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Interglobe Aviation (IndiGo) IPO review - High Risk, Low return (Avoid)

Review By Dilip Davda on Oct 19, 2015

Interglobe Aviation Ltd (IAL) that runs “IndiGo” flights since 2006 and has expanded its sphere with enhancement in its fleet to 97 aircrafts, flight destinations to 33 airports and currently having 603 flights per day is the largest low cost private sector aviation company. It has an order book of 430 aircrafts and expects delivery of 14 aircrafts before this fiscal end.  Its market shares as on 31.03.15 was 33.9% that has increased to 37.4% as of 31.08.15. IAL’s domestic passenger volume increased at a CAGR of 25.8% during fiscal 2011-2015 from 9.5 million to 23.7 millions. For five months ended at 31.08.15 the volume was 12.6 millions. It has posted an average on-time performance above 83% and operational reliability of 99.95% for the said period. 

To meet the funding for retirement of certain outstanding lease liabilities and consequent acquisition of aircrafts, purchase of ground support equipments and meet other corpus funding, the company is coming out with a maiden IPO of approx. 1.66 crore equity share of Rs. 10 each in a price band of Rs. 700-765 to raise Rs. 1272.20 crore. It is also having offer for sale of 26112000 shares by existing stakeholders. Thus the overall issue size is for Rs. 3270 crore at the upper price band. IAL plans to reserve permissible quota for eligible employees and they will be offered discount equivalent to 10% on the final price. Through this IPO, the company is diluting around 12% on the basis of post IPO equity.

Issue opens for subscription on 27.10.15 and will close on 29.10.15. Minimum application to be made is for 15 shares and in multiples thereon, thereafter. Post allotment shares will be listed on BSE/NSE. Global co-ordinators / BRLMs to the issue are Citigroup Global Markets India Pvt Ltd., J P Morgan India Pvt Ltd., Morgan Stanley India Co. Pvt Ltd., / Barclays Bank PLC, Kotak Mahindra Capital Co. Ltd., UBS Securities India Pvt Ltd. and registrar to the issue is Karvy Computershare Pvt. Ltd. Its entire equity has been issued at par but internal transfer has been at a fantastic pricing. It has also issued bonus shares in the ratio of 9 for 1 in June 2015. Its current paid up equity capital of Rs. 343.72 crore will stand enhanced to around Rs. 361 crore post IPO.

On performance front, the company has posted an average EPS of Rs.27.24 for last three fiscals and Rs. 18.63 (not annualized) for first quarter of current fiscal (on diluted basis). It has inconsistency in bottom line for last five fiscals. Its top line from FY 2011 to FY 2015 were Rs. 3944.16 cr., 5708.62 cr., 9440.23 cr., 11432.12 cr. and Rs. 14309.14 cr. while bottom line has been Rs. 579.47 cr., Rs. 140.59 cr., Rs. 783.36 cr., Rs. 474.44 cr. and Rs. 1259.59 cr. respectively.  For Q1 of current fiscal it has posted net profit of Rs. 640.44 cr. on a turnover of Rs. 4317.20 cr.  It has posted RONW for last three fiscals at an average of 225.01% and for Q1 of current fiscal at (459.47%). According to management, this is due to capitalization of reserves and payment of dividends (to the tune of Rs. 3500 crore) for last five years to existing stakeholders out of cash generations.  Its NAV as on 30.06.15 is negative at Rs. 4.06. Rise in net is due to Rupee/Dollar parity and eased ATF prices. If we annualized and attribute to fully diluted equity post IPO, EPS will be around Rs. 70.00. Thus asking price is at a P/E of 10 plus expressing greed in pricing of the issue. Peers are quoting at lower P/Es. IAL has not clarified its dividend payout policy. Its other major income is from lease contracts commission which may defer in future as competition rises.

As usual, global co-ordinators and merchant bankers have justified pricing that is based on company’s valuation as per global practice as well as on the feedback from foreign and big ticket  investors during road shows.


Conclusion / Investment Strategy

Considering its negative NAV as on 30.06.15, issue price is exorbitant. Aviation policy changes are expected in a month’s time, which will cast its shadow on the future trends of aviation industry. Rupee/Dollar parity and volatile ATF prices will continue to have its impact on bottom lines in coming years as well. As per latest balance sheet as on 30.06.15, as the cow is milked, there is virtually nothing is left for new investors at such a fancy pricing. Hence this appears to be a 'High Risk/Low return' bet.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Oct 19, 2015

Review Author

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 educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

IndiGo IPO FAQs

  1. 1. Why IndiGo IPO?

    The initial public offer (IPO) of InterGlobe Aviation Ltd offers an early investment opportunity in InterGlobe Aviation Ltd. A stock market investor can buy IndiGo IPO shares by applying in IPO before InterGlobe Aviation Ltd shares get listed at the stock exchanges. An investor could invest in IndiGo IPO for short term listing gain or a long term.

  2. 2. How is IndiGo IPO?

    Read the IndiGo IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. IndiGo IPO what should investors do?

    IndiGo IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the IndiGo IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is IndiGo IPO good?

    Our recommendation for IndiGo IPO is to avoid.

  5. 5. Is IndiGo IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the IndiGo IPO.

  6. 6. When will IndiGo IPO allotment status?

    The IndiGo IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by [.]. Visit IndiGo IPO allotment status to check.

  7. 7. When will IndiGo IPO list?

    The IndiGo IPO will list on Tuesday, November 10, 2015, at BSE, NSE.