This is a CK Birla company and has gradually evolved from being a single-product company,...
How the Railways the artificial pricing and flawed ticketing process is allowing tickets touts to skim off hundreds of crores a year
In part 1, Moneylife showed how the higher classes of travel on railway trains were being subsidised by the unreserved general class travellers and pointed towards how the concept of totally unreserved trains on certain routes and at certain times of the year were money spinners for the Indian Railways. In effect, what used to be called the “White Man’s Burden” in the colonial days has now become institutionalized in favour of the neo-colonials in Independent India.
And this disparity is growing. Lower revenue earning sleek luxury trains with brand new coaches like Rajdhanis, Durontos and Shatabdis get priorities on scarce shared resources like path, platform, waiting rooms, manpower, track, engine and station. The higher revenue earning freight trains, passenger, express and superfast trains with general unreserved compartments wait it out to provide a clear path—their rakes usually consisting of older coaches and low maintenance as well and nil facilities.
This then brings out the next part of the series: Why is reservation of railway tickets such a major issue almost throughout the year, especially but not restricted to peak seasons?
To help reach some answers, the writer not only analysed reports on the subject by Indian Railways, CAG, CRIS and other entities, but also discussed the issue with past and present employees of the Railways who have thorough knowledge of passenger reservation systems. In addition, contact was established with some technologically savvy touts and ticket providers, who know an assortment of methods by which to beat the system.
Also, I myself went through a large number of bookings and cancellations as well as analysis on some routes (typically Delhi-Patna, Delhi-Mumbai/Pune, Delhi-Bengaluru and Delhi/Goa and some more including what is probably the only one-way train in India, the 02779 on the Goa-Bengaluru route) and used three different identities in the bargain. Here’s how the Indian Railways, constantly complaining about a lack of resources, is on the other hand letting this huge amount of revenue leak through.
There are approximately 105,000 tickets kept aside for Tatkal reservations on a daily basis. Of this, it is estimated that at the very least 60% of them are booked with the assistance of agents, touts and others. The typical unauthorised add-on charges levied by the touts vary from about Rs300 for sleeper class to about Rs3,000 for 2AC tickets. This can be easily re-verified with any tout at any PRS centre, especially if you choose to go there around 4 or 5 in the morning, hoping to be first in queue, only to discover people are already sleeping or sitting in position from the night before.
Taking even Rs1,000 as an average, that is a straight Rs6-Rs7 crore worth of cash industry, everyday, thanks to Tatkal tickets because the present system of booking Tatkal tickets creates more problems than it solves. The big problems with Tatkal tickets are that:
(a) there is a fixed official premium for a product that has a much larger demand than supply and therefore people are willing to pay more as well as go through fake identity options.
(b) all the Tatkal bookings open at one fixed time—the day before the actual date of departure of the train—and therefore there is this huge surge and crowd, both physical and online.
The railway authorities have ostensibly been trying to solve this issue by making the process even more complicated, which only benefits the touts and others outside the system some more, without applying the real fixes, which are to:
a) make the premium dynamic, by a process of automated bidding, which handled transparently and simply, would remove all outside interventions.
b) make the timeline of these Tatkal bookings relative to the scheduled departure of the train.
The revenue currently lost would accrue to the railways. This is like dynamic pricing on airlines—some of us will recall paying premiums for airline seats when prices were fixed, and how that has vanished now that the airlines are allowed to vary pricing within price bands as per demand. This is simple yield management, and not rocket science—and it also permits the various discounted and other fares to co-exist.
This suggestion came from somebody within the Railways, as well as others who follow the subject, and when it was discussed with some touts, they were all universal in agreeing that it would put them, the touts, out of business. What better validation do you need? And the revenue generated would be diverted to the Indian Railways—whose perishable commodity the reservation is, in the first place.
(Veeresh Malik had a long career in the Merchant Navy, which he left in 1983. He has qualifications in ship-broking and chartering, loves to travel, and has been in print and electronic media for over two decades. After starting and selling a couple of companies, is now back to his first love-writing.)
Unitech is facing a severe liquidity crunch and needs to repay about Rs1,000 crore debt in FY13. With severe funding constraints, the real estate company is assuring huge “sure shot” returns, advertising a carefully chosen past period. Why are SEBI and exchanges quiet?
