Mumbai: InterGlobe Aviation Ltd that owns India’s biggest and most profitable airline IndiGo will launch its Rs.3,200-crore initial public offer (IPO) on 27 October, top management of the airline stated.
The airline which has been the only one to be consistently profitable since 2009 has fixed a price band of Rs.700-765. The public issue will close on 29 October. It is seeking a pre-money equity valuation of about Rs.24,059 crore at the lower end of the price band and Rs.26,293 crore at the higher end of the band.
Bankers to the IndiGo public issue are Citigroup Global Markets India Pvt. Ltd, JPMorgan India Pvt. Ltd and Morgan Stanley India Co. Pvt. Ltd. The other bankers to the issue are Barclays Bank Plc, Kotak Mahindra Capital Co. Ltd and UBS Securities India Pvt. Ltd.
In its red-herring prospectus filed with the exchanges on Friday, IndiGo reported a negative net worth of Rs.139.38 crore as of 30 June. It reflects the 30 June 2015 payout of an interim dividend of Rs.1,207.08 crore for fiscal 2016, which was offset by profit after tax of Rs.640.43 crore in the three months ended 30 June, IndiGo said.
“IndiGo IPO is sending wrong signals to prospective shareholders. The company has extracted the best out of the company before hitting the capital market,” said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd.
Referring to the IPO as expensive, Kejriwal said the IndiGo share sale is timed well when crude prices are softening. “At the end of the day, you have negative networth. Be it Rs.1 or Rs.100 crore. You are no different than your rivals,” he said.
IndiGo’s president and whole-time director Aditya Ghosh, however, said IndiGo is a well-disciplined company and in the years when there have been uncertainties like in 2011-12, the airline has not paid dividend despite making profits. Barring fiscal 2012, the airline has consistently paid dividends since fiscal 2011.
InterGlobe Aviation posted a record Rs.640.43 crore in a quarterly profit for the three months ended 30 June. The airline notched up the profit on revenue of Rs.4,317.19 crore for the quarter, according to the documents, which didn’t disclose profit and revenue for the year-ago period.
The airline has reported an Ebitdar (earnings before interest, tax, depreciation, amortisation and rentals) of Rs.1,577 crore, with an Ebidtar margin of 37%.
In September, IndiGo reported a record net profit of Rs.1,304 crore for the year ended 31 March—a fourfold jump over the previous year—as it benefited from higher passenger traffic and lower jet fuel costs ahead of the initial share sale. The company saw a 25% rise in revenue to Rs.14,320 crore in 2014-15 from Rs.11,447 crore in the previous year.
“The trick is in the cost and our holy grail is cost cutting. We are obsessed with cost reduction. We were lucky that we could start the airline with lowest possible cost,” said Ghosh in an interview on Monday morning.
The net profit margin of the airline was 15%.
Ghosh said the airline would have found it difficult to keep costs in check had it not placed an order for 100 Airbus A230 planes in 2005, set aside a reserve for plane maintenance costs, and entered into a six-year short-term operating leases for planes. All these planes have been delivered, making IndiGo the only Indian airline flying a single aircraft type, leading to low maintenance costs.
The airline, which has displaced established carriers such as Jet Airways and Air India to become India’s largest airline in its nine years of existence, ordered another 180 Airbus planes in June 2011, this time from the brand new A320neo family. The delivery of these planes is awaited.
For the quarter ended 30 June, IndiGo generated cash of Rs.873 crore and has cash on hand of Rs.375 crore, 24% of its total revenue. “Shareholders are investing money in expectation of certain returns. We are focusing on three things —helping customers, creating motivated employees and making shareholders delighted with our financial performance,” Ghosh said.
While most airlines have benefited from lower oil prices, Ghosh says that Indigo will have an upper hand even when oil prices move higher. Fuel cost typically accounts for 40-50% of the operating cost of an Indian airline. “We have the advantage of starting early and ordering large size of fleet. Even if the fuel prices shoots up, IndiGo will have an advantage over rivals. We are sitting at a unique advantage which rivals cannot replicate,” Ghosh said.
Ghosh added IndiGo is the seventh-largest low cost airline in the world with one of the lowest cost structures of 2.51 US cents per available seat kilometre (excluding fuel) compared to other airlines. He said IndiGo is focusing on a quicker turnaround of airplanes at airports, high aircraft utilization, lower fuel burn due to a young fleet and lower maintenance cost.
The airline is also focusing on ancillary revenues, which account for 11% of total revenues. “Ancillary revenues are high margin business for airlines. For last four years, our ancillary revenues have grown at a compounded annual growth rate of 38%,” said Ghosh.
IndiGo, which had a 39% share of domestic passenger traffic in the year-ended 31 March, currently operates a fleet of 97 planes and offers 648 flights a day.
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