.4 395.2 460.7

Depreciation and Amortizaiton INR Cr. 22.4 29.4 31.0 32.0 33.0

Profit before tax INR Cr. 330.16 107.38 196.39 363.25 427.71

Tax INR Cr. 116.2 41.9 76.6 141.7 166.8

Net Income INR Cr. 213.9 65.5 119.8 221.6 260.9

Proposed Dividend Payout INR Cr. 84.7 26.2 47.9 88.6 104.4 Dividend distribution tax INR Cr. 17.2 5.3 9.8 18.0 21.2

Net Income transferred to the Reserves INR Cr. 112.0 34.0 62.1 114.9 135.3

3 Financial statements assuming “business as usual” scenario 3.1 Profit and loss account

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3.2 Balance Sheet

Particular Units 2016 2017 2018 2019 2020 2021Equity and LiabilitiesShareholder's Funds INR Cr.

Share capital / Paid in capital 20.0 40.0 40.0 40.0 40.0 40.0 Reserve surplus 521.0 738.3 772.2 834.4 949.3 1,084.7

Total equity 541.0 778.3 812.2 874.4 989.3 1124.7

Non Current Liabilities INR Cr.Long term provisions (for retirement benefits) 71.6 78.0 79.0 82.9 87.1 91.4 Other long term liabilities (security deposits) 103.9 112.1 123.2 134.2 146.2 159.2

Total Non Current Liabilities 175.54 190.0 202.2 217.1 233.2 250.6

Current Liabilities INR Cr.Trade payables 53.3 137.2 179.5 194.6 203.7 214.6

Short-term provisions (Employee benefits) 92.4 359.0 101.9 107.0 112.3 118.0 Other current liabilities 545.1 362.1 646.4 704.0 766.6 834.8

Total Current Liabilities 690.79 858.3 927.8 1,005.5 1,082.6 1,167.4 Total Liabilities INR Cr. 866.33 1,048.3 1,130.0 1,222.6 1,315.8 1,418.0 Total INR Cr. 1407.34 1,826.6 1,942.3 2,097.1 2,305.1 2,542.7

AssetsNon Current Assets INR Cr.

Fixed assets / Tangible assets 145.1 158.4 213.8 191.1 170.5 152.2 Intangible assets 9.9 12.6 7.2 4.8 3.2 2.1

Capital work in progress assets 14.2 16.8 - - - - Long term loans and advances 23.9 11.8 23.9 23.9 23.9 23.9

Other non - current assets 103.9 81.4 103.91 103.91 103.91 103.91 Total non current assets INR Cr. 297.03 281.0 348.8 323.7 301.5 282.1

Current Assets INR Cr.Inventories 8.1 6.6 17.9 21.9 24.7 27.6

Cash and bank balance 665.3 852.9 1,153.7 1,286.4 1,476.5 1,699.3 Trade receivables 151.3 288.7 136.3 179.5 216.9 248.0

Short - term loan advances 253.3 22.1 253.3 253.3 253.3 253.3 Other current assets 32.2 375.2 32.2 32.2 32.2 32.2

Total current assets INR Cr. 1110.31 1,545.5 1,593.5 1,773.4 2,003.6 2,260.5 Total INR Cr. 1407.34 1,826.6 1,942.3 2,097.0 2,305.1 2,542.7

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4 Proposed strategic options for future growth of IRCTC

Internet ticketing and tourism have huge growth potential and these two segments should drive the growth of IRCTC in the future. IRCTC can leverage the massive traffic it gets on its website by growing revenues through data monetization, e-commerce, intelligent travel solutions and value added services. The company should increase its focus on the high growth areas in tourism such as airline ticketing and religious tourism.

The catering and the Rail Neer segments should focus mostly on increasing revenues from the Railway sector and improving the operational efficiency by increasing involvement of private players. Catering also has good growth potential if IR moves the entire catering function to IRCTC quickly as per the policy. It will also benefit from the 4-5% annual growth in railway passengers.

Internet Ticketing • Knowledge process outsourcing & Affiliate Marketing: IRCTC has access to demographic

and spend data of millions of users. It has a large user base of more than 4 crore users and daily logins of more than 40 lakh. Joining the hands with e-commerce, the variety and volume of such data may further surge dramatically. Entry into this segment will leverage the huge customer data base with IRCTC and will be targeted at providing customer insights to companies through use of data analytics and data warehousing tools. The use of an in-house analytics team will ensure the privacy and confidentiality of sensitive IRCTC data.

• Value added services: IRCTC hosts 6 lakh+ visits on its booking confirmation page per day. With myriad of Value Added Services that IRCTC already has, and others that it may offer in future, we believe that this a tremendous volume to create leads for online businesses and generate revenues by cross-selling products/services. Value added services will involve delivering various services either directly such as e-bed roll, book-a-meal, airline tickets, concierge service or through alliance with various service providers such as cab aggregators, food aggregators and event ticket aggregators and help in enhancing customer engagement and deriving topline growth.

• Lead Generation Scheme: Lead generation is the method of getting inquiries from potential customers for the purpose of expanding the scope of a business, increasing sales revenues. In the old pre-Internet days of sales, lead generation occurred at places like trade shows – visitors to a company's booth would fill out a card with their contact information and turn it in to receive a call back from that company's sales team. In the present world, this activity has now started happening online. IRCTC hosts 6 lakh+ visits on its booking confirmation page per day and more than 40 lakh daily logins to IRCTC website. There is a tremendous volume and opportunity to create leads for online businesses and generate revenues by providing those leads (inquires) products/services of other merchants

• Digital Advertisement: The large number of daily visitors to the website throws a opportunity of Digital advertising of IRCTC’s Soft Assets. The modern day Digital Advertising techniques though Double Click for Publisher (DFP) tool can be used to advertise in most optimal way. Use of Captcha on website for differentiating between humans and machines can also be used for Digital Advertising.

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Tourism

• Creation of a separate subsidiary for non-railway tourist segments: Given that tourism is an industry with high competition requiring specialized human resources, IRCTC may consider creating a separate subsidiary for non– railway tourism services and products, as well as a separate marketing team.

• Increasing market penetration in the air ticketing business: The Indian aviation market is the fastest growing major aviation market in the world. A dedicated strategy for this opportunity will enable IRCTC to increase its market share in the rapidly growing air ticketing business.

• Religious and Outbound tourism: IRCTC can generate substantial growth by increasing religious trains such as Bharat Darshan & Aastha Circuit Trains, providing international tour packages customized for tourists travelling both for sightseeing and religious purpose to major tourist and pilgrimage places in India & Abroad. There is also strong potential to tap tourists coming to India to visit major pilgrimage sites, in particular, Buddhist pilgrimage tourism.

Catering and Rail Neer

For Catering and Rail Neer, there is a scope to increase growth and improve services in the existing railways segment. Therefore it is suggested that IRCTC focus on improving its existing railway related catering business by increasing the involvement of private players

• Expand E-catering business: Introduce Innovative online marketing strategies to ensure a faster growth of the e-catering business. New marketing channels such as Search Engine Marketing (SEM) and Social Media Campaigns are recommended based on the behavior of the target segment which is mainly smartphone users. These marketing channels will not only create awareness but also provides more accurate marketing ROI figures.

• Improve base kitchen infrastructure and network: The existing infrastructure of base kitchens needs to be improved using modern technology. Furthermore, the base kitchen network should be expanded in order to have greater reach, higher quality control and more cost-effective operations.

• Unbundling of catering services: Unbundle preparation, distribution, cleaning and maintenance services and outsource them separately in order to achieve greater control and vendor efficiency. This will require enhancement to the co-ordination and control activity of IRCTC since it will have to deal with more contractors and vendors and synchronize their activities in this scenario.

• Faster capacity enhancement through PPP: Implement PPP as a manufacturing business model to expand capacities quickly and achieve cost efficiencies.

• Implementation of catering policy 2017: Prospective partnerships with F&B industry players for Base Kitchens investments hinges upon changes in 2017 policy required with respect to permitting PPP models & subsuming prior period mobile contracts to ensure financial viability of proposed investments by prospective private players. Further, revenue sharing between IRCTC & IR proposed in the policy need to be renegotiated in

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view of revised cost & revenue structures due to unbundling of services in such contracts to be implemented as per policy.

• Setting up of a Comprehensive Quality Assurance Program (CQAP) This quality assurance plan will be rolled out as a process along with a wide area IT network covering across production, logistics & distribution functions from base kitchens to trains to oversee, control & implement country wide catering operations.

• Expansion of Rail Neer: Expand geographical and quantitative coverage of IRs consumption of Railneer through a tightly spaced network of closely knit medium sized plants across IR network so as to reduce logistics costs and improve coverage.

The detailed analysis of the recommended growth options for IRCTC is as follows: 4.1 Internet ticketing Following four opportunities are available for leveraging:

• Knowledge process outsourcing & Affiliate Marketing:

Currently, IRCTC has access to demographic and spend data of millions of users. As they join hands with e-commerce, variety and volume of such data will further surge dramatically. We believe that utilizing this data to generate actionable insights can be valuable to a large array of companies belonging to different sectors. Hence, we see an opportunity of INR 22 crore in this space by 2021.

• Value added services: IRCTC hosts 6 lakh+ visits on its booking confirmation page per day. With myriad of Value Added Services that IRCTC already has, and others that it may offer in future, we believe that this a tremendous volume to create leads for online businesses and generate revenues by cross-selling products/services. With 6 lakh+ tickets per day, and more than 40 lakhs users visiting on e-ticketing website, we see a captive market of INR 20 crore by 2021 for IRCTC

• Lead Generation Scheme Lead generation is a way of attracting and converting strangers and prospects into someone who has indicated interest is product or service of your company or associated merchant.

Lead generation is the method of getting inquiries from potential customers for the purpose of expanding the scope of a business, increasing sales revenues. In the old pre-Internet days of sales, lead generation occurred at places like trade shows – visitors to a company's booth would fill out a card with their contact information and turn it in to receive a call back from that company's sales team.

We see revenue of INR 6 crore by 2021 for IRCTC

• Digital Advertisement We have put in place a model where Google’s free Double Click for Publisher (DFP) tool into IRCTC website and Mobile app will be used. This DFP tool is having the capability to attach different advertisers, whosoever is giving the maximum eCPM in the real time bidding can give the right for doing the advertisement for that particular impression on IRCTC

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website/mobile app. In this case, we can also show the advertisement on IRCTC website and Mobile, if someone approach IRCTC, In case no advertisers are found then advertisement will be displayed through Google Ad sense. Other new channel of marketing like captcha advertisement is also being tried. We see revenue of INR 60 crore by 2021 for IRCTC

4.1.1 Knowledge process outsourcing & Affiliate Marketing:

Currently, IRCTC has access to demographic and spend data of millions of users. As they join hands with e-commerce, the variety and volume of such data will further surge dramatically. Entry into this segment will leverage the huge customer data base with IRCTC and will be targeted at providing customer insights to customers through use of data analytics and data warehousing tools. The use of an in-house analytics team will ensure the privacy and confidentiality of sensitive IRCTC data.

i) Corporate Clients looking for consumer insights: Companies such as consumer brands, e-Commerce, Advertising companies, and Market Research companies can get customized analytics and KPO services on engagement fee basis.

