IndiGo operator InterGlobe Aviation to raise Rs 3,000 crore via QIP, Centrum downgrades stock to 'reduce'

The domestic air traffic recovery has been hit hard due to the second COVID wave, leading to brokerage houses significantly reduced their earnings estimates for the aviation industry for the financial year 2021-22.

May 11, 2021 / 12:18 PM IST
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The share price of InterGlobe Aviation gained 2 percent intraday to Rs 1,711 on the BSE on May 11, a day after the IndiGo operator announced a fund-raising plan. At around noon, the stock was trading at Rs 1,685.55, up 0.45 percent, with a market capitalisation of Rs 65,049.79 crore.

InterGlobe Aviation plans to raise Rs 3,000 crore through a qualified institutions placement (QIP) process, as the second coronavirus wave has left the aviation industry grappling with low demand with states tightening restrictions.

"The board of directors of InterGlobe Aviation, on May 10, has approved the raising of funds for an aggregate amount not exceeding Rs 3,000 crore," the company said in its BSE filing.

The fund-raising is going to take place through an issue of equity shares by way of a qualified institutional placement, an indication that the company that operates India's largest domestic airline wants to remain in a comfortable position in terms of liquidity in the COVID-led hit, experts say.

The company had said last week that would continue to explore all options to increase its liquidity, including by way of a QIP.

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The domestic air traffic which was just beginning to recover from last year's extended lockdown has been derailed by the furious second wave with the country reporting more than 4 lakh cases for most of the last week.

India reported 3,29,942 new cases, the lowest daily infection count in 14 days, in the last 24 hours, taking the country’s COVID-19 tally to above 2.29 crore, the health ministry’s May 11, 2021 update said.

Brokerage houses have significantly reduced their earnings estimates for the aviation industry for the financial year 2021-22.

"Domestic air traffic recovery has been hit hard by the second wave of COVID infections across India. We lower our domestic traffic estimate for FY22 to 76 percent of FY20 traffic from 85 percent earlier, while retaining FY23 estimate at 95 percent of FY20," Centrum Broking said.

"Aviation turbine fuel (ATF) costs rose 24.7 percent QoQ in Q4FY21 and have increased by 2.5 percent thereafter. We lower EBITDAR for IndiGo by 23 percent and 4 percent in FY22 and FY23 respectively."

IndiGo with a free cash balance of Rs 7,440 crore as on December 2020 and plans to raise further equity through QIP remains in a relatively comfortable position to tide through the current crisis. However, at 10x FY23E EBITDAR risk-reward is unfavourable, said Centrum, which downgraded InterGlobe to reduce from "add" rating with a lowered price target of Rs 1,636.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: May 11, 2021 12:18 pm

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