With the plan to launch a Rs 2,500 crore initial public offering (IPO), India's leading carrier, IndiGo, has been successful in setting the capital markets enthralled, but a closer reading of its draft prospectus has also left aviation experts raising a few questions.
In October 2014, IndiGo had signed a memorandum of understanding (MoU) with Airbus for the purchase of 250 A320neo aircraft.
According to the draft red herring prospectus (DRHP), the term sheet with Airbus has expired. This has left aviation experts wondering if there was a reason on how and why the term sheet expired in 2015, if the MoU was only signed in October, 2014.
“The fact that this has expired raises question that why did IndiGo let it expire. Is it an issue of money or was there some other reason?” says Devesh Agarwal, Founder, bangaloreaviation.com, adding “Once an MoU expires, it releases the sellers from those terms.”
Also, if the DRHP, which says IndiGo continues to be in active discussions with Airbus for the purchase of these aircraft, will it be able to secure this purchase at the same commercial and delivery terms as per the original MoU?
Another concern that looms is about group entities.
A total of 39 group entities have been making losses in preceding financial years, some of them consistently between FY12 and FY14. This has further intrigued experts who ask if these losses have had any impact on IndiGo's profitability.
While the DRHP says no part of the net proceeds from the IPO is payable to group entities, another question that arises is: will IndiGo look at financially supporting these group entities in the future?
In addition to this, a third concern with respect to dividends paid to the promoters is also being shared by several analysts.
Between fiscal 2011 and fiscal 2016, about Rs 3,500 crore was paid as dividends and interim dividends to promoters. Of this, a sum of Rs 2,083 crore was paid in FY15 and FY16 alone.
Analysts have questioned the practice of giving out such healthy dividends and asked why cash was not used to retire part of the company's Rs 4,000-crore debt. It also brings into question the need to come out with an IPO.
"Why was this money not being put to better use whether in terms of investment into the airline company itself?” asks Agarwal of bangaloreaviation.
CNBC-TV18 has posted these queries to IndiGo but did not recieve any response till the time of this report.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
