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Last Updated : Oct 28, 2015 12:39 PM IST | Source: Moneycontrol.com

Apply for Interglobe Aviation IPO for listing gain: Ajcon

Ajcon Global has come out with its report on Interglobe Aviatio (IGAL) IPO. The research firm has recommended to "SUBSCRIBE" the issue, in its research report dated October 26, 2015.

 
 
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Interglobe Aviatio (IGAL) IPO review by Ajcon Global


Interglobe Aviation operates Indigo, which is one of the largest passenger airlines in India, with a market share of 37.4% (as of August 31, 2015). As per a report by CAPA, Indigo is the seventh largest LCC in the world by total seats (as of FY2015). Indigo started operations in August 2006 with a single aircraft and has grown its fleet size to 97 Airbus A320s with an average fleet age of 3.7 years. Presently, it operates services to 33 airports in India and to 5 international airports, with a maximum of 623 domestic flights per day. It operates on a LCC business model with particular focus on the domestic Indian air travel market, while the share of its international routes is relatively low. It has an asset light model with 22 of the current 97 aircrafts on finance lease and the remaining 75 on an operating lease.


For FY15, company reported total revenue of Rs. 14,309 crore, with PBT and PAT of Rs. 1,836 crore and Rs. 1,296 crore respectively, owing to crude prices halving to ~US$ 50 per barrel from ~US $ 100 per barrel prevailing at the start of the fiscal. In Q1FY16, which is seasonally a strong quarter, coupled with crude prices remaining soft, PBT improved to Rs. 925 crore, on revenue of Rs. 4,317 crore. While FY14 witnessed 21% jump in topline, PBT nearly halved YoY to Rs. 472 crore in FY14, as rupee depreciated from Rs.54 levels in April 2013, to Rs.66 in September 2013, against the US dollar. Again, in FY12, company’s PBT fell 90% YoY to Rs. 75 crore, from Rs. 715 crore in FY11, despite 45% jump in revenues, as rupee moved sharply against US$, from sub 45 levels to about 54, between Aug 2011 to Jan 2012. Thus, on one hand FY15 and Q1FY16 profitability present a good picture; profitability took a hit FY14 and FY12 thanks to wild fluctuations in forex / crude movement. This exposes an investor to unpredictable macro risks. On an average, two-thirds of the total costs are denominated in the US dollars, while approximately half the cost is towards fuel, both beyond the company’s control. However there are few more concerns: a) The Company has a negative networth of Rs. 1,394 mn as on Q1FY16 on account of significant amount paid as dividend. Apart from paying dividend, entire Capital Redemption Reserve of Rs. 1554 mn and about 80% of General Reserves, being Rs. 1539. mn, were used for issuing bonus, of 9 shares for every 1 share held, on 25th June,2015. b) Current Liabilities of the company stood at Rs. 3,2.48 bn, with Current Assets of Rs. 3,0.68 bn (including cash balance of Rs. 22.70 bn) on that date.


At the upper end of the price band, the Company is valued at 2.1x EV/Sales and a P/E of 20x at FY15 EPS and with due consideration to factors like a) India’s aviation potential as it is still underpenetrated, b) market leadership position, c) significant cost competitive advantage owing to A320 neo aircrafts, d) asset light business model, e) India’s only profitable airline with profitability witnessed in last 7 years, f) management’s capability to drive profitability growth, we recommend “SUBSCRIBE for listing gains”.

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First Published on Oct 28, 2015 12:38 pm
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