Real estate giant Unitech is in dire need of cash flow as it faces a severe liquidity crunch and has to pay about Rs1,000 crore debt in current fiscal, out of its total debt of over Rs5,100 crore. In order to garner cash, the company has come out with a “Invest in Sure Shot Money Gainers” scheme, which promises huge returns on investments on some of its sold-out projects.
According to an email campaign launched by Unitech, the difference between launch prices and current resale market prices of some of its projects ranges from 88% to 127%. The company claims that its projects launched in 2009 have given huge returns for the buyers in just three years.
Its project ‘Vistas’ was launched with a price tag of Rs2,765 per sq ft in 2009 and the same property is now sold at Rs5,200 per sq ft, giving a return of 88.1% in just three years. Similarly, the company claims that its projects, ‘Residences’ and ‘Gardens II’ have given returns of 112.4% and 127.1%, respectively on their launch price.
Citing a great returns on investment made in 2009, Unitech is now asking people to invest in its new projects “South Park”, “Crestview” and “Anthea Floors”. The price for a flat in these buildings starts from Rs72 lakh onwards.
The problem with this pitch is that it highlights the excellent returns of just one specific three-year period. This is pure mis-selling since returns carefully chosen for a self-selected period and that too starting with 2009 when values were extremely depressed is a false pitch. The Securities and Exchange Board of India (SEBI) insists on making mutual funds and others write that past performance is no guide to the future. Without this, fund companies would misuse past returns, highlighting the self-selected best periods (as L&T Mutual Fund was doing in 2009) while investors would unquestioningly be enticed by such selective performance. SEBI has since plugged this kind of sales promotion. Without a real estate regulator in place, Unitech of course can claim that it is not violating any law. But SEBI and the exchanges regulate listed companies and can easily pull up Unitech—if they want to.
Unitech is also offering a zero pre-EMI facility for 18 months from leading banks. The zero pre-earnest monthly instalment (EMI) offer is nothing new but is used by several realty players. The scheme also known as EMI subvention scheme or 80:20 scheme is quite simple. The buyer pays 20% amount of the total agreed price, while bank or financial institute provide loan for the rest 80%. While the buyer needs to pay the EMI as soon as he gets the loan, in this scheme, the developer takes care of the EMI for agreed period. In Unitech’s case, the buyer will not have to pay EMI for 18 months and instead the company will pay it to the lender.
For the fourth quarter to end-March, Unitech’s consolidated net profit fell 97.8% to Rs2.26 from Rs102.5 crore, a year ago period. The real estate company’s total revenues, including sales, also fell to Rs716.1 crore from Rs1,054.3 crore in fourth quarter last year.
Ajay Chandra, managing director, Unitech, had said, “Financial year 2011-12 was a very challenging year particularly in terms of availability as well as cost of funding for real estate projects. The company has a healthy balance sheet and it has been continuously reducing its debt by utilizing cash flows from operations.”
During the fourth quarter Unitech managed to re-finance about Rs500 crore of repayment for FY12. This has led to temporary respite and its impact can be seen in the form of a sequential improvement of around 33% in revenue booking from its real estate projects.
“While the management has hinted at strong execution ramp-up in FY13, we believe the ability to manage liquidity would be the most crucial factor, especially given that the company has higher repayment of over Rs1,000 crore scheduled for FY13. We expect near-term outlook for Unitech to remain challenging due to liquidity headwinds adversely impacting execution ramp-up and cash conversion cycle,” said Motilal Oswal Securities in a report.
Due to severe liquidity pressure, Unitech’s project execution, cash flow and revenue bookings were adversely affected in FY12. This resulted in lower booking run-rate of about Rs400-Rs500 crore per quarter in FY12 from sales run rate of Rs900-Rs1,000 crore over the last eight quarters. Similarly, its average cash-flow from sales declined to Rs600-Rs700 crore per quarter in FY12 to normal run-rate of Rs900 crore per quarter in FY11.
According to media reports, during FY11, there were about 1.02 lakh units that remained unsold just in Delhi-National Capital Region (NCR), while the same for Mumbai was 90,512 units.