This can be done however it requires Analytic Tools and Professional to carry out such type of jobs. One such trial has been done with VISA for handling mVisa related cash-back campaign on the selected customer base and Payment Options. Further, 6 month’s pilot project is being done with SBI Cards for promoting IRCTC-SBI Cobranded Card. Other business houses will also be tried.

ii) Affiliate Marketing: Corporate clients looking for affiliated marketing or promotion: e-commerce and consumer brands can leverage IRCTC’s existing customer base for promotion or marketing activities on contractual fee basis. The KPO services of IRCTC will be marketed or promoted by a dedicated Sales & Marketing team of the new entity recommended

o General Email/SMS marketing for clients: o Targeted Email/SMS marketing for clients

This can be achieved if hire a market research company for doing customized analytics on the data generated by IRCTC on daily basis and sell the same to all prospective customers through offline or online mode. In this revenue can also be earned, if we make a policy for monetizing the IRCTC data by sending the Mailers/SMS to targeted clients of IRCTC. But in this, there is strong requirement of delivery mechanism wherein mail/sms to be delivered to the prospective customers as per the schedule & in timely manner.

Revenue Projection:

Year 2018 2019 2020 2021 Revenue(in cr) 3 7 15 22

4.1.2 Value added services: IRCTC hosts 6 lakh+ visits on its booking confirmation page per day. With myriad Value Added Services that IRCTC already has, and others that it may offer in future, there is a tremendous volume to create leads for online businesses and generate revenues by cross-selling products/services. Value added services will involve delivering various services through alliance with providers such as cab aggregators, food aggregators

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and event ticket aggregators and help in enhancing customer engagement and deriving top line growth. These services are targeted at all IRCTC users who book train tickets online.

All value added services will be displayed at the “Bookings Confirmation” page in an attractive web-page design, and on IRCTC Connect App.

o Book a cab: Through a popular Cab aggregator o Book a flight: Through IRCTC own website o Book a meal: Through IRCTC own website o Book a bed-roll: existing IRCTC service o Book a porter: existing IRCTC service o Ecommerce: Through the e-Commerce partner porter from Opportunity

Bed-Roll and Porter does not have much of the Revenue scope. These products are already tried on the website in the name of e-bedroll and concierge services. Book-e-Meal service is also being provided through e-catering model. E-Commerce model has the prospects of integrating with e-Commerce players. IRCTC is in the process of the process of integrating Cab Services Solution to its users.

Revenue Projection:

Year 2018 2019 2020 2021 Remarks Revenue(in cr) 2 10 15 20 Revenue for Cab & e-Commerce

Market Place. Book-a-meal not taken into consideration

4.1.3 Lead Generation Scheme

Lead generation is a way of attracting and converting strangers and prospects into someone who has indicated interest is product or service of your company or associated merchant.

Lead generation is the method of getting inquiries from potential customers for the purpose of expanding the scope of a business, increasing sales revenues. In the old pre-Internet days of sales, lead generation occurred at places like trade shows – visitors to a company's booth would fill out a card with their contact information and turn it in to receive a call back from that company's sales team

IRCTC hosts 6 lakh+ visits on its booking confirmation page per day and more than 40 lakh users are login to IRCTC website. There is a tremendous volume and opportunity to create leads for online businesses and generate revenues by providing those leads (inquires) products/services of other merchants.

Revenue Projection: Year 2018 2019 2020 2021 Revenue(in cr) 1 2 4 6

4.1.4 Digital Advertisement

We have put in place a model where Google’s free Double Click for Publisher (DFP) tool into IRCTC website and Mobile app will be used. This DFP tool is having the capability to attach different advertisers, whosoever is giving the maximum e CPM in the real time bidding can give the right for doing the advertisement for that particular impression on IRCTC

45




website/mobile app. In this case, we can also show the advertisement on IRCTC website and Mobile, if someone approach IRCTC, In case no advertisers are found then advertisement will be displayed through Google Ad sense. Other new channel of marketing like captcha advertisement is also being tried.

Revenue Projection:

4.2 Tourism

4.2.1 Customer engagement through various marketing channels

Nearly 95% of travelers research online before making a purchase. The consumer engages with several brands through various touch points in online as well as offline modes before making a purchase. Brand Equity & service visibility for tourism products requires high brand recall in the minds of the consumers which can be achieved through a combination of offline & online marketing and promotion activities. IRCTC can build upon its customer base & brand association further by rebranding itself as a travel & tourism service provider.

IRCTC is already executing some of the measures for marketing and promotion of tourism products across consumers, such as paid advertisement, user friendly websites, app, social media (on facebook) and reviews for air ticketing products, email marketing to our database clients, SMS, post purchase messages, promotions, loyalty programs, feedback surveys and analysis as per the allocated marketing budget for Tourism

Figure 27: Proposed Marketing & Promotion channels across consumer lifecycle

Year 2018 2019 2020 2021 Revenue(in cr) 25 40 50 60

BRANDING

PRODUCT

CUSTOMER

CUSTOMER

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Branding

Branding is an important part in ensuring right visibility and image creation in front of the consumers. Brand becomes visible by being shared, read and seen on social media, as well as on traditional media. From logos to slogans to photos to tweets, posts and advertising, the message must be consistent. Consistency in logo, tagline, color, persona, theme & message is essential.

The IRCTC brand is highly visible due to significant railway ticketing customer base. Despite expansion of tourism offerings in both railway & non railway products, the brand perception has not evolved from the traditional image of railway ticketing & catering service provider. The company's rapid expansion makes it imperative to redefine its brand image.

IRCTC’s 18 years of existence has brought about a revolutionary change in the railway ticketing ecosystem. The legacy of positive user experience and customer trust has to be maintained in coherence with envisioned business expansion. A cumbersome user interface and lack of social media presence hinders customer engagement with the brand. Establishing continuous relationships through innovative and interesting content with the current/potential user base ensures customer engagement with the brand before and after a typical transaction. A continuous feedback mechanism through social media channels enables customer engagement as well as evaluation of branding initiatives which in turn enhances customer trust in the brand.

Search Engine Marketing (SEM)

Search Engine Optimization (SEO) assists our product, service & website for a particular search term to move up the search engine rankings. Online marketing plays a major role in the marketing initiatives of major OTAs, where SEO is being increasingly focused upon to attract customers during the product search phase.

Based on a sample search carried out for holiday packages/air tickets for particular routes, it is observed that IRCTC does not feature prominently in Google search. Prominence of IRCTC products/services in such typical searches would result in significant enhancement of the overall customer acquisition rate. Despite cost competitive pricing, lack of brand visibility during online search makes it difficult to drive sales traffic for IRCTC.

Figure 28: Search Engine Optimization

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Website Design

The website acts as the primary influencer for brand image on the minds of customers, making it imperative to have a user friendly and seamless layout for the users. A like-to-like comparison with the Makemytrip interface and management discussions, highlight similar features namely utilizing more than 70% of the landing page of tourism website for its offerings as in the case of Makemytrip products/service offerings which are prominently displayed along with clear demarcation between various categories.

Figure 29: IRCTC Tourism Website

IRCTC Air ticketing Website

Critical success factors for an efficient website design include:-

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• User-centricity • Website SEO • Level of integration with various sales channels • Continuous improvement based on performance across pre-defined parameters and

regular customer feedback.

Figure 30: Makemytrip Website

Mobile Marketing

With over 372 million mobile internet users & and approximately 60% of ecommerce transactions happening via mobile i.e. ~240 million mobile transactions happening daily which makes mobile apps a critical sales channel for online travel & tourism industry.

Figure 31: Mobile marketing penetration

Major e - Tailing companies in India are promoting mobile app-based transactions by offering special discounts on purchases made from their apps. Majority of the e - Tailers have reported

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more than 50 per cent of their orders coming from mobile. Categories like ticketing, utility payments, recharge and travel are well-suited for mobile transactions. In a country like India, where mobile penetration exceeds internet penetration, m - Commerce is expected to display exponential growth. At the same time, regulators such as RBI (Reserve Bank of India) and TRAI (Telecom Regulatory Authority of India), banks, mobile service providers and handset manufacturers are working towards driving mobile commerce penetration within the “unbanked” population.

Mobile ticketing, specifically travel ticketing is a major driver for m - Commerce amongst customers through enablement of on-the-go train/air/bus schedule mapping, ticketing, etc. Majority of airlines, road transportation service providers have enhanced their presence on mobile platforms through interactive apps.

The IRCTC Air Ticketing mobile app was launched in July 2016 and in just one year the total sales through mobile app is 22% of the total sale of Air Ticketing with limited marketing budget, compared to 30% in makemytrip and Cleartrip and 25% in yatra.com. Revamping of the integrated mobile app on a private cloud is in process through M/s Railtel.

Various attributes of this channel are as under.

• High consumer loyalty: App loyalty is high amongst mobile customers with most customers installing limited number of apps per end use.

• High mortality rate of apps: Majority of the mobile customers tend to delete unused apps within days of installation, thereby making longevity a critical parameter to gauge app performance

• Requirement of highly user friendly interface: A user-friendly interface is critical to ensure maximum customer engagement with the app, which is a major area of focus for major OTA (Online Travel Agents) players.

Share of operating system on mobile platform is dominated by Android at 85%33 followed by iOS at 12%52.

India is a mobile friendly country with 87% people being online through mobile devices; Mobile Apps have become a core part of every business. As latest as September 2014, here are a few numbers of

Mobile App download of various travel portals:

IRCTC on Android – 2.5 million | Ixigo – 1.1 million | Cleartrip – 2.2 million

Adding on to mobile as the present and future for online Travel and Tourism Industry in India, here are a few conversion/booking rates from industry leaders:

372 Million

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Expedia India – 40% bookings from Mobile | Cleartrip – 30% | Yatra.com – 25% | Make My Trip – 30%

IRCTC – 22% for air ticketing

Currently IRCTC uses three apps for various services creating inconvenience for consumers to switch for different offerings. Multiple apps limits the traction of pure play internet ticketing users towards other IRCTC offerings as different offerings require download of different apps. Consumers typically prefer one single app for all service offerings under the brand.

Figure 32: IRCTC's various apps

Comparison of app interfaces of direct competitors highlighted the following observations:-

• Entire spectrum of services offered are efficiently displayed on a single page.

• Competitors are providing railway tickets to attract traffic on their website.

• Highly user friendly apps compared to IRCTC.

Figure 33: Mobile apps of makemytrip and goibibo

Single mobile app is recommended for catering to IRCTC Travel & Tourism segment sales on mobile platform.

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E Mail Marketing

Email marketing is an efficient tool to reach the target consumer directly with personalized and relevant communication. This direct channel of communication is used to welcome new users, build customer relationships, convert prospects to buyers and engage with the right audience through pre-purchase and post-purchase mailers.

Email marketing campaigns typically deliver value from Day 1. ROI can be measured in terms of Email open rates and Click through rates. For marketing products, mid-week is the best time to send promotional emails due to high click through rates at the time. Traffic drops through the weekend & gains momentum over the week.

