Market & analysts don’t buy ‘growth on track’ story; the two moving NCLT can’t be ruled out.
With reports of serious differences between the two promoters of IndiGo — Rahul Bhatia and Rakesh Gangwal — over the strategies and ambitions for the airline surfacing, the company management on Thursday went into a damage control mode.
Ronojoy Dutta, CEO, InterGlobe Aviation, which owns the low-cost airline, said in an e-mail to employees that the airline’s growth strategy remains unchanged and the management has the full backing of the board of directors to implement it.
The belated action, however, did not have the desired result as IndiGo’s share tumbled 8.82% to close at `1,466.60 on the BSE. During the day, it tanked 9.82% to `1,450.50. At the NSE, shares plummeted 8.40% to close at `1,475.
Following the plunge in the scrip, the company’s market valuation dropped by `5,455.89 crore to `56,377.11 crore on the BSE.
IndiGo currently has a 47% market share in the domestic passenger market.
“I want to assure you that the growth strategy of the airline remains unchanged and firmly in place, and the management is fully charged by the board to implement it,” Dutta said in the email. “I am sure you are all aware of the press reports regarding alleged disagreements between our two promoters Rahul Bhatia and Rakesh Gangwal,” he added.
The CEO said the company would continue its focus on creating value for all shareholders, customers, employees and the communities it serves.
In order to resolve the differences amicably so that it does not affect the airline’s functioning, Gangwal and Bhatia are taking help from law firms J Sagar Associates and Khatian & Co, respectively, according to sources.
However, if the differences between the two do not get resolved within a limited time frame, one option could be separation between the two. The possibility of the two moving to the National Company Law Tribunal (NCLT) can also not be ruled out in the long run. In both the cases, IndiGo is set to witness a setback in terms of growth.
IndiGo did not respond to any media queries, but in response to a clarification sought from the exchanges, it said, “The company is not in a position to comment on such news as it relates to the promoters of the company”.
While Gangwal owns around 37% stake in InterGlobe Aviation, Bhatia has around 38%.
Sources said while the areas of operation between the two promoters were earmarked, off late, differences started emerging over strategies for growth. While Gangwal, a US citizen, supports high-speed growth to take advantage of the expanding domestic market, Bhatia favours a more cautious approach for the next phase of growth, especially international.
Founded in 2006, IndiGo placed an order for 250 A320 aircraft for $26.5 billion in 2015. Since then, its domestic market share has jumped from 30% in FY16 to 47% at FY19-end.
Gangwal, who has worked with the United Airlines and US Airways, was the man behind these large orders, and wants the airline to become a global carrier.
In contrast, Bhatia ran the airline in India. He even acted as an interim CEO after president and whole-time director Aditya Ghosh quit in July, 2018.
The company management may put up a brave face but if the differences carry on and are not resolved fast, it is sure to affect the airline’s growth.
“It is not a great timing for a dispute to crop up. The industry is already struggling due to grounding of Jet Airways. And now this rift. If not resolved quickly it can snowball into a full-fledged legal dispute. The airline (IndiGo) has ambitious plans to expand international operations,” an aviation expert said.
IndiGo has a fleet size of 225 aircraft, including Airbus A320, A321 and regional jets ATRs. It added 55 aircraft — more than half of planes added by all domestic carriers — during calendar year 2018 and has plans to continue expansion of fleet at the same rate this year. It services 54 domestic and 17 international destinations, with around 1,400 daily flight operations.
During the October-December quarter IndiGo’s net profit had declined 75% year-on-year at `191 crore due to higher jet fuel prices, soaring lease rentals and other costs. The company will announce its January-March earnings on May 27.