BE READY FOR INDIGO
Mumbai: InterGlobe Aviation Ltd, the owner of India’s biggest and most profitable airline IndiGo, is likely to hit the capital market with its Rs.2,500 crore initial public offer (IPO) in October, when workers are paid their annual bonuses and incentives and the festival season is in full swing.
IndiGo will start investor roadshows in India and abroad starting Monday, according to two people close to the development. “The airline is likely to secure final approvals for the share sale from the markets regulator shortly. The investor roadshows will start from Mumbai,” one of the two people cited above said. Spokespersons for IndiGo and the Securities and Exchange Board of India declined to comment.
The low-cost carrier, the only airline that has been consistently profitable since 2009, plans to the proceeds from the share sale to expand in India, one of the world’s fastest growing markets for air travel. The funds will potentially help the airline, which had a 33.8% share of domestic passenger traffic in the year ended 31 March, to further consolidate its lead over rivals Jet Airways (India) Ltd and SpiceJet Ltd in the intensely competitive Indian market.
“IndiGo had been an exception even in this adverse industry environment having delivered consistent growth and profitability. The expected valuation, though steep, should materialise, given IndiGo’s track record over the last decade,” said K.G. Vishwanath, a partner at consulting firm Trinity Aviation Consultants Pte Ltd.
The next five years will be a golden run for airline stocks in India given a lower cost environment coupled with growth potential, he said. “The IndiGo IPO will also see significant re-rating of the other two listed entities.”
On Thursday, IndiGo reported a record net profit of Rs.1,304 crore for the year ended 31 March—a fourfold jump over the previous year— benefiting from higher passenger traffic and lower jet fuel costs. IndiGo reported a net margin of 9.4% in its submission to the civil aviation regulator. The airline currently operates a fleet of 97 planes and offers 648 flights a day.
“IndiGo is likely to hit the capital market with an IPO in October. It is likely to position the IPO in between the celebrations of Dussehra and Diwali in October. This is the ideal window IndiGo is targeting assuming all necessary approvals will be in place by then,” the second person cited above said. “Early October or late October are two windows IndiGo is looking at.”
The airline applied for regulatory approval in July for the IPO, the largest in India’s civil aviation industry. The IPO story is a proxy for the great India consumption story, said Vishwanath.
True, IndiGo might have achieved a feat unrivalled in India’s debt-laden and money-losing airline industry, but the capital market is not all that smooth. A 1,600 point fall by the BSE Sensex on 24 August seems to have changed the environment for IPOs just around the time appetite for such initial share sales seemed to have revived and with a healthy pipeline of companies waiting to go public.
The track record of the most recent five IPOs—Navkar Corp. Ltd, Pennar Engineered Building Systems Ltd, Shree Pushkar Chemicals and Fertilisers Ltd, Sadbhav Infrastructure Project Ltd and Prabhat Dairy Ltd—has not been great, with investment bankers having to work extra hard to ensure that they were fully subscribed. Besides institutional investor demand drying up, an unexpected event that roiled the markets was the agitation for reservation by the Patel community in Gujarat. This disrupted stock broking services in the city and reduced demand from high networth individuals from cities such as Ahmedabad, Rajkot and Surat.
IndiGo is unfazed, according to the people cited above, as the price of jet fuel, on which airlines typically spend 45-55% of revenue, has declined sharply in line with a drop in the price of crude, enabling airlines to on operational costs.
Oil prices have fallen over 50% since June 2014. Crude oil plunged below $40 in August as concern over slowing Chinese growth fuelled volatility in world markets.
Zerodha (Trading Account)
RHP