Email marketing is being done to the targeted customer by IRCTC through the e-ticketing and tourism customer data base directly with promotional offers of all our existing tourism products.

Marketing Budget

Based on industry benchmarking of marketing initiatives by select competitors, the optimal marketing expense was benchmarked against key market players:

Table 8: Marketing Expense of various companies

Competitors Marketing Expense in FY 16

63 INR Cr.

730 INR Cr.

130 INR Cr.

36 INR Cr.

IRCTC 5.12 INR Cr. (FY 17)

Most of the OTAs have high marketing cost incurred to gain market share. IRCTC has the lowest marketing expenses ratio in the industry amongst key players, accounting for less than 2% of the total revenue. However to capture higher market share, marketing shall play an important role to enhance visibility of IRCTC tourism offerings. Marketing strategy needs to be

Figure 34: Email marketing value chain

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implemented & optimized on a continuous basis with higher focus on online marketing and periodic KPI (Key Performance Indicators) analysis for various marketing channels to increase output.

The marketing expenses in online channels can be recalibrated periodically basis real-time performance tracking tools thereby enhancing RoI (Return on Investment). Key aspects that need to be addressed during implementation of marketing and customer acquisition initiatives involve:-

• Continuous monitoring and improvement of various marketing initiatives and channels • Reduction in SEM (Search Engine Marketing) costs with improved SEO • Channel-wise prioritization basis conversion ratio for each • Enhanced customer engagement basis social media presence on platforms such as

Facebook and Twitter • Increase customer retention through customer loyalty programs, rewards, etc. • Retain offline channels in markets with lower online penetration in order to target new

consumers

Based on industry benchmarks, an optimal marketing budget of approximately 8%39 of the total revenue is considered appropriate to revive the growth rate and gain market share in air ticketing & tourism packages segment.

The increase in marketing budget shall have direct impact on the segment’s bottom line but shall aid in growing revenue numbers though increased market share in respective sub segments. The Marketing Budget for Tourism is Rs. 5.12 crore i.e. only 1% of the total turnover, as against Rs. 730 crore for makemytrip and Rs. 130 crore for yatra.com. It is planned to increase the marketing Budget to atleast 3% of the turnover to provide better marketing and visibility to IRCTC's tourism products.

Mapping marketing channel requirements

Products

TV A

dds

Radi

o

New

spap

er

Airli

ne

Mag

azin

es

Cata

logu

e

Broc

hure

Hoar

ding

s

Trai

n/Bu

s/

Met

ro

E M

ail

SMS

Rem

arke

ting

SEO

Paid

Add

Soci

al M

edia

Tourism - Branding

Airline Ticketing

Tours & Packages

Hotel Booking

Railway Tourism

Seasonal / Festival Marketing

IRCTC will be catering to different types of customers (i.e. Urban, Rural and intermediate (i.e. Semi urban /semi - rural) therefore IRCTC will have to use different types of channels for targeting different types of customers.

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Urban and semi – urban customers connect through a wide variety of channels therefore all the conventional (TV ads, Radio, Newspapers etc.) and non – conventional (online, phone based) channels will be applicable for customers from urban areas. But for rural areas where the penetration of non – conventional (online and phone) channels is limited, IRCTC will have to rely on the traditional / conventional channels such as radio, TV ads, newspapers and hoardings etc. for targeting rural customers.

Projected revenue growth in Online Air Ticketing Segment

The entry of low cost carriers (LCCs) in the Indian aviation sector in 2005 marked the beginning of the second wave of e-commerce in India. Their decision to sell tickets online and through third parties enabled the development of online travel agents (OTAs). They developed their own websites and partnered with OTAs to distribute their tickets online.

Currently, of the total online travel market, domestic air tickets contributes 50% (INR 173 billion) of the overall revenues. Others such as international air travel (INR 19.26 billion), hotel bookings (INR 7 billion), bus tickets (INR 6.41 billion), tour packages & travel insurance (INR 3.03 billion) contribute the balance 50%.41 Domestic online air ticketing is about INR 22000 Cr. market annually with 1.25 Lakhs tickets booked daily.

Figure 35: Key sales channels for air tickets

IRCTC currently has less than 2.5 % market share of total domestic online air ticket booking market. IRCTC could leverage internal capabilities and data backed intelligence to enhance market share through targeted marketing of customers. Improvised marketing techniques and optimized search results shall aid in acquiring new customers apart from cross-sales achieved through regular railway customer base.

Figure 36: Revenue Passenger Kilometers (RPK) annual growth in domestic airline market (2016-17)

US China Russia India Brazil Australia

The online air-ticketing market has displayed a sharp growth of 28.1% this year. Plane manufacturers are also upbeat about the market prospects in India. Boeing expects a demand of 1,740 planes in India over the next 20 years, anticipating that more people will travel by air over time. As per the National Civil Aviation Policy, Indian Domestic market is envisioned to touch 30

28.1%

10.9% 5.9% 8.8% 6.6%

2.8%

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Cr. domestic tickets by 2022 and 50 Cr. by 2027.

Over the next five years, IRCTC through dedicated marketing can target a market share of 5%. This opportunity may deliver incremental profit of INR 35.0 Cr. by 2021.

Figure 37: Projected Revenue for Airline Ticketing booking segment (INR Cr.)

2017 E 2018 E 2019 E 2020 E 2021 E

4.2.2 Focus on Outbound and Inbound Tourism

International (Outbound) Tourism is one of the fastest growing segments in travel and tourism market in India today. The annual growth rate is 7%.

A confluence of the age-old idea of leisure tourism f ocusing on sight seeing and travel, has given rise to outbound tourism which acts as a new segment. The rise of this segment is further highlighted by the sharp increase in number of luxury hotels and resorts at major tourist locations. Also inbound foreign tourist to India are going at over 10% per year

Considering this globally emerging opportunity, the Indian outbound and inbound market was mapped to study the business opportunity for international tourism packages.

Estimating Market Size

Approx 21.8 million Indians travelled abroad in 2015-16 of which approx 2.1 million (10 % of total passengers) travelled for leisure tourism purpose. The market Size is approx INR 1050 Cr. which is increasing @ 7% p.a.

The market share of IRCTC is presently 1.8 % annually and turnover was Rs 18 crore in FY 17. With increased marketing and publicity it is planned to increase market share to 7% by 2021.

35 28

16 22 13

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Mah

ayan

a

Ther

avad

a

IRCTC currently offers a Buddhist tourist train package (“Buddhist Circuit Train”) that includes running a semi luxury Buddhist circuit train to all the prominent Buddhist destinations in India and caters to both national and international Buddhist tourists.

However, this train has not received much traction as anticipated and hence the utilization levels of the Buddhist Circuit have remained quite low in the past. One of the reasons for the low occupancy of the train is also limited marketing of the services nationally and internationally. Initially, the Buddhist train had started with 11 trips per year, however due to lack of passengers the number of trips have been reduced by more than half. Even with a lower number of tips, the utilization has failed to grow as can be seen in the graph below

Figure 38: Performance of the Buddhist Circuit Train in last 5 years

*Occupancy is indicated in percentage. The capacity per trip was 258 pax upto FY 15 and 164 pax from FY16

Major Buddhist destinations in India and market for Buddhist tourism

There are around 450-500 million practicing Buddhists across the world. Buddhism has three main sects namely Mahayana, Theravada & Vajrayana. Mahayana is the most practiced sects amongst Buddhism. The following figure shows the key countries in which Buddhism religion is majorly practiced (distributed by key sects of the religion):

Figure 39: Key countries in which Buddhism is practiced

0

200

400

600

800

1000

2013 2014 2015 2016 2017

904(39%)

396(19%)

592(25%)

291(36%)377(46%)

No. Of passengers

China Tibet Mongolia

Sri Lanka Thailand Cambodia Myanmar Laos

Japan Republic of Korea Taiwan Singapore China Vietnam Indonesia Malaysia USA

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India attracts many Buddhist tourists (of all the sects) from across the world every year for pilgrimage, educational and leisure purposes. In 2012, around 3.5 lakh foreign tourists visited various Buddhist pilgrimage sites in India especially Bodh Gaya.

The figure below shows the key Buddhist pilgrimage sites in India.

Figure 40: Major Buddhist tourist destination in India

Classification of Buddhist tourists visiting India

Buddhist tourist can be classified in the following two categories based on the travel expenditure and travel preferences:

Comfort traveler: A tourist in this segment requires travel comfort with limited & tightly packed travel time frames. They travel in both large and smaller groups.

These type of travelers are majorly from Japan, Korea, Taiwan, Singapore, China, Australia, Thailand, Malaysia & Indonesia. Majority of the travelers from this segment follow Mahayana sect of Buddhism.

Budget Traveler: A tourist in this segment is characterized by tight budgets, preference to basic, simple facilities and services. They travel in large groups majorly by road and sometimes by train. They prefer visiting all Buddhist pilgrimage sites linked to places where the Buddha was born, became enlightened, taught, and died.

These type of travelers are majorly from Sri Lanka, Thailand, Cambodia, Himalayan Buddhists, Myanmar, Laos, Vietnam and Bhutan. These travelers are majorly from the Theravada sect of Buddhism.

Target Segment for IRCTC’s Buddhist Circuit train package

Buddhist circuit train package is a semi luxury train package that covers all the important Buddhist sites in India. As IRCTC provides high class services with a well - defined tour itinerary therefore, the target segment for this train package is the “Comfort Traveler” segment.

A large number of inbound tourists for this segment are from Japan and the Republic of Korea. These two countries alone had contributed nearly 84,311 tourists of the total tourists for the key Buddhist pilgrimage sites in India.

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Table 9: Buddhist population distribution in Japan and Republic of Korea

Countries Buddhist population in the country

% of country population

Japan 45,820,000 36.2%

Rep of Korea 11,050,000 22.9%

Table 10: Number of Buddhist tourists from Japan and Korea with their average spend

Countries Number of Tourists Average Package Cost (INR Lakhs)

Japan 42,355 1.79

Republic of Korea 41,956 1.90

The current market size of the inbound Buddhist tourism from these countries is ~1500 INR Cr.

With focused marketing initiatives for promoting the Buddhist Circuit Train packages in these countries and attractive package design, IRCTC could improve the utilization levels of the Buddhist Circuit Train and earn a revenue of ~INR 10 Cr. by 2021 from this product.

The graph below shows the trend of the revenue projections for the next 5 years.

Figure 41: Projected Revenue from Inbound Buddhist Tourism (INR Cr.)

2017 P 2018 P 2019 P 2020 P 2021 P

Once the operating model and the processes for targeting inbound Buddhist tourists has been established IRCTC could start focusing on promoting the Buddhist tourism (Buddhist Circuit Train and other facilities) in other countries where Buddhism is a prominent religion such as Singapore, South east Asia, China and Taiwan.

Proposed sales & marketing strategy

• International tourists, plan and book their trip well in advance due to long distance travel in a foreign country. Booking the trip through internet/ travel agents/ tour operators is the most preferred approach. Therefore, it is recommended that IRCTC must tie up with travel agents in the target countries to drive sales.

