The country’s biggest discount airline, IndiGo, run by InterGlobe Aviation Pvt. Ltd, has hired four international investment banks to help it raise funds this year to finance expansion plans that include the proposed start of overseas flights.
UBS AG, Morgan Stanley, Credit Suisse Group and Citigroup Inc. were hired this month by the airline to raise money through either an initial public offering (IPO) or the private equity route, said a top IndiGo executive, who didn’t want to be named.
“They will be presenting their recommendation on the valuations in a month or so, depending on which we will take a call (on) how to go about it,” the executive said. “IPO is one of the options, besides private equity.” The size of the share sale is yet to be decided.
IndiGo, based in Gurgaon on the outskirts of New Delhi, plans to begin flights to South and South-East Asia, West Asia and China after it completes the mandatory five years of operations in August next year. The carrier plans to add 19 more Airbus A320 planes to its fleet of 25 by the end of 2011.
If the offer materializes, it will be made by InterGlobe Aviation