Indian Railway Catering and Tourism Corp. said the expansion of premium trains such as Vande Bharat is increasing catering revenue, but the associated GST structure is limiting the benefit to margins.
The company made the comments after analysts sought clarity on the sharp decline in catering margins during the March quarter despite strong growth in catering revenue.
IRCTC's catering revenue rose 26.8% year-on-year to Rs 671 crore in the fourth quarter, while catering margins came under pressure. The company said a combination of higher provisions, CSR spending, the absence of one-off income booked a year earlier and higher costs linked to premium train catering affected profitability.
The comments provide insight into how the growing share of Vande Bharat and other premium services is changing the revenue mix within IRCTC's catering business. While these services add revenue, they also increase costs associated with the catering model.
Margin Impact
Addressing concerns about the impact of Vande Bharat services on profitability, Chairman and Managing Director Sanjay Kumar Jain said the company continues to earn healthy returns from these trains.
"I never told that we don't get a good margin in Vande Bharat train," Jain said during the earnings call.
He explained that IRCTC earns licence fees from catering operators while also booking catering revenue collected through the rail fare structure.
According to Jain, as catering revenue from trains increases, IRCTC has to bear a 5% GST component for which it does not receive input tax credit.
"Whenever the increase in the revenue -- train revenue will be there, there will be an element of 5% of GST. Means I have to increase the revenue, so I have to bear this 5%," he said.
The company also cited an increase in direct costs linked to premium train sales during the quarter.
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Other factors
Management said the decline in catering margins was not solely related to premium train operations.
Jain said expected credit loss provisions in the catering segment increased to Rs 16 crore from Rs 5 crore a year earlier. CSR allocation for the segment rose to Rs 5 crore from Rs 1 crore in the corresponding quarter last year.
The company also did not benefit from a legacy income item of about Rs 33 crore that had been booked in the March quarter of FY25.
In addition, higher sales from premium train services resulted in roughly Rs 3 crore of additional direct costs linked to GST, management said.
Despite the margin pressure, IRCTC maintained that catering remains one of its key growth businesses. The company expects catering revenue to continue growing at around 15% annually, supported by rising passenger traffic and the expansion of train services.
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