• Provide an all-inclusive product including air travel, visa, travel insurance, boarding, lodging & circuit train.

• Promote the package through publicity, advertisements, exhibitions, partnerships with the travel trade and religious bodies and online marketing (Google Ads etc.).

• Participate in events, festivals and road shows in the Buddhist source market countries for promoting the product.

• Market Buddhist package online with a seasonal focus.

10

8

6

4 3

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• Design a customized multi-lingual guided tour and visitor interaction as per tourist profile.

• Seek regular customer feedback (during, after and on public domains) and improve the quality of services regularly.

Budget Travelers

Apart from the Comfort Travelers, the Budget Traveler category is also a sizable number. Most of these travelers are from countries such as Sri Lanka, Thailand, Cambodia, Myanmar, Laos, Vietnam and Bhutan.

Although these travelers have different travel preferences from the Comfort Travelers i.e. they don’t opt for customized tour packages but prefer budget travelling options. Therefore, IRCTC is planning to provide a Buddhist Tour option in budget category that is focused at targeting the Budget Traveler segment. This would essentially involve providing an affordable travel and lodging options to the travelers in this category with options for long duration stays.

4.3 Catering

The objective of these recommendations is to ensure that the customer i.e. the passengers remains the focus of the catering services. It aims to simplify the whole business of catering by offering passengers good hygienic food with a wide range of options at reasonable price.

The focus areas are:

• Policy consistency in ensuring that catering service is controlled by IRCTC for the entire train network for a reasonably long duration for sustainable business development

• Food menu prices are to be indexed to WPI index • Improving base kitchens infrastructure and network

• Menu enhancement by including Quick Service Restaurants (QSR) products in IRCTC menu.

• Initiatives to improve hygiene and quality of the food served

• Un-bundling of catering services by demarcating food production at base kitchens from food service on trains

• Improving tracking and monitoring of the stock flows through use of IT tools for better quality control and financial reporting

• Innovative marketing campaigns for E-catering services.

4.3.1 Handing over of catering services to IRCTC

• Due to frequent policies changes in the past, IRCTC had not been able to develop sustainable growth strategy. There had been large investments made in the past when all catering services were under IRCTC. These investments suddenly became under- utilized due to a change in policy in 2010 resulting in sustained losses. Since Feb 2017,catering services have been transferred to IRCTC as per New Catering Policy 2017.

• However, irreversibility in the policy in future is required to build long term sustainable model for catering that will include modernization of the systems and processes. It will also help to attract reputed domestic and foreign players either through Joint ventures or PPP to invest in catering services to bring latest systems and processes.

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Robust feedback mechanism

Robust feedback mechanism must be developed to measure various quality parameters experienced by passengers. The present feedback system does not provide adequate information to the authorities about the real perception or issues of the passengers. In order to formalise quality as a regulatory and operational variable across the food preparation and distribution cycle a comprehensive quality assurance programme (CQAP) has been envisaged. The twin components comprising CQAP will involve quality and IT processes ranging across the Base Kitchens pertaining to testing frame works from raw material to finished products, hygiene and supply chain audits, best practices, training for serving staff, inspections and the like. A supplementary but nevertheless crucial regulatory oversight process namely, direct supervision of services by IRCTC as mandated in Catering Policy-2017 is required on site at base kitchens and on trains to ensure successful delivery of catering services.

4.3.2 Improving base kitchen infrastructure and network and using it as an aggregator

Infrastructure of base kitchens should be designed to create modern and mechanized kitchens with the latest technology. There is a need for developing these kitchens according to modern standards – ISO 22000. Techniques to prevent pests have to be implemented uniformly across all the base kitchens, pantry cars and other vending stalls.

IRCTC is setting up a grid of modern mega, medium and small base kitchens to ensure that mobile catering are serviced through these base kitchens to improve quality, hygiene, cleanliness and use of standard ingredients for food served on trains. The base kitchens would be set up on railway premises for shall be developed either by IRCTC or through Public Private Partnership (PPP). Hence, legacy prior period train based contracts have to be compulsorily subsumed into the unbundling schema by revisiting the policy in order to ensure quality oriented catering deliverables. Further, upgradation of onboard infrastructure by IR has to be a natural concomitant of the catering upgradation process.

These base kitchens must act as an aggregator where the meals and Rail Neer (Packaged Drinking Water) are aggregated and are transported to the stations and trains. This bundling of meals with water will reduce the overall logistics cost and will help Rail Neer increase market penetration.

Change in Selection Mechanism of catering contractors

IRCTC has taken steps for construction of the base kitchens as required. As the current method of awarding contracts gives emphasis on the financial bid only the quality aspect gets less importance. As food quality and hygiene are highly important, future tenders are focusing more on quality aspects of food production at base kitchens and service deliver on trains. A suitable tendering model is on focus to handle the unbundling schema of catering operations.

The following options in addition are also under consideration such as :

• Menu and Manpower • Personal Hygiene • Quality Maintenance • Onsite Inspection • Base Kitchen Maintenance • Food related regulatory issues

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4.3.3 Improving Food, Quality and Hygiene

Since 50% of customer complaints are related to quality and hygiene of the food served. IRCTC must take immediate steps to rectify these issues. This will also help in enhancing the image of overall catering services.

Best practices will be worth an examination in catering services of the different railways systems across the world and try to implement the same. Some of the practices that are widely followed globally by different railways networks are mentioned below:

• Insulated meal boxes: Food items are currently delivered from base kitchens to platforms either in carton boxes or through open trays where food items are kept in aluminum foils. Although high quality standards are maintained, there are still chances of the food getting contaminated during sudden rains or attack by stray animals on the platforms. It is also prone to pest attacks during the transit.

Figure 42: Food items in aluminum foils are being loaded in trains

Figure 43: Food Items are being transferred in open tray

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Figure 44: Food Items are being transferred in open trays in Aluminum foils

To resolve this issue, insulated seal boxes will transfer food from base kitchens to the trains. As the boxes are sealed, the food inside will remain protected from the elements of nature. This will also prevent food contamination from pest and stray animals during the transit. This practice is widely followed in European and Chinese railways systems.

Figure 45: Packed food packed being transferred in insulated meals boxes in Chinese Railways

• Use of Food Trolleys for Serving Food: Once the food is loaded onto the pantry cars, the meals are generally distributed to passengers on trays. The coach staff picks the trays from the pantry cars and stack them near the washbasin area. Then the trays are picked and delivered to the passengers. Placing trays in the open area near the washbasin or toilet area gives a very bad perception to the customers about the hygiene of the food served in the railways.

• It is proposed to use food trolleys in a similar manner as what is being used to serve food on flights. It is recommended that IRCTC can use customized trolleys that can be fitted in coaches easily. Food items from pantry cars can be delivered to respective coaches via insulated boxes and then they can be kept on the trays which are placed inside these trolleys. The average trolleys size 0.3 m wide, 1 m tall and 0.75 m long and weigh about 25 kilogram.

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Figure 46: On train food trolleys for serving food

Currently the used trays with leftover food are kept under the berth. In the new system the used trays can be collected and kept in the same trolleys. This would help in keeping the train coach clean and pest free

• Catering Waste Management System: Catering waste management is an area that needs urgent attention as Indian Railways suffers due to corrosion of tracks from dumped waste. There should be specific guidelines laid out for waste management in base kitchens as well as pantry cars. IRCTC should tie up with recycling waste management companies for waste disposal.

4.3.4 Un-bundling of catering services

To ensure high quality and accountability standards, it is recommended that catering services be unbundled at different levels. This will ensure healthy competition and increase efficiency as contractors will be able to focus on their core competency. It will also enhance accountability of the contactors.

Figure 47: Categorization of services to be unbundled

•Construction and set up base kitchens through JV / PPP model •Food production and Inventory management •Food delivery to stations from base kitchens •Cleaning and maintenance of base kitchens

•Food distribution from pantry cars to the passengers on trains •Cleaning and maintenance of pantry cars • Waste segregation

•Catering waste management and recycling

Base Kitchen set up,

maintenance and logistics

Mobile unit operations

Waste Management

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Service Contract Type Revenue stream for IRCTC

Base kitchen set up, maintenance and logistics

IRCTC can use PPP model for construction of base kitchens with modern facilities. The PPP partner will be responsible for producing food and for managing inventory as per IRCTC defined standards. Partner will also be responsible for delivering food to pantry cars from their respective base kitchen

Mobile unit operations Partners in this alliance will be responsible for managing end to end catering services in mobile units such as distributing food to the passengers, regular maintenance of the pantry cars and effectively segregating waste as per their type.

Recycling and Waste management

Segregated catering waste can be sold to recycle companies in order to dispose the waste generated effectively.

4.3.5 Improving operational effectiveness through digitization

One of the key issues being faced by railway catering is poor quality of food being served. To solve this problem it is recommended that IRCTC must leverage on new technologies and quality processes across the product, logistics and distribution cycle within the overall CQAP framework duly enabled through variety of IT and quality tools. Therefore, the building blocks for the mobile business of IR provides for clearly defining quality and IT processes across such building blocks as brought out in schematic diagram below: - PRODUCTION LOGISTICS DISTRIBUTION

The quantitative regulatory range will involve quality, IT and supervision processes to oversee approx. 200 BKs/RRs/CKs and 350 pantry car trains and 800 TSV trains, 10 lakh meals/day approx. across 3 tier production-logistic-distribution cycle. Technology processes may start incorporating RFIDs to track the complete food distribution cycle.

• Use of RFID (s): IRCTC should focus on expanding its base kitchens to ensure high quality standards. Every base kitchen may be equipped with RFID scanners and systems to capture correct data. Using RFID scanners for end to end tracking, IRCTC can monitor the stock of raw materials and finished inventory on real time basis.

Raw materials coming into the base kitchens may be tracked digitally. Once the food is cooked, every meal box must have unique RFID number so that it can be tracked till it is consumed by the passengers. Using RFIDs, this will ensure that correct meal boxes are

CQAP

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being loaded on to the correct train. It will help in determining that the same quantity of the meal boxes which are being sent from base kitchens are being loaded. It will also help in determining the numbers of meal boxes left on board.

• Use of Rail POS: Rail POS is currently in use by a number of rail operators globally. Handheld terminals and built in software have the dual capability of handling product sale as well as payment through the same unit. The system is used throughout the mobile units and are linked to the outside world via on board Wi-Fi or GPRS (General Packet Radio Service).

The terminals have an integrated silent thermal printers to provide receipts. Their bar code scanners ensure fast and accurate product entry. Each train is stocked and its manifest loaded via a touch screen. Retail transactions are logged on the system and all sales, stock, tender and operator information can be sent back to IRCTC office for real time monitoring and tracking.

The benefits of the system include:

• Monitoring on-board catering performance can help customize products

• Helps in improving planning and monitoring of menus and product mix

• Cost reduction through management of stock flows

• IRCTC catering analysts can analyze trends using the reporting tool

• Real-time replenishment prompts, reduce the need for manual completion of paper work

• Enhances customer service and presents a professional image.

