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Last Updated : Oct 27, 2015 06:09 PM IST | Source: Moneycontrol.com

IndiGo's parent IPO opens: Is Rs 700-765/share reasonable?

Most analysts are bullish on the IPO and believe the price band is reasonable going by the company profile business model.

 
 
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Moneycontrol Bureau


Yes, most analysts feel that IndiGo is one of the best in the industry and parent company deserves to command high valuation. The much-anticipated InterGlobe Aviation initial public offer (IPO) will open on October 27 and close on October 29.  The low-budget carrier has fixed price band for its initial share sale at Rs 700-765, through which it aims to raise up to Rs 3018 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.


Most analysts are bullish on the IPO and believe the price band is reasonable going by the company profile business model.

Don't miss: 10 key things to know about IndiGo IPO

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Angel Broking recommends ‘subscribe’ to the issue at higher end of price band as it believes that 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," it says in a report.


As per the brokerage's estimates upper end of the price band is valued at 2.1 times EV/Sales and at a P/E of 21.3 times. It says that Interglobe is not comparable to domestic peers on price to equity basis as most of them are loss making while the premium on EV/Sales basis is warranted due to Interglobe’s superior operating performance and profitability.


AnandRathi also suggests 'subscribe' with a believe that the offer is worth  considering  for investment on a shortand medium term basis. It feels that In light  of Indigo’s market leadership position, cost competitiveness, and  a low-cost carrier (LCC) business model along India’s aviation potential makes Indigo one of the consistent performer and growing potential in this industry.


"On valuation front company is trading at 6.8xs EV/EBITDA and 1.6xs EV/Sales  for  FY16. Also  on  annualised  basis earning in FY16  comes  around  10  which  is  reasonable. It is also India’s only profitable airline and has been like that for the past five years, in an industry plagued with high costs and tait says," it adds.


Impressed by single model fleet, well negotiated maintenance contracts, capital light business model (using operating leases primarily), better utilisation rates and low average age of its aircraft fleet, Ajcon Global recommends 'subscribe' to Interglobe IPO.

Why not subscribe?


ICICIdirect.com finds valuation to be rich. It says that the  valuation commands a premium over select global peers that are trading at average EV/sales of 1.5 times and EV/EBITDA of 9.3 times. "The proposed issue price band of Rs 700-765 implies an EV/EBITDA of 13.6-14.8x and EV/sales of 1.8x-2.0x, which, we believe, factors in all major positives of lower than industry cost structure, low crude prices and sustained mid-teen ASK growth," it reasons.

SP Tulsian of SPTulsian.com is not convinced by the low budget carrier's IPO and does not recommend ‘subscribe’ on concerns of current assets, current liability, negative networth, dividend payment and lack of consistency.

"How can a negative networth company have a cash in balance? It has a consistent liability of Rs 3200 crore. In FY12 profit before tax fell around 90 percent (Y-o-Y), while in FY14 PBT slipped 50 percent (Y-o-Y) due to forex. FY15 and Q1FY16 have been robust only because of crude. So, the airline company is vulnerable to operating lease of aircraft, crude and forex,” he says in an interview to CNBC-TV18.


In April-June quarter, IndiGo posted a net profit of Rs 640.44 crore. During the same period, total revenues stood at Rs 4,317.19 crore. For the year ended March 2015, the carrier recorded a net profit of Rs 1,295.58 crore on revenues of Rs 14,309.14 crore. As of December 31, 2014, it had a total indebtedness of Rs 4,002.8 crore and Rs 2,474.6 crore of net debt (net of free cash of Rs 15,28.2 crore).

Cause of worry, however, has been its networth slipping to negative. Its net worth fell to a negative Rs 139.39 crore at the end of June 2015. The company has attributed this to payment of interim dividend. Net worth of the company was Rs 426.22 crore as of March 31, 2015 . The company says this may make it difficult or expensive to obtain future financing or to meet liquidity needs.

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First Published on Oct 27, 2015 07:48 am
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