IndiGo IPO flies mostly on global wings

70% of bids from foreign investors; share offering lapped up six times; retail quota under-subscribed

Pankaj Madan, CFO, Aditya Ghosh, President and Whole-time Director, InterGlobe Aviation Limited, Aditya Ghosh, President and Executive Director of InterGlobe Aviation Limited and Sanjay Kumar, Chief Commercial Officer, InterGlobe Aviation Limited

The Rs 3,000-crore initial public offering (IPO) of InterGlobe Aviation, which runs IndiGo, sailed through without any turbulence, with foreign investors on board. It was subscribed a little over six times. The 30-million share offering saw nearly 185 million bids, worth about Rs 14,000 crore. About 70 per cent of the offering, or 127 million bids, came from foreign institutional investors (FIIs).

IndiGo Listing Date: Global investors scrambled to buy InterGlobe shares, hoping India’s air travel penetration would increase through the next few years. As of now, the penetration level is only 0.08 annual domestic seats per capita, against penetration rates of 0.35-0.6 in other developing markets such as Brazil, Turkey, Indonesia and China, according to Angel Broking.

IndiGo Allotment Date: IndiGo operates in the lucrative low-cost carrier (LCC) segment. On listing, the airline would be one of the world’s leading LCCs in terms of market value.

The qualified institutional buyer segment, which includes institutional investors such as FIIs, mutual funds and insurance companies, was subscribed 17.8 times. The non-institutional investor category was subscribed 3.6 times.

IndiGo IPO flies mostly on global wings The retail investor category — those investing less than Rs 2 lakh — was subscribed only 92 per cent. Around 45 per cent of the IPO was reserved for retail investors, while seven per cent of the issue was reserved for InterGlobe employees.

Despite a 10 per cent discount on offer, the employee quota was subscribed nearly 13 per cent. The undersubscribed shares meant for the retail category, as well as employees, will be distributed among other investor segments, which saw high subscription.

Experts said the retail investor portion received a lukewarm response, owing to concern over valuations. Most domestic brokerages had termed the IPO pricing expensive; grey market activity, too, suggested marginal listing day gains.

For the IPO, InterGlobe had set a price band of Rs 700-765 a share. Given the heavy demand, the IPO is likely to be priced at the top end of the band. That will value the company at about Rs 27,500 crore. At Rs 765 a share, InterGlobe’s market value will be six times that of Jet Airways and 10 times that of SpiceJet.

Though most analysts had hailed IndiGo’s operational efficiencies, they felt the pricing had left little on the table for investors. “While we appreciate Indigo’s efficient operations and management capability to deliver profitable growth in a sector where few have succeeded globally, we find valuations expensive. At 10.2 times the FY15 EV (enterprise value)/Ebitdar (earnings before interest, tax, depreciation, amortisation and rent), at the higher end of the peer sector range, the proposed issue price fully factors profits on aircraft trading and lower than the sector’s aircraft maintenance costs in perpetuity, plus the benefits of lower crude prices and mid-teen volume growth through the next 10 years,” domestic brokerage house Ambit had said in a report.

"Foreign investors that applied in IndiGo have a record in being invested in other LCCs like RyanAir, Air Asia and others. So, they had a greater level of confidence, while for domestic investors, this offering was a first of its kind. That's why it was more FII-led. Still a deal of this size has seen good demand from most investors,” V Jayasankar,  head of equity capital markets, Kotak Investment Banking.

Investment bankers handling the IPO had said marquee global investors made big-ticket applications. According to reports, famed investor Rakesh Jhunjhunwala invested a significant sum. Business Standard couldn’t confirm this independently.

Citigroup Global Markets, JP Morgan, Morgan Stanley, Barclays Bank, Kotak Mahindra, UBS Securities were the investment banks that handled the IPO.

Article Source: Business Standard

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IndiGo IPO: A robust business model but no discount in Indigo Airline IPO price

India's largest airline company, InterGlobe Aviation, which operates IndiGo, is seeking to raise about Rs 3,000 crore from its initial public offering (Indigo IPO). While about Rs 1,800 crore of this is an offer for sale, going to the existing shareholders, the rest is a fresh issue. At Rs 765, upper end of the band, the company is looking at a valuation of Rs 27,500 crore. The two listed aviation players, Jet Airways and SpiceJet, have a combined market cap about a fourth of this number.