4.3.6 Innovative marketing strategies for E – Catering

E-Catering services have commenced in September 2014 which now covers around 300 stations with participation by major industry players such as Dominos, KFC, McDonald's etc serving 7000 meals per day on the IR network. Although IRCTC has seen a sharp growth in the average number of meals ordered per day through e-catering it still hasn’t reached its full potential. To increase the penetration of e-catering and to enhance customer awareness, there is a need for innovative marketing campaigns targeted towards specific customer segments.

With the increase in internet users in India, e-catering looks a promising opportunity for IRCTC that can help them to offer a wide variety of food options to passengers.

Orders for e-catering meals are placed via smart phones, websites or by calling at the customer care centers. Therefore, it is more appropriate to target customers who are frequent users of smart phones and laptops and are willing to avail e-catering services.

Students and bachelors who are staying away from their hometowns are ideal customers for e- catering services.

Some of the marketing and backend driven system approaches envisaged are :

• Mention of e-catering services in booking confirmation SMS message when the booking is done

• Search Engine Marketing (SEM)

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• Leveraging social media for creating awareness and engaging customers • Introducing of delivery aggregator. • Aggressive nationwide marketing plan involving all possible media • Simplifying the vendor registration process and ensuring digital driven periodic settlements • Pantry car service providers on trains should necessarily be made vendors of E-catering for

those specific trains. • Attaining cent percent digitalization for all transactions between all stakeholders. • User friendly software platform with multiple customer touch points through preordering, order

and post order cycles • More than 02 Lakh SMS per day to Passengers travelling next day

• A link on the IRCTC official websites

• Emails sent to E-Ticket passengers

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• A link on the confirmation page of E-Ticket booking

Mention of e-catering services in ticket booking confirmation SMS message

To make customers aware of e-catering services, IRCTC should mention about it or include the link of the e-catering app in the SMS a customer’s receives as soon as he/she books the ticket.

Currently more than 5 lakhs tickets are booked every day through IRCTC website. By mentioning e-catering services in the ticket booking confirmation message, there is a high probability that passengers will become more aware about this new service. As IRCTC already has systems in place for sending the booking confirmation SMS, additional information about e-catering services won’t require any additional cost.

Search Engine Marketing (SEM)

Google is a very commonly used tool for searching food options. Currently, there is no mention of e-catering services of IRCTC on Google search for ‘Food on Trains’ or ‘Meal on trains’. SEM specialist partners are being co-opted to develop models of passenger engagement by applying customer psychographics to enhance the engagement experience in the site.

Leveraging social media for creating awareness and engaging customers

As more and more internet users are using social media such as Facebook, You tube, IRCTC can develop social media campaigns to increase the awareness of IRCTC e-catering services and engage customers.

Food aggregators and food delivery players such as Food Panda, Zomato and Travel Khana are actively leveraging social media for engaging customers and creating awareness.

Target Segment

The youth segment (aged between 18 and 35) is on focus as they regularly use internet through smartphones and laptops. This segment of population is highly tech savvy and spends lot of time on social media.

4.4 Rail Neer

Based on the need - gap analysis and analysis of different operating models for manufacturing Rail Neer, the following are the recommended strategic options for future growth:

4.4.1 Need – Gap analysis for Rail Neer business segment

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Figure 48: Need Gap analysis for Rail Neer business segment

IRCTC needs to devise a strategy for Rail Neer which caters to the varied needs of key customer segments (B2C and B2B) as well as IRCTC itself, while focusing on the incumbent issues and looming threats on the Rail Neer business segment. Therefore the future strategic options must focus at:

Therefore the future strategic options must focus at:

• Faster capacity expansion:

• Rapidly expand the existing capacity of Rail Neer plants in order to cater to the unmet demand at all the railway stations and in trains across India. Currently this unmet demand is being catered to by the other brands and unorganized players in the market and IRCTC is losing ~ INR 1 Cr revenues per day due to capacity shortfall.

• The existing methods of plant construction (plants completely owned by IRCTC and plants built on PPP model) have underlying issues related to the availability of land and water etc. that lead to delays in capacity expansion. The future expansion mechanism must ensure greater flexibility in terms of choosing appropriate location for the plant and start of operations thereby ensuring a robust control mechanism to ensure high quality and timely delivery.

• Required land at potential locations is being purchased from State Governments. Central PSUs such as NTPC, NFL etc. are also tied up for providing land and other infrastructure required to set up the plant

• Cost Efficiencies:

• The future model must also ensure cost efficiencies for IRCTC so that Rail Neer becomes cost competitive compared to the other brands in the market (especially the unorganized brands of bottled water)

• Cost efficiencies will also enable IRCTC in providing higher margins to the retailers.

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4.4.2 Operating models for Rail Neer plants

The following is the comparison of the possible operating models for setting up Rail Neer plant in India. These models are:

• Plants completely owned by IRCTC

• Public Private Partnerships - Build Own Transfer (BOT)

• PPP with capital support by IRCTC with ownership resting with IRCTC

IRCTC Owned

• The investment required for setting – up the plant (land, construction, plant and machinery) are completely borne by IRCTC. Therefore, IRCTC enjoys complete control over the assets and operations of the plant.

• IRCTC is responsible for seeking all the statutory clearances. This usually takes a lot of time and hence delays the construction of the plant. Further, acquisition of land sometimes takes a lot of time and increases gestation period of the plant.

• IRCTC is also responsible for the day to day operations and maintenance of the plant. On one hand, this provides greater control but increases the cost of operations on the other. Moreover, the human resource cost of IRCTC will also be high due to large number of in-house employees for managing the plant.

Public Private Partnership (PPP) – Build Own Transfer (BOT)

• In this model, IRCTC is only responsible for providing land for construction of the plant, whereas the private player is responsible for the construction, operation and maintenance of the plant and distribution of Rail Neer during the concession period (generally 15 years), as per the terms and conditions of the concession agreement. The plant is transferred to IRCTC after the expiry of the concession period.

• IRCTC has to spend small amount of money in conducting studies for assuring the site feasibility (through technical feasibility study and water availability study).

• IRCTC has to provide a detailed quality manual for quality control and IRCTC will also deploy quality control personnel for periodic checks and functioning of the labs

• IRCTC is be responsible for managing the distribution of the product to the retailers at the railway stations and in the trains.

• Although the operations of the plant depends upon the terms and conditions specified in the concession agreement, yet IRCTC has to commit to a certain quantity of water to be picked daily from the plant.

• As daily operations and maintenance are outsourced to the private player therefore IRCTC saves on the operating expenses and human resource costs compared to a fully owned plant.

PPP with capital support - Ownership resting with IRCTC

• In this model, IRCTC is responsible for providing land and capital for construction of the plant, whereas the private player is responsible for the construction, operation and maintenance of the plant & distribution of Rail Neer during the concession period (generally

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10 years), as per the terms and conditions of the concession agreement. The agency will exit the plant after the expiry of the concession period.

• IRCTC has to spend entire amount of money for setting up plant including in conducting studies for assuring the site feasibility (through technical feasibility study and water availability study).

• IRCTC has to provide a detailed quality manual for quality control and setting of standards in plant operation, maintenance and allied aspects.IRCTC will also deploy quality control personnel for periodic checks and functioning of the labs

• IRCTC is be responsible for managing the distribution of the product to the retailers at the railway stations and in the trains.

• Although the operations of the plant depends upon the terms and conditions specified in the concession agreement, yet IRCTC has to assure committed of take of the final product on a daily basis from the plant.

• As daily operations and maintenance are outsourced to the private player, IRCTC saves on the operating expenses and human resource costs compared to a fully owned plant

• The transportation and distribution of the bottles will also be taken care by the private player.

Table 11: Summary of different models for manufacturing Rail Neer

Parameter IRCTC Owned PPP – BOT PPP With Capital Support BY IRCTC

Investment in building, plant and machinery

IRCTC Private Player IRCTC

Land IRCTC IRCTC IRCTC

Gestation period 24 – 36 months 12-18 months 8-12 months

Responsibility of getting clearances

IRCTC Private Player IRCTC/Private Player

Control over operations

Full Not full but substantial

Not full but substantial

Responsibility of quality control

IRCTC Private Player and IRCTC

Private Player and IRCTC

Sales and distribution

IRCTC through Carrying & Forwarding

Agents

Private Player Private Player

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Table 12: Comparison of various operating models for manufacturing of Rail Neer

Operating Model

Control Risk

Investment requirement

Construction delays

Delays due to statutory clearances

Operating cost

(including Human

Resource Cost)

Market risk

IRCTC

Owned

Low High High High High Medium

PPP - BOT Medium Medium Medium Medium Medium High

PPP with capital support by IRCTC

Medium High Medium Medium Medium High

For achieving cost efficiencies, faster ramp – up of the production and increasing customer reach, PPP with capital support by IRCTC could be a good strategic option for IRCTC.

For this analysis we have considered the plant capacity to be 72,000 liter bottles/ day.

Table 13: Analysis of various models for Rail Neer

Investment and Expenditure profiles

IRCTC Owned PPP – BOT PPP with capital support by IRCTC

IRCTC PP IRCTC PP IRCTC PP Investment (INR Cr.)

Land Cost 0.50 0.50 0.50 Civil works, electrical

fittings and land development

3.5

2.8

2.8

Plant and Machinery 6.0 5.2 5.2 0 Total Investment 10 0.50 8.0 8.50 0

*PP : Private Player

4.4.3 Future Capacity Expansion and demand coverage over IR

IRCTC operates seven plants and has three plants under construction. It has planned to set up ten more PPP plants with capital support which are expected to be ready in 2018-19. With four more such plants, the coverage of Rail Neer will improve to FY-19 over IR.

4.5 Human Resources:Proposed organization structure

In order to implement the growth options recommended above, the existing organization structure of IRCTC may be changed to include shared services function and a dedicated marketing team for tourism business.

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Figure 49: Suggested changes in the current organization structure

The following changes are recommended in the current organization structure for IRCTC:

• A separate marketing function for the tourism vertical should be developed headed by a Group General Manager. Low marketing spend is a key issue for IRCTC’s tourism business because of the highly competitive market in the airline ticketing, hotel and holiday packages segments. Therefore, it is suggested that IRCTC should develop a strong marketing team, both at the zonal and corporate level that will increase IRCTC’s visibility as a major player in the tourism industry.

• Support service functions such as Human Resources, Infrastructure and Administration should be separated from the business segments (tourism and catering). It is suggested that a separate director for shared services be appointed and given the responsibility of the support functions.

• It is also suggested that recruitment for specialized functions such as IT, Procurement etc. be done keeping in mind the skill set and experience requirements for the role.

Note: There are no modifications suggested for the zonal organization structure.

4.5.1 Creation of a separate subsidiary for a non-railway tourist segments

Tourism is a large growing industry with the Indian government aiming to increase India’s share of global tourism from ~0.7% today to 2% by 2025. Tourism plays an important role in generating employment and increasing foreign exchange. Currently, IRCTC’s tourism revenues are mainly contributed by the railways sector such as the “Maharaja Express” and election trains. While IRCTC has entered high growth segments such as airline ticketing, holiday packages etc., the market penetration in these segments remains quite low compared to the huge market size. IRCTC’s tourism and catering businesses have little in common requiring different skill sets and strategies.

