Indigo Airlines IPO – Should you invest?
Indigo Airlines IPO / Interglobe Aviation IPO would open for subscription on 27th October, 2015. Indigo Airlines is the only airways in India which is making profit compared to Jetairways and Spicejet currently. Its revenues have grown by 3.6 times in last 5 years. It earned 9% profits in last financial year. What are the positive factors of Indigo Airlines IPO? What are hidden factors of Indigo IPO? Should you invest in such IPO or not?
About Interglobe Aviation Ltd / Indigo Airlines
IndiGo, India’s largest passenger airline with a 33.9% and 37.4% market share of domestic passenger volume for fiscal 2015 and the five months ended August 31, 2015, respectively, according to the DGCA. They operate on a low-cost carrier, or LCC, business model and focus primarily on the domestic Indian air travel market. They were the seventh largest low-cost carrier globally in terms of seat capacity in fiscal 2015, according to CAPA. They continuously focus on maintaining its cost advantage and a high frequency of flights while striving to fulfil its simple brand message of providing “low fares, on-time flights and a hassle-free experience” to its passengers.
Issue details of Indigo Airlines IPO
- IPO opens: 27-Oct-2015
- IPO closes: 29-Oct-2015
- Face Value: Rs 10 per share
- Issue price band: Rs 700 – Rs 765 per share
- Minimum Shares: 15 shares and in multiples of 15 shares there-of
- Minimum amount: Rs 10,500
- Issue size: Rs 3,108 Crores
- Lead Managers: Citigroup Global, JP Morgan India Pvt Ltd, Morgan Stanley India Pvt Ltd
- Listing: BSE / NSE
Purpose of the IPO:
- Repayment of certain outstanding lease liabilities and Acquisition of new Aircrafts
- Acquiring ground support equipment to enhance airline operation
- Other corporate purposes including brand building, issue expenses etc.
Company Financials (reinstated)
- Company generated revenue of Rs 3,944.15 Crores for the year ended Mar-11 and Rs 14,309.14 Crores for the year ended Mar-15.
- Company posted a Profit of Rs 579.46 Crores for the year ended Mar-11 and a Profit of Rs 1,295.58 Crores for the year ended Mar-2015.
- Its diluted EPS for FY 2015 is Rs 37.69 and last 3 years average EPS of Rs 27.24.
Reasons to invest Indigo Airlines IPO
- Good revenue growth in the last few years. It revenues increased by 3.63 times in last 5 years.
- Highest domestic passenger volume share of 34% in 2015 fiscal.
- Indigo has been awarded as “Best low cost airline in central Asia and India” for 6 consecutive years from 2010 to 2015.
- Only private airlines company generating profits in India.
Reasons not to invest in Indigo Airlines IPO
- Company has declared generous dividend ahead of IPO.
- Company and certain of its Directors, Promoters and Group Entities are involved in certain legal proceedings which, if determined adversely, may adversely affect its business and financial condition
- Company business and growth plans will depend on how effectively it apply the low-cost carrier, or LCC, model to the markets in which they operate or plan to operate and how successful they are in implementing its growth strategy.
- They may be unable to fulfil its commitments under its 2011 or 2015 aircraft purchase agreements with Airbus.
- They have in the past entered into related party transactions and may continue to do so in the future.
- Objects of the Issue include retirement of outstanding lease liabilities and repaying certain affiliates of its GCBRLM, J.P. Morgan India Private Limited. A foreign affiliate of J.P. Morgan India Private Limited, J.P Morgan Trust Company of Delaware, is a joint trustee of The Chinkerpoo Family Trust, which as of the date of this Red Herring Prospectus owns Equity Shares.
- Company levels of indebtedness could adversely affect its business. Further, they may incur a significant amount of debt in the future to finance the acquisition of aircraft and its expansion plans.
- Following the listing of the Equity Shares in the Issue, company will continue to be controlled by its Promoters and Promoter Group who will at completion of the IPO collectively control, directly or indirectly.
- A failure to comply with covenants contained in its aircraft and engine lease agreements or its financing agreements could have a negative impact on company.
- Contingent liabilities could adversely affect company financial condition.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 20 onwards.
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What company say about generoud dividend payout just before IPO?
Rakesh Gangwal and Rahul Bhatia, promoters of Indigo defend the move out payment of dividends ahead of IPO. In yesterday's article in ET, Gangwal says, "We haven't done the dividends (only) now. We have been doing that every year, except in 2012. That's part of our culture, of our psyche," said Gangwal, an airline veteran who has battled turbulence before at US Airways. "By the end of the first quarter, even after the dividends, we had cash of Rs 3,600 crore. And the negative net worth that the media picked up is 18 days of our profitability."
Recommendation / Investment strategy
- At an upper price band of Rs 765 and on last FY14-15 EPS of Rs 37.69, P/E ratio works out to be 20.3 times. Thought Jet Airways and Spice jet are listed peers, they are generating losses, hence the issue price of Indigo Airlines IPO cannot be compared with them in terms of P/E Ratio.
- Indigo Airlines revenues have been growing consistently in last 5 years. It generated good margins of 9.1% in last financial year. Though, Issue price looks aggressive, considering positive business outlook, good revenue growth and consistent margins, I would advise investors to subscribe to this IPO at the upper price band.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Indigo Airlines IPO – Should you invest?