InterGlobe Aviation Ltd, India's top airline company that operates budget carrier IndiGo, has filed its documents to float its initial public offer (IPO) to raise Rs 1,272.2 crore ($200 million) through a fresh issue of shares in addition to an offer for sale by top management and promoters.
This would make it the biggest IPO in the country in recent times and the company could be worth many times the market cap of the two public listed airlines—Jet Airways and SpiceJet.
Founded around a decade ago by travel industry entrepreneur Rahul Bhatia (now 55) and aviation industry veteran Rakesh Gangwal (now 61), who also served as CEO of US Airways, IndiGo went on an aggressive expansion drive.
It trumped both legacy carriers such as Indian Airlines (now Air India) and Jet Airways among other low-cost airlines that started almost at the same time to emerge as the top air carrier in the country.
It had managed to steer away from the loss-making nature of the aviation industry globally and in India and had been grabbing headlines for big aircraft orders.
Indeed, last October it had signed a Memorandum of Understanding (MoU) for record 250 aircraft from Airbus, the single-largest order by number of aircraft for the European aircraft maker. This agreement expired recently, though the two firms are in negotiations to work out an alternative order.
Some even attribute the profits the firm generates by its nifty execution of aircraft order and leasing business activity. Although the same business model is followed by almost airlines, the large orders allow IndiGo to generate a bargain.
Although it is poised for further growth in the world's fastest growing major economy—domestic air traffic rose 18.35 per cent in May—it faces challenges from newer carriers such as AirAsia and others. IndiGo retained its top position among domestic airlines, growing its market share to 38.9 per cent in June.
The Indian air travel market experienced rapid growth beginning in 2003 following opening of the sector to further private participation. Domestic passenger volumes grew at a CAGR of 19.4 per cent between FY04 and FY10, according to DGCA.
Following the global financial crisis, domestic passenger volume grew at a CAGR of 7.6 per cent over the next four years.
India was the ninth-largest aviation market in the world by total domestic and international seat capacity in 2014, according to industry body CAPA.
IndiGo joins a list of over one-and-a-half dozen firms which have filed or are sitting on a proposed IPO after approval of their draft documents with securities market regulator SEBI.
Here's a snapshot of the IPO
Primary issue to raise Rs 1,272.2 crore besides an offer for sale of 30.146 million shares by promoters and top management.
Citigroup, J.P. Morgan, Morgan Stanley, Barclays, Kotak Mahindra Capital and UBS Securities.
Use of IPO proceeds
From the net proceeds of the primary issue, the company plans to use Rs 1,165.5 crore to retire certain outstanding lease liabilities for aircraft and a small Rs 33.3 crore for purchase of ground support equipment for airline operations.
IndiGo is India’s largest passenger airline and the seventh largest low-cost carrier globally in terms of seat capacity in 2014, according to CAPA. It started operations in August 2006 with a single aircraft, and has grown its fleet to 96 aircraft as of April 30, 2015, all of which are Airbus A320 aircraft. It currently has an order book of 180 A320neo aircraft and expects to take delivery of 15 additional aircraft, including nine A320neos, by March 31, 2016.
As of the week ended April 30, 2015, it operated scheduled services to 33 airports in India, with a maximum of 593 domestic flights per day.
From FY10 to FY15, its domestic passenger volume increased at a CAGR of 29.3 per cent from 6.6 million domestic passengers to 23.7 million domestic passengers, according to DGCA. Its market share of domestic passenger volume increased from 14.5 per cent to 33.8 per cent in the same period.
Its total revenue increased to Rs 11,432.1 crore in FY14, growing at a CAGR of 43.9 per cent since FY10. Its EBITDA increased to Rs 2,204.4 crore, growing at a CAGR of 27.5 per cent in the same period.
The firm hit breakeven at the net profit level in FY09 and has remained profitable since then. It sported net profit of Rs 473 crore in FY14 after it was hit by high fuel prices that led to a decline in profit after hitting a high of Rs 783.3 crore the previous year.
For the first nine months of last fiscal ended December 31, 2014, the company generated Rs 10,359.8 crore with net profit of Rs 720.8 crore.
As of December 31, 2014, it had total indebtedness of Rs 4,002.8 crore and net debt of Rs 2,474.6 crore (net of free cash). All its debt was aircraft related, and it did not have any working-capital-related indebtedness.