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While the catering business is mainly focused towards railway related business, the tourism business is expanding into new segments which are not railway centric. To succeed in these segments, a different culture and approach will be required. A new fully owned subsidiary with greater autonomy may be more effective in exploiting the potential of this segment. This subsidiary will be able to dedicate management bandwidth and have greater ability to hire human resources with specialist skills in tourism related services. If the tourism subsidiary can run operations successfully over the next few years, IRCTC may also look at selling a stake in the subsidiary through different options. This will also help IRCTC diversify its revenue and profit streams and reduce IRCTC’s dependency on the Railways industry for the majority of its revenues.

Rationale for creating a separate subsidiary

• Greater Autonomy - The Railways related tourism segment is more or less a regulated market for IRCTC with minimal competition. IRCTC also has little control in growing this segment since the market size and growth is dependent on government policies and actions. However, the non-related railway segments are highly competitive with massive growth potential. This company will be focused on the higher growth tourism vertical such as holiday packages and airline booking. These segments have become huge markets and required a high degree of focus. Major players in these segments are developing focused strategies to increase their market share.

It will require a different company culture and approach to succeed in these segments. The DNA of a subsidiary will have to different as it looks to compete in these open non- regulated segments. A greater amount of autonomy needs to be given to the new company’s management in order to succeed. While IRCTC will continue to exercise control as the subsidiary will be a 100% wholly owned subsidiary, the vision, mission and the subsidiary objectives will differ from IRCTC. This subsidiary can act as a major growth engine for IRCTC

• Marketing Focus – The current marketing spend of IRCTC is extremely low compared to the other players in the tourism business. While other companies are spending a large part of their revenues on marketing, total marketing spend of IRCTC is very low. This puts IRCTC at a significant disadvantage compared to the competitors such as MakemyTrip, Cox & Kings etc. IRCTC does not have a high brand recall as a tourism player in the minds of consumers despite selling services at an extremely competitive price.

• Optimal Human Resources Deployment– The tourism function at IRCTC does not have enough specialist tourist human resources. The current HR policies of recruitment and rotation are also not optimal for a tourist company. The subsidiary will have the ability to hire the right personnel.

• Operational Efficiency improvement - The new subsidiary will allow for greater operating efficiency as IRCTC senior management can focus on the core Railway related businesses while the subsidiary’s management can focus on growing the tourist verticals. Currently there are a large number of segments under the tourism vertical. It is difficult for IRCTC to effectively manage the large number of fast growing sub-segments.

• Entry into new Tourism segments – There are new tourism segments that are continuously opening up as the Indian economy grows at a rapid clip. Helicopter bookings, medical tourism, adventure holidays etc. are rapidly growing niches. New products and services are being rapidly developed by competitors. The future will see

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even newer forms of tourism such as “space tourism”. IRCTC needs to stay abreast of these changes and make appropriate investments to remain competitive.

• Branding – IRCTC may decide to create a new brand for the new tourism subsidiary. Currently IRCTC brand is mainly associated with railway catering and ticketing, however its tourism vertical has expanded into a number of non-railway related segments.

• Financial Considerations – The new subsidiary will isolate IRCTC financials from the tourism segment. In the future, if the tourism subsidiary performs to it potential, it might be used to raise capital from the market to fund its rapid growth.

Potential challenges

• Asset Separation – Some assets such as the IRCTC website will need to be shared with the new subsidiary. It will require a high level of coordination between IRCTC and the new subsidiary to ensure successful and smooth operation.

• Responsible for all subsidiary initiatives – Since the new subsidiary will be a 100% owned subsidiary, IRCTC will be accountable for any liabilities for the new subsidiary. It will also be fully responsible for the initiatives taken by the new subsidiary

Figure 50: Proposed structure of the subsidiary for non - railway tourism

# Separate tourism subsidiary

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5 Financial Statements after implementation of business plan 5.1 Profit and loss account

Parameter Units 2017 2018 2019 2020 2021

RevenueRevenue from internet ticketing INR Crore 362.3 131.0 179.0 224.0 268.0

Revenue from Catering Services INR Crore 379.4 518.6 689.5 744.1 790.9 Revenue from Tourism INR Crore 523.4 396.0 595.0 744.0 943.0

Revenue from Rail Neer INR Crore 168.3 184.7 233.8 361.0 385.1 Total Reveue from Operations INR Crore 1,433.3 1,230.3 1,697.3 2,073.1 2,387.0

Other Income INR Crore 118.7 69.8 78.2 87.1 96.1 Interest Income INR Crore 47.2 39.5 54.0 65.7 75.5

TOTAL REVENUE (A) INR Crore 1,599.2 1,339.6 1,829.5 2,225.9 2,558.6

ExpenditureInternet Ticketing

Railway Share (Mfg.Expenses) INR Crore 181.1 - - - - Maintenance & Internet Charges (Mfg Exp.) INR Crore 30.4 44.0 54.0 65.0 75.0

Human Resource Cost INR Crore 28.0 28.0 31.0 35.0 40.0 Ticket Dispatch Expenses (Selling Exp.) INR Crore 0.1 0.1 0.1 0.1 0.1

Administrative,Selling and Distribution Exp. 29.0 27.9 34.9 39.9 44.9 INR Crore

Expenditure for opportunitieseCommerce Partnership INR Crore - 1.0 2.0 3.0 4.0

Intelligent Travel Solutions INR Crore - 1.0 1.0 2.0 2.0 Data Monetization INR Crore - 0.5 0.8 1.5 3.0

Value added services INR Crore - 1.0 2.0 3.0 4.0 Sub total INR Crore 268.6 103.5 125.8 149.5 173.0

Departmental CateringServicesMaterial Consumed INR Crore 144.5 148.2 156.7 164.9 172.8

Power & Fuel (Mfg & Direct Exp.) INR Crore 6.5 39.8 42.1 44.3 46.4 Human Resource Cost INR Crore 101.9 44.8 46.1 47.5 48.9

Commission paid to vendors (Selling Exp.) INR Crore 3.3 5.0 7.0 9.0 11.0 Administrative,Selling and Distribution Exp. INR Crore 17.6 19.2 21.0 24.6 28.4

Licensee Catering ServicesLicencee Business other than Food Plaza INR Crore 66.0 129.6 219.0 230.0 241.4

Direct Exp. & Railway share - Food Plaza* INR Crore 15.6 18.0 19.8 21.8 24.0 Human Resource Cost INR Crore 7.4 67.1 69.2 71.2 73.4

Administrative,Selling and Distribution Exp. INR Crore 5.4 7.0 9.0 11.0 13.0 Additional expense for SEO marketing INR Crore 0.1 0.6 0.9 1.4 2.0

Sub total INR Crore 368.4 479.3 590.8 625.6 661.3

TourismExpenses for tourism

Direct Expenses INR Crore 415.6 320.0 480.0 600.0 760.0 Human Resource INR Crore 34.7 36.0 38.0 40.0 42.0

Selling , Distribution and Admin INR Crore 19.1 20.7 25.0 30.0 35.0


Rail NeerMaterial consumed INR Crore 67.0 125.7 146.0 156.7 167.2

O&M charges (Mfg & Direct Exp.) INR Crore 8.7 20.4 23.7 25.4 27.1 Other direct expenses INR Crore 26.7 21.6 25.1 26.9 28.7

Human resource cost (existing plants) INR Crore 9.1 16.5 19.2 20.6 21.9 Freight outward & CFA charges (selling exp.) INR Crore 23.6 47.5 55.1 59.2 63.1

Administrative,selling and distribution exp. INR Crore 5.1 16.5 19.2 20.6 22.0


TOTAL EXPENDITURE (B) INR Crore 1,246.7 1,207.7 1,547.9 1,754.5 2,001.3

EBITDA (A-B) INR Crore 352.5 131.9 281.5 471.4 557.3 EBITDA % % 22% 10% 15% 21% 22%

Depreciation & Amortization INR Crore 22.4 28.2 28.3 29.9 33.0

Tax INR Crore 116.2 40.4 98.8 172.2 204.5

Profit After Tax INR Crore 213.9 63.3 154.5 269.3 319.8

Proposed Divident Payout INR Crore 84.7 25.3 61.8 107.7 127.9 Dividend Distribution Tax INR Crore 17.2 5.2 12.6 21.9 26.0 Net Profit transferred to Reserves INR Crore 112.0 32.8 80.1 139.6 165.9

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5.2 Balance Sheet

Particular Units 2016 2017 2018 2019 2020 2021Equity and LiabilitiesShareholder's Funds INR Cr.

Share capital / Paid in capital 20.0 40.0 40.0 40.0 40.0 40.0 Reserve surplus 521.0 738.3 777.3 863.3 1,027.9 1,233.0

Total equity 541.0 778.3 817.3 903.3 1,067.9 1,273.0

Non Current Liabilities INR Cr.Long term provisions (for retirement benefits) 71.6 78.0 81.9 86.0 90.3 94.8 Other long term liabilities (security deposits) 103.9 112.0 131.4 147.8 166.3 187.0

Total Non Current Liabilities 175.5 190.0 213.3 233.8 256.6 281.8

Current Liabilities INR Cr.Trade payables 53.3 137.2 187.5 202.7 211.8 222.8

Short-term provisions (Employee benefits) 92.4 359.0 377.0 395.8 415.6 436.4 Other current liabilities 545.1 362.1 689.5 775.4 872.1 980.8

Total Current Liabilities 690.8 858.3 1,253.9 1,373.9 1,499.5 1,640.0 Total Liabilities INR Cr. 866.3 1,048.3 1,467.2 1,607.8 1,756.1 1,921.8 Total INR Cr. 1,407.3 1,826.6 2,284.5 2,511.1 2,824.0 3,194.8

AssetsNon Current Assets INR Cr.

Fixed assets / Tangible assets 145.1 158.4 200.9 212.4 233.7 263.8 Intangible assets 9.9 12.6 8.0 5.3 3.5 2.3

Capital work in progress assets 14.2 16.8 - - - - Long term loans and advances 23.9 11.8 11.8 11.8 11.8 11.8

Other non - current assets 103.9 81.4 81.4 81.4 81.4 81.4 Total non current assets INR Cr. 297.0 281.0 302.0 310.9 330.4 359.3

Current Assets INR Cr.Inventories 8.1 6.6 19.4 23.2 26.0 29.8

Cash and bank balance 665.3 852.9 1,428.3 1,587.1 1,812.7 2,078.2 Trade receivables 151.3 288.7 134.9 184.2 224.1 257.6

Short - term loan advances 253.3 22.1 22.1 22.1 22.1 22.1 Other current assets 32.2 375.2 375.2 375.2 375.2 375.2

Total current assets INR Cr. 1,110.3 1,545.6 1,979.9 2,191.8 2,460.1 2,762.8 Total INR Cr. 1,407.3 1,826.6 2,281.9 2,502.7 2,790.5 3,122.1

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6 Annexures

6.1 Outbound Hindu Religious Circuit – Indonesia, Cambodia and Japan

Hinduism is one of the most followed religions in India and Nepal. Therefore, many famous Hindu pilgrimage sites exist in these two countries that are visited by many national and international tourists every year.

