IndiGo IPO Review
If initial news were to be believed the the Indigo IPO price band was set between Rs398-Rs425, but it looks like the promoters have taken cue from CCD’s IPO and increased it to Rs700 -Rs765 per equity shares. Lets review the Indigo Airlines Initial Public Offer (IPO) in this post.
There will be discount of 10% for eligible employees of the Company. The promoters of the company include Rahul Bhatia, Rakesh Gangwal, and Interglobe Enterprises.
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Indigo Airlines IPO Positives:
Well, In India, only three airlines are listed on Stock exchanges (NSE and BSE) namely Jet Airways, SpiceJet and Kingfisher airlines. And trading in Kingfisher is already suspended from quite long.
InterGlobe Aviation Limited’s IndiGo airlines is the most profitable and one among the only two profit making airlines in India, other being GoAir. IndiGo posted a stellar set of numbers this fiscal year with net profit of Rs1300 Crores compared to Rs 320 Crores of year ending March 2014. Also, in the last quarter ending June 2015, it posted net profit of Rs 640 Crores.
IndiGo received the award for “Best Low-Cost Airline in Central Asia & India” at the SkyTrax World Airline Awards for six consecutive years from 2010 to 2015.
From fiscal 2010 to fiscal 2015, IndiGo’s domestic passenger volume increased at a outstanding CAGR of 29.3% from 6.6 million domestic passengers in fiscal 2010 to 23.7 million domestic passengers in fiscal 2015.
IndiGo’s aircraft utilization in block hours was 11.4 hours per day per aircraft in fiscal 2014, which was among the highest of any airline in India
As of December 31, 2014, the average age of IndiGo’s aircraft was 3.1 years, which was the second youngest average fleet age among Indian carriers and one of the youngest fleets of any Low Cost carriers globally.
IndiGo was recognized as India’s favorite airline for 2012, 2013 and 2014 by TripAdvisor’s Annual India Air Travel Survey, which also recognized it as having the best value for money of any Indian carrier in the 2014 survey.
Indigo airlines commands highest market share in Indian Aviation sector with around 34% revenue. It has fleet of 97 aircrafts and operates around 625 daily flights.
Indigo Airlines IPO Negatives:
Everything discussed above looks good about the performance of Indigo Airlines. But we feel the price band fixed for the IPO looks exorbitant. Lets see why.
It is worth while to note that, in spite of all these profitable years, the net worth of the company slipped into negative for year ending 31 March 2015. That means Indigo has more liabilities compared to its assets. Also means that, technically speaking the investors will be left with debt to be re-payed if the company has to be liquidated today!
Aviation Industry is highly cyclic in nature. That means it is difficult to forecast the future performance based on its past numbers. One can make money only if he knows to time the investment well.
Aviation sector is plagued with many disadvantages such as low profit margin, Staff disputes, High and fluctuating fuel costs, Intense Price competition, Regulatory Hurdles etc.
Business and growth of Indigo Airlines will depend on how effectively they apply the low-cost carrier model to the Indian aviation environment and how successful they will be in implementing their growth strategy.
Indigo anticipating series of acquisition of Airbus flights according to their pact with Airbus on June 2011. These flights are expected to be delivered between 2015 to 2023. Any delay in arranging the finances from Indigo towards this purchase may adversely affect their growth plan and eventually the revenues.
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Indigo plans to start operation in many new routes and there will be some promotional offers initially such as lower fares than the normal established fares, higher commission to travel agents etc. These routes are expected to be profitable over time, but it will have impact on the cash flows of the company and also there is no assurance that these routes will turn profitable.
Indigo’s Directors, Promoters and Group Entities are involved in certain legal proceedings, in the event of adverse rulings in these proceedings by other statutory authorities, Indigo as a company and their Promoters may need to make payments or provisions for future payments, which may increase expenses and liabilities.
Indigo IPO Share Price:
The Indigo Airlines IPO Share Price Band is fixed between Rs.700 to Rs.765 per equity share.
Indigo IPO Issue Dates:
The Indigo IPO is set be launched on 27th October 2015 and closes on 29th October 2015. The shares will be listed on the exchanges approximately after two weeks of issue close date.
Indigo IPO Other Details:
- Issue Type: 100% Book Building
- Issue Size: Rs.1,272.20 crores
- Face Value Per Share: Rs.10
- Issue Price Band: Rs.700– Rs.765
- Minimum Bid Lot Size : 15 equity shares and in multiples of 15 equity shares thereafter
- Minimum Order Value : Rs10,500 to 11,475
- Listing on Exchanges : BSE and NSE
- Registrar : Karvy Computershare Private Limited
Objects of Indigo IPO Issue:
The Issue comprises the Fresh Issue and Offer for Sale.
1) Objects of the Offer for Sale:
The proceeds from Offer for Sale (net of Issue related expenses incurred by the Selling Shareholders) will go to the Selling Shareholders and the Company will not receive any proceeds except reimbursement of Issue expenses incurred by the Company on behalf of the Selling Shareholders.
2) Objects of the Fresh Issue:
Company proposes to utilize the funds which are being raised through the Fresh Issue for the following objects:
- Retirement of certain outstanding lease liabilities and consequent acquisition of aircraft
- Purchase of ground support equipment for our airline operations
- General corporate purposes
- To receive the benefits of listing of the Equity Shares on the Stock Exchanges.
Indigo IPO Book Building Details:
Indigo IPO allotment will be according to following slabs
- 50% for QIB
- 15% Non-institutional investors
- 35% retail investors
Indigo IPO Contact Information:
Interglobe Aviation Ltd,
Central Wing, Ground Floor,
Thapar House, 124 Janpath,
New Delhi – 110 001
Phone: +91 11 6500 0428
Download the Indigo IPO Prospectus at : Indigo IPO Prospectus
That is the review and analysis of the Indigo IPO. Indian Aviation Industry has high mortality rate and we have seen Kingfisher going bankrupt and Jet Airways was rescued by Etihad. Since last decade, not a single listed airlines is able to generate positive returns to the Indian investors. Indigo’s positive results are providing cushion for its current liabilities, but we also should ask ourselves the question, “How long?”. The profits are directly related to the crude price which is hovering around $50, estimate the profitability on the event of it touching to $150. Considering all these factors, we think it is better to avoid this overpriced Indigo IPO and better divert your funds to other sectors. However, If you are keen on investing in Indigo as a company, may be it is sensible to wait for it to get listed and cool down to its realistic price.
And if you are applying for Indigo IPO with the intention of selling it for a premium on listing day, please keep an eye on Bihar Election results on 8th November. Performance of BJP may directly affect the market sentiments and IPO listing price.
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Disclaimer : No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial adviser prior to making any actual investment decisions, based on information published here in this IPO. The author cannot be held liable for any loss arising by following this article.