IndiGo IPO: A robust business model but no discount in Indigo Airline IPO price.

Why IndiGo is asking for a higher valuation is due to a consistent record of superior operational performance, across parameters. The key differential is, of course, the way it manages costs. Costs per available seat km (CASK, measured in US cents) at 5.95 is much lower than SpiceJet's 6.68 and Jet Airways' 9.05. Excluding fuel, the single biggest cost item, its CASK at 2.87 cents is lower than GoAir and SpiceJet, the other low-cost carriers. A single aircraft type, low distribution costs and a younger fleet have helped keep down costs on operations and maintenance. Its decision to order 100 A320s in 2005 helped it negotiate favourable terms, analysts say. The sale-and-lease back arrangement helped it gain about Rs 3,500 crore.

IndiGo Airline IPO: A robust business model but no discount in IPO price Coupled with the fleet expansion and strong passenger volumes, the low CASK has helped it grow faster than the market. IndiGo's market share has increased from 14.5 per cent in FY10 to about 36 per cent with passenger volumes increasing 26 per cent. Higher volumes and load factors, along with growing revenue per passenger, has translated to 40 per cent annual growth in domestic revenues over FY10-15, while earnings before interest, taxes, depreciation, amortisation and rentals (Ebitdar) have grown 25 per cent. The company has also benefited due to the multiple challenges faced by competition (management change, high cost structure, lack of pricing discipline, etc.), which helped IndiGo move ahead.

A few favourable tailwinds will benefit the entire sector going ahead. The first is passenger volumes. The sector has been growing at about 12 per cent annually and analysts say demand would be 1.2-1.5 times gross domestic product growth which should help all players. Especially IndiGo, given its fleet strength and the fact that it is growing faster than the market. Growth in recent months has been a strong 20 per cent for the sector, with IndiGo outperforming peers. The other positive for the company is cheaper fuel costs which should boost its profits.

In FY15, the company made Ebitdar margins of 27 per cent and net margins of nine per cent as compared to 20 per cent and four per cent in FY14. Ebitdar margins, given lower fuel costs, spurted to 37 per cent in the June quarter, with net margins at 15 per cent enabling the company to report a net profit of Rs 640 crore. While the September quarter and the March quarter are not the best quarters of the year, analysts believe the company should be able to close the year at about Rs 2,400 crore in net profits.

The listed players far lag IndiGo and have a patchy net profit record; so, a comparison with the better global performers is in order. Low cost European and American carriers have their enterprise value/Ebitdar ranging between seven and eight times. While the company deserves a higher multiple given that the Indian market is growing faster, the IndiGo IPO, at about 7.6 times its FY16 EV/Ebitdar estimates, is slightly on the expensive side. Analysts say the company should have left something on the table for investors.

Article Source: Business Standard

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The low-cost carrier, India's largest by market share, is reported to be working on a public listing in the first quarter of FY2015-16

Low-cost carrier Indigo Airlines is preparing for a public listing in the April-June 2015 quarter to raise about Rs 2,500 crore, the Times of India newspaper reported Wednesday.

Indigo Ipo date: The airline, which is India’s largest by market share, has consistently reported profits, is also expected to be profitable in the fiscal year ending March 2015.

Indigo Ipo: Indian commercial airlines have also had a reprieve of late due to all-time lows in crude prices, enabling them to save significantly on aviation fuel costs, which is the single largest operational expense. Some of the fuel savings, however, have been offset by heavily discounted tickets offered by airlines to try and increase passenger load and market share.

Indigo Airlines said to launch Rs 2,500-cr IPO price in June quarter: report

However, private airlines Jet Airways and SpiceJet, both of which are listed, continue to bleed money, while debt-addled Kingfisher Airlines has closed operations for close to three years now, with no signs of resuscitation by either promoter Vijay Mallya or any new investors.

indigo airlines ipo price: The operator of top Indian airline IndiGo has set the indicative price band for its initial public offering of shares at between 700 rupees ($10.83)and 765 rupees ($11.83) apiece, three sources directly involved in the transaction said.

Indian markets have been on a rise since late last year, with the BSE Sensex breaching the 29,000 mark, driven largely by expectations of reforms from the Narendra Modi-led government and two surprise interest rate cuts by the Reserve Bank of India.

Indigo has been preparing for the IPO since last year when it restructured its shareholding to become eligible for foreign direct investment (FDI), the newspaper reported.

Article Source: Business Standard

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