BackInvestment bankers vying for IndiGo IPO
At least half a dozen investment bankers will make presentations to IndiGo in Paris within a fortnight
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Mumbai: At least half-a-dozen investment bankers are competing to manage the upcoming $400 million initial public offering (IPO) by India’s most profitable airline IndiGo and will make presentations to the company in Paris within a fortnight.
Several high-profile Indian and international bankers are in the race for the IPO, six people familiar with the development said, asking not to be identified.
A spokesperson for Indigo declined to comment.
Run by InterGlobe Enterprises Ltd, IndiGo is India’s largest airline with a market share of 31.6% as of April.
Some of the bankers travelling to Paris to pitch for the mandate include JM Financial Institutional Securities Pvt. Ltd, Axis Bank Ltd and Deutsche Bank.
IndiGo’s IPO plans come at a time when Indian airlines are together expected to lose $1.4 billion in the current fiscal year. Costs are expected to increase and two new airlines, Air Asia India and the Tata-Singapore Airlines venture are entering the market. The combined loss of Indian airlines was at $1.77 billion in the last fiscal year and in the last seven years, the industry’s accumulated losses have reached $10.6 billion, consulting firm Capa Centre for Aviation said.
In a 26 June report, Capa said despite the challenges experienced in the airline sector, there are bright spots such as IndiGo’s success in establishing itself as a sustainably profitable airline, even though its 2013-14 earnings were below expectations.
“The time is approaching to leverage this achievement and an IPO is likely in FY2015, possibly in the third quarter. If it proceeds, it is expected to be the largest ever aviation IPO in India," Capa said. IndiGo could raise $350-400 million through the share sale, Capa said.
“The offer is likely to be preceded by a strong statement about its future growth prospects, with IndiGo expected to place another large order for 200-250 aircraft at Farnborough in July 2014 to meet its equipment requirements post-2025. The carrier has a current fleet of 79 aircraft with an order book of 186," Capa said.
With its fleet of Airbus A320 aircraft, the airline offers 498 daily flights connecting 36 destinations.
IndiGo is led by its president Aditya Ghosh and is controlled by Rahul Bhatia’s InterGlobe Enterprises and Rakesh Gangwal, an aviation industry veteran.
“IndiGo is definitely one of the better-run airlines in India today. However, given that their fares are pretty much the same as the other low- fare airlines in the market and their cost structure isn’t dramatically different from the others, its financials won’t be too different either," said Bharat Mahadevan, an independent consultant. “It is impossible for them to post profits on operations alone and IndiGo’s profits are probably related to sale and leaseback of aircraft and other exceptional non-operating items," he said.
Mahadevan added that the IPO would help IndiGo raise capital to fund operations for the next few years as well as order more aircraft. “The industry will face the problem of over capacity. The IPO will just make it worse for the industry as IndiGo will get funds to expand and add capacity. Each airline is waiting for the other to fold," he said.
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