Apart from India and Nepal, Hinduism is also followed by a significantly large population in countries such as Sri Lanka, Indonesia, Cambodia, Malaysia, China, Bangladesh, Mauritius, Pakistan and Japan, having more than 900 million adherents worldwide79. Therefore, many Hindu pilgrimage sites also exist outside Indian subcontinent and these sites are visited by many tourists from across the world every year. Out of all the countries mentioned above, IRCTC already provides a religious tour package to Sri Lanka - “Ramayana Yatra (Sri Lanka)”. Indonesia and Cambodia

Prambanan and Mother Temple of Besakih in Indonesia and Angkor Wat in Cambodia are some of the famous Hindu temples in South East Asia80. Although these are the prominent religious places and have historical importance, yet these sites are not very widely visited pilgrimage sites by Indians and Hindus today.

These temples were built by Hindu rulers to mark the rise of importance of Hinduism in their respective eras. But over a period of time these temples have either become Buddhist worship places due to prominence of Buddhism in these countries in later years or historical sites.

Also, as these temples are situated near many famous leisure destinations such as Bali in Indonesia, Pattaya and Bangkok in Thailand, Ho Chi Minh City in Vietnam and Philippines islands; therefore they have not been able to gain importance as an independent tourist destinations.

Travel packages provided by some of the prominent travel companies for Indonesia and Cambodia are not focused at offering a pure – play religious tour of these places Table 15:

Table 14 Tour packages offered by some of the prominent travel agencies and sites for Indonesia and Cambodia

# Company Itinerary Details Type

1

Thomas Cook

Cambodia - Weekend Beyond Borders (4N / 5 D)

• Phnom Penh (battle field excursion and Toul Sleng prison)

Leisure / Historical

2

Cox and Kings

Discover Cambodia (3N / 4 D)

• Phnom Penh Tours • Phnom Penh – Royal Palace and

National Museum • Siem Reap – Visit to temples of

Rolous Group, Angkor Thom and Bayon Temples

• Angkor wat temples • City Tours

Leisure / Historical

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3 Make My Trip Wonders of Cambodia (3N / 4 D) Leisure / Historical

• Siem Reap Tours – Angkor Thom city tour, Angkor wat, Ta Phrom temple

• Visits Kbal Spean villages and nearby temples

4

Cox and Kings

Bali – Beaches and Hills (5N / 6D)

• Water sports • Uluwatu Temple • Beaches

Leisure

5

Thomas Cook

• Simply Bali • Exotic Bali • Bali Honeymoon Special

Leisure

6

Make My Trip

• Travelling Divas – Bali holiday for women

• Super Cool Bali Winters • Indulgence in Bali - Winters • Super Cool Bali Summers • Indulgence in Bali - Summers

Leisure

Japan

In Japan, Hinduism is a minority religion even though Hinduism has played an important role in formation of Japanese culture. The representations of some of the Japanese gods have been taken from the Hindu mythology. As of today there are only 4,000 Hindus in Japan81. The Hindu temples and culture are therefore concentrated only in few Japanese cities such as Kobe and Kansai region.

Almost all the travel agencies, travel aggregators and online travel websites provide customizable leisure packages for Japan that are mainly focused at exploring Japanese culture, cuisine, art, historical sites (Hiroshima, Nagasaki etc.) and natural attractions (Mount Fuji etc.). None of the providers provide any tour package focused at exploring Hindu religion in Japan.

Going forward IRCTC is planning to launch religious tour packages to these countries from next year. Currently the market is very nascent and would require high marketing spend to develop these markets.

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6.2 Sensitivity analysis for estimating the revenue potential of catering business based on number of trains handed over to IRCTC in upcoming years

Indian Railways announced management and takeover of Mobile Catering Services by IRCTC in a phased manner. Accordingly, a new Catering Policy, 2017 was issued by Railway Board. Some of the key features of the catering policy are listed as under: -

I. IRCTC to manage mobile catering services inter-alia on unbundled catering services through static units at stations including Base Kitchens.

II. Unbundled services to be executed by creating a distinction between food preparation and onboard distribution.

Consequently, IRCTC has taken over 331 trains from Zonal Railways including 185 trains which were awarded on SBD licenses & have been taken over through re-assignment/tripartite agreement with zonal railways. As per the SBD licenses, awarded on Comprehensive catering model, the expected annual license fee/concession fee of 185 trains is about 170 Cr. For trains under IRCTC with oncoming business , the license fee is expected to be about Rs.100 Cr in FY-19. At present there are only 6 trains being managed under departmental model & other 18 pre-paid trains which were being managed departmentally earlier have now been unbundled with meal supplies from NDLS, PNBE, HWH, ADI & BCT. The base kitchen at PNBE has been outsourced. Further, on takeover of ADI Rajdhani , ADI Base kitchen & BCT base kitchen have also been outsourced.

As of now, the trains are being managed departmentally, comprehensive licensing (temp. licenses and SBD) and on Un-bundled model. Progressively, it is expected that catering services will be managed services through un-bundling. As a result, there has been significant reduction in manpower expenditure on trains which were managed departmentally earlier. Further, other trains being managed either departmentally or on comprehensive services model are also being unbundled.

The takeover of mobile units commenced in April 2017 and the pace picked up post July'17 and has been completed in Oct'17.. The takeover process of static unit is also completed .

The revenues to be realized as license fee from the trains handed over to IRCTC shall be in addition to the existing turnover. The turnover from pre-paid trains shall also increase licensee business turnover.

The departmental operations have been reduced significantly by engaging service providers through unbundling of services. Further, other trains which could not be unbundled are being managed through award of temporary licensing thereby increasing the turnover through license fee. It is likely that train operations through departmental mode will be limited & taken up as strategically necessitated.

The revenue projections post unbundling under departmental segment for 2017-21 are indicated below:-

Best Case Scenario Units 2017 2018 2019 2020 2021 No: of Trains with IRCTC # 64 331 335 340 345 Revenue INR Cr 396.6 536.9 709 764.9 812.9 Operating Profit INR Cr 12.72 44.7 104.6 124.8 136.3

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Only in such case when all the kitchens that are required to be set up by IRCTC are operated departmentally then the financials will vary with higher expenditures. The catering business has considerable potential to become a large and profitable business for IRCTC, but it requires consistent policy making goals to be set which will allow both IRCTC and private companies to make long term investments into railway catering. In the absence of such an assurance, it will be difficult to plan, make investments and ensure credible delivery of catering services.

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6.3 Financial projections for business as usual scenario

6.3.1 Internet Ticketing

Particular Units 2017 2018 2019 2020 2021Direct Revenue from Service Charge/Re-imb.from Railways INR Cr. 362.3 100.0 120.0 140.0 160.0

Other Income INR Cr. 104.6 87.0 62.0 69.0 76.0Total revenue from internet ticketing INR Cr. 466.8 187.0 182.0 209.0 236.0

Railway Share (Mfg.Expenses) INR Cr. 181.1 0.0 0.0 0.0 0.0Maintenance & Internet Charges (Mfg Exp.) INR Cr. 30.4 44.0 54.0 65.0 75.0

Human Resource Cost INR Cr. 28.0 28.0 31.0 35.0 40.0Ticket Dispatch Expenses (Selling Exp.) INR Cr. 0.1 0.1 0.1 0.1 0.1

Administrative,Selling and Distribution Exp. INR Cr. 29.0 27.9 34.9 39.9 44.9Total expenses for internet ticketing INR Cr. 268.6 100.0 120.0 140.0 160.0

Operating Profit / Gross Profit/EBITDA INR Cr. 198.2 87.0 62.0 69.0 76.0

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6.3.2 Tourism Segment

Particulars Units 2017 2018 2019 2020 2021Revenue from Tourism INR Cr. 523.4 396.0 595.0 744.0 943.0

Other Income INR Cr. 6.1 4.0 5.0 6.0 7.0Total revenue from tourism INR Cr. 529.5 400.0 600.0 750.0 950.0

Direct Expenses - Ticket & Service Provider INR Cr. 415.6 320.0 480.0 600.0 760.0Human Resource Cost INR Cr. 34.7 36.0 38.0 40.0 42.0Administrative,Selling and Distribution Exp. INR Cr. 19.1 20.7 25.0 30.0 35.0Total expenses for tourism INR Cr. 469.4 376.7 543.0 670.0 837.0


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6.3.3 Rail Neer

Particulars Units 2017 2018 2019 2020 2021Direct sales INR Cr. 153.7 159.7 201.8 318.4 339.6Stock transfers INR Cr. 14.6 25.0 32.0 42.6 45.5Other income INR Cr. 4.0 5.3 6.2 6.6 7.1Total revenue from rail neer INR Cr. 172.3 190.0 240.0 367.6 392.2

Material consumed INR Cr. 67.0 125.7 146.0 156.7 167.2O&M charges (Mfg & Direct Exp.) INR Cr. 8.7 20.4 23.7 25.4 27.1Other direct expenses INR Cr. 26.7 21.6 25.1 26.9 28.7Human resource cost INR Cr. 9.1 16.5 19.2 20.6 21.9Freight outward & CFA charges (selling exp.) INR Cr. 23.6 47.5 55.1 59.2 63.1Administrative,selling and distribution exp. INR Cr. 5.1 16.5 19.2 20.6 22.0Total expenses for rail neer INR Cr. 140.2 248.2 288.3 309.3 330.0

Operating Profit / Gross Profit/EBITDA INR Cr. 32.1 -58.2 -48.3 58.3 62.2

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Particulars Units 2017 2018 2019 2020 2021Sales - Departmental Catering INR Cr. 203.9 228.0 239.0 251.0 264.0Non-Railway Business INR Cr. 15.9 5.0 7.0 8.0 8.0Other Income INR Cr. 2.0 2.0 2.0 2.0 2.0Total revenue from departmental catering INR Cr. 221.8 235.0 248.0 261.0 274.0

Material Consumed INR Cr. 144.5 157.4 166.4 175.1 183.5Power & Fuel (Mfg & Direct Exp.) INR Cr. 6.5 42.3 44.7 47.0 49.3Human Resource Cost INR Cr. 101.9 44.8 46.1 47.5 48.9Commission paid to vendors (Selling Exp.) INR Cr. 3.3 5.0 7.0 9.0 11.0Administrative,Selling and Distribution Exp. INR Cr. 17.6 20.4 22.4 26.1 30.1Total expenses for departmental catering INR Cr. 273.9 269.9 286.6 304.7 322.8

Operating Profit / Gross Profit/EBITDA INR Cr. -52.1 -34.9 -38.6 -43.7 -48.8

Particulars Units 2017 2018 2019 2020 2021Licencee Business - Mobile units INR Cr. 112.0 249.0 398.0 430.0 450.0Concession /Licence Fee - Food Plaza - User charges and Licensee Fees INR Cr. 44.8 45.0 49.5 54.5 59.9

Concession /Licence Fee - Book Stall INR Cr. 0.0 - - - - Other Income INR Cr. 3.4 2.5 3.0 3.5 4.0Income from E-catering INR Cr. 1.4 5.4 10.1 15.6 25.1Total revenue from licensee catering INR Cr. 161.6 301.9 460.6 503.6 539.0

