Indigo IPO starts on a strong note on day 1, should you invest?

InterGlobe Aviation has fixed the price band for its initial share sale at Rs 700-765, through which it could raise up to a little over Rs 3,000 crore.

indigo ipo
IndiGo IPO: India's largest airline by passenger numbers, IndiGo Airlines, is the only consistently profitable local carrier for the past seven years, according to consultancy Centre for Aviation (CAPA).

Indigo’s Rs 3,018-crore initial public offer by its parent InterGlobe Aviation that hit the capital markets on Tuesday started on an impressive note with issue subscribed 87 per cent on the first day itself.

The much-awaited InterGlobe IPO received bids for 2,60,58,525 shares against the total issue size of 3,01,22,088 shares, data available with the NSE till 1700 hours on Tuesday showed. The quota reserved for qualified institutional buyers (QIBs) was over-subscribed 2.96 times. QIBs bid for 2,52,03,360 shares against 85,22,935 shares reserved, thus generating demand for shares worth Rs 1,928 crore.

The company has fixed the price band for its initial share sale at Rs 700-765.

Post-issue, the shareholding of promoters and promoter group in the company will fall to 84.9-85.2 per cent from the current holding of 94 per cent. The company plans to use the net proceeds for repayment of certain outstanding lease liabilities, consequent acquisition of aircrafts (Rs 1,166 crore), purchase of ground support equipment (Rs 34 crore) and for general corporate purposes. The issue will close on October 29 (Thursday).

IndiGo is one of the two profit-making domestic airlines with the other one being GoAir. At present, only two domestic scheduled carriers – Jet Airways and SpiceJet – are listed, while trading in long-grounded Kingfisher Airlines has been suspended for a long time. For the financial year ended March 2015, InterGlobe Aviation reported net profit of Rs 1,295.58 crore up 173 per cent, against Rs 474.44 crore in the previous financial year. The company registered net profit of Rs 987.3 crore in the financial year ended March 2013.

Market experts and the management of Interglobe aviation is looking bullish on the Interglobe Aviation IPO, or IndiGo IPO. Aditya Ghosh, president, whole-time director, Indigo Airlines, told Financial Express online, “Investors should subscribe to the IPO because we are the most profitable airline in the fastest growing aviation market in India. We have also got a competitive advantage which no one can replicate for the next five years. With 33.9 per cent market share, we are also the largest domestic career.”

According to Angel Broking, Interglobe Aviation has been the only passenger aircraft operator in India to post consistent profits over the past seven years. The magnitude of the aircraft orders placed by the company has enabled it to negotiate favorable terms with Airbus, as well as with other suppliers and service providers. This has created a structural cost advantage for the company in terms of operations and maintenance of aircrafts compared to its peers. The brokerage house believes that the valuation of Interglobe is justified, considering the opportunity present in the vastly underpenetrated Indian air travel market. Interglobe is better placed than its peers to capture higher market share on the back of its proven management track record, continuous fleet addition and with its sustainable profitable business model. Hence Angel Broking recommends a “Subscribe” to the issue at the higher end of the price band.

Indigo’s total revenue grew 25.16 per cent year-on-year to Rs 14,309.14 crore in FY 15 against Rs 11,432.12 crore last year.

The global coordinators and book running lead managers to the issue are Citigroup Global Markets India Private Ltd, JP Morgan India Pvt Ltd and Morgan Stanley India Company Pvt Ltd. The book running lead managers are Barclays Bank PLC, Kotak Mahindra Capital Company and UBS Securities India Pvt Ltd.

The offer comprises fresh issue of shares worth Rs 1,272.2 crore and the revised Offer for Sale (OFS) size that would be about Rs 1,746 crore. Together, the share sale can rake in up to Rs 3,018.2 crore.

With three promoters — Rakesh Gangwal, Shobha Gangwal and Chinkerpoo Family Trust — deciding to offload less number of shares in the company, the IPO size has come down to Rs 3,018 crore.

InterGlobe Aviation has raised Rs 832 crore from anchor investors by allotting shares at the upper price band of Rs 765 apiece.

The company has allotted little over 1.08 crore shares to more than 40 anchor investors, including the Singapore government, Monetary Authority of Singapore, Goldman Sachs India Fund, Abu Dhabi Investment Council – Tallyfish, Indus India Fund (Mauritius) Ltd, Kuwait Investment Authority Fund 224, Credit Suisse Singapore Ltd and Sundaram Mutual Fund.

Sharekhan in a research note said, “On the valuation front, the company looks expensive comparing with most of its peers in the Europe, the Middle East and Africa (EMEA) and American regions. Further, comparing EV/EBITDA and P/E multiples with the players in the EMEA and American regions, the company is priced higher. Although, the company’s aggressive growth strategy, strong balance sheet, dominant market share and operational efficiency among global peers is unquestionable.”

(With agency inputs)

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