Licencee Business other than Food Plaza INR Cr. 66.0 129.6 219.0 230.0 241.0Direct Exp. & Railway share - Food Plaza* INR Cr. 15.6 18.0 19.8 21.8 24.0Railway share - Book Stalls INR Cr. 0.0 0.0 0.0 0.0 0.0Human Resource Cost INR Cr. 7.4 67.1 69.2 71.3 73.4Administrative,Selling and Distribution Exp. INR Cr. 5.5 7.6 9.9 12.4 15.0Total expenses for licensee catering INR Cr. 94.5 222.3 317.9 335.5 353.4


6.3.4 Catering

Departmental Catering Services

Licensing Catering Services

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Profit & Loss Account - Internet Ticketing (After implementation of growth options)

Particulars Units 2017 2018 2019 2020 2021

RevenueDirect Revenue from Service Charge/Reimb.from Railwyas INR Crore 362.3 100.0 120.0 140.0 160.0 Other Income INR Crore 104.6 56.0 62.0 69.0 76.0 Revenue from opportunities INR Crore 31.0 59.0 84.0 108.0

KPO services INR Crore 3.0 7.0 15.0 22.0 Value added services INR Crore 2.0 10.0 15.0 20.0 Lead Generation Scheme INR Crore 1.0 2.0 4.0 6.0 Digital Advertisement INR Crore 25.0 40.0 50.0 60.0

TOTAL REVENUE (A) INR Crore 466.8 187.0 241.0 293.0 344.0

ExpenditureRailway Share (Mfg.Expenses) INR Crore 181.1 - - - - Maintenance & Internet Charges (Mfg Exp.) INR Crore 30.4 44.0 54.0 65.0 75.0 Human Resource Cost INR Crore 28.0 28.0 31.0 35.0 40.0 Ticket Dispatch Expenses (Selling Exp.) INR Crore 0.1 0.1 0.1 0.1 0.1 Administrative,Selling and Distribution Exp. INR Crore 29.0 27.9 34.9 39.9 44.9

Opportunity-wise operating expenditure INR Crore 3.5 5.8 9.5 13.0 KPO services INR Crore 1.0 2.0 3.0 4.0 Value added services INR Crore 1.0 1.0 2.0 2.0 Lead Generation Scheme INR Crore 0.5 0.8 1.5 3.0 Digital Advertisement INR Crore 1.0 2.0 3.0 4.0

Overall Marketing Expenditure INR Crore - - - -

TOTAL EXPENDITURE (B) INR Crore 268.6 103.5 125.8 149.5 173.0

EBITDA (A-B) INR Crore 198.2 83.5 115.2 143.5 171.0 EBITDA % % 0.4 0.4 0.5 0.5 0.5

Depreciation INR Crore 14 28 42 64 96 Interest Expense INR Crore - - - - -

PBT INR Crore 184 56 73 80 75

Tax INR Crore 39% 72 22 29 31 29

PAT INR Crore 113 34 45 49 46 PAT % % 24% 18% 19% 17% 13%

6.4 Financial projections after implementation of the business plan

6.4.1 Internet Ticketing

Assumptions

Service charge on e-ticketing has been withdrawn w.e.f. 23.11.2016 to 31.03.2018. There is no likelihood of getting it restored. There are discussions that IRCTC will be reimbursed the cost of e-ticketing system. Therefore, reimbursement of the e-ticketing cost had been taken as revenue from e-ticketing.

IRCTC currently, has a monopoly in Indian Railway Reserved Ticketing through Internet and will continue to do so.

Growth on the e-ticketing (due to limited railways reserved tickets) is linked and will reach saturation level soon.

IRCTC will be able to use modern digital marketing and data analytical tools like google's DFP, Tableau etc. to work on the products discussed in the document.

85


6.4.2 Tourism

Assumptions

Assumption Value Source / Rationale

Airline Ticketing Number of domestic air tickets booked annually

80,753,000

DCGA 2015 data Average price of an air

INR 4,826 economictimes.com

Expected growth in

11% economictimes.com

Air ticketing

3% KPMG Analysis – Average Channel commission of

Marketing Expense 4-8% KPMG Analysis : % of commission revenue earned

Inbound Pilgrimage: Buddhist Tourism Tourists from Japan 42,355 Awakening of The Buddhist Circuit , HVS Report 2015

Average package cost 1.79 Lacs Investing in The Buddhist Circuit, IFC Report Tourist from Republic

41,956 Awakening of The Buddhist Circuit , HVS Report

Average package cost 1.90 Lacs KPMG Analysis Market Share for

0.25%-

KPMG Analysis: Guestimate

Growth in market for

10% KPMG Analysis : Based on growth in Indian Tourism

Profit & Loss Account - Tourism (After implementation of growth options)


RevenueRevenue from routbound and eligious tourism INR Crore 60.0 75.0 91.0 100.0 110.0 Revenue from air ticketing INR Crore 13.8 16.0 22.0 28.0 35.0 Revenue from all other tourism products (except air ticketing using as - is scenario) INR Crore 449.7 305.0 482.0 616.0 798.0 Other Income INR Crore 6.1 4.0 5.0 6.0 7.0


ExpenditureDirect Expenses INR Crore 415.6 320.0 480.0 600.0 760.0Human Resource INR Crore 34.7 36.0 38.0 40.0 42.0Selling , Distribution and Admin INR Crore 19.1 20.7 25.0 30.0 35.0Sub total INR Crore 469.4 376.7 543.0 670.0 837.0


EBITDA (A-B) INR Crore 60.1 23.3 57.0 80.0 113.0EBITDA % % 11% 6% 10% 11% 12%

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6.4.3 Catering

Assumptions

Assumption Value Source / Rationale

Search Engine Optimization (SEO) campaign for Licensing Catering System (LCS)

Conversion rate from SEO campaign

50% KPMG Analysis - Customers who has travel in mind or has a scheduled travel will search for ‘meals/food on trains’ options. As IRCTC is the most trusted brand in this segment, there is high probability that customers will order meals from IRCTC e-catering platform

Repeated order by a single customer in a given year

10 units KPMG Analysis – A converted customer will have multiple train travels in a given year and therefore he/she will do a repeat purchase through e – catering platform around 10 times in a year

Year on Year average growth in meals ordered per day

25% KPMG Analysis – Same as the as – is scenario

Average earning of IRCTC through each meal ordered by e- catering in 2017

INR 11 Current earning is around INR 10.5 which is inclusive of earning through meals ordered via e- catering and other income through various sources

Year on Year increase % in the earnings per meal

5% As per (Consumer Price Index) CPI inflation

Cost per click of SEO Campaign

INR 10 Primary interview with Industry experts

SEO marketing budget for pilot phase

INR 40 lakhs KPMG Analysis – Initial amount to increase visibility and conversions that can result into optimal results

Year on Year increase in SEO campaign budget

50% KPMG Analysis – For creating awareness andincrease penetration of IRCTC in e-catering segment at PAN India level

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Profit & Loss Account - Catering (After implementaiton of growth options)


RevenueDepartmental Catering ServicesSales - Departmental Catering INR Crore 203.9 214 225 236 248 Non-Railway Business INR Crore 15.9 5.0 7.0 8.0 8.0 Other Income INR Crore 2.0 2.0 2.0 2.0 2.0 Sub total INR Crore 221.78 221 234 246 258

Licensee Catering ServicesLicencee Business - Mobile units INR Crore 120.0 249.0 398 430.0 450.0 Concession /Licence Fee - Food Plaza - User charges and Licensee Fees INR Crore 38.2 45.0 49.5 54.5 59.9 Concession /Licence Fee - Book Stall INR Crore - - - - - Other Income INR Crore 2.0 2.5 3.0 3.5 4.0 Revenue from E-catering INR Crore 0.89 1.82 4.38 6.57 10.90 Additional revenue from E-catering (to -be) INR Crore 0.5 3.6 5.7 9.0 14.2 Sub total INR Crore 161.60 301.96 460.61 503.55 539.01


ExpenditureExpenses for Departmental Catering (as - is)Material Consumed INR Crore 144.5 148.2 156.7 164.9 172.8 Power & Fuel (Mfg & Direct Exp.) INR Crore 6.54 39.8 42.1 44.3 46.4 Human Resource Cost INR Crore 101.9 44.8 46.1 47.5 48.9 Commission paid to vendors (Selling Exp.) INR Crore 3.30 5.0 7.0 9.0 11.0 Administrative,Selling and Distribution Exp. INR Crore 17.64 19.2 21.0 24.6 28.4 Sub total INR Crore 273.86 256.92 272.94 290.27 307.49

Expenses for Licensee Catering (as - is + New)Licencee Business other than Food Plaza INR Crore 66.0 129.6 219.0 230 241 Direct Exp. & Railway share - Food Plaza* INR Crore 15.6 18.0 19.8 21.8 24.0 Railway share - Book Stalls INR Crore - - - - - Human Resource Cost INR Crore 7.43 67.1 69.2 71.2 73.4 Administrative,Selling and Distribution Exp. INR Crore 5.4 7.0 9.0 11.0 13.0 Additional expense for SEO marketing INR Cr. 0.13 0.6 0.9 1.4 2.0 Sub total INR Crore 94.53 222.34 317.85 335.31 353.80


EBITDA (A-B) INR Crore 14.99 43.8 103.7 124.1 135.6 EBITDA % % 4% 8% 15% 17% 17%

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6.4.4 Rail Neer

Assumptions

Assumption Value Source / Rationale Rail Neer Average utilization of the existing plants

Average- 72%

KPMG analysis based on previous data 2017 – 65% 2018 – 70% 2019 – 70% 2020 – 75% 2021 – 80%

Inventory sold per year 98% KPMG analysis based on previous data

Total number of new plants to be opened under CM

11 Discussions with IRCTC

Number of plants to be opened year - wise

2018 – 1 2019 – 8 2020 – 2 2021 – 0

Hologram Cost per bottle

INR 0.08 Discussions with industry experts

Profit & Loss Account - Rail Neer (After implementation of growth options)


RevenueDirect sales INR Crore 153.7 159.7 201.8 318.4 339.6Stock transfers INR Crore 14.6 25.0 32.0 42.6 45.5Other income INR Crore 4.0 5.3 6.2 6.6 7.1


ExpenditureMaterial consumed INR Crore 67.0 125.7 146.0 156.7 167.2 O&M charges (Mfg & Direct Exp.) INR Crore 8.7 20.4 23.7 25.4 27.1Other direct expenses INR Crore 26.7 21.6 25.1 26.9 28.7 Human resource cost (existing plants) INR Crore 9.1 16.5 19.2 20.6 21.9 Freight outward & CFA charges (selling exp.) INR Crore 23.6 47.5 55.1 59.2 63.1 Administrative,selling and distribution exp. INR Crore 5.1 16.5 19.2 20.6 22.0


EBITDA (A-B) INR Crore 32.1 (58.2) (48.3) 58.2 62.2 EBITDA % % 0.2 (0.3) (0.2) 0.2 0.2

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corporate plan of4.4 rail neer 67 4.4.1 need – gap analysis for rail neer business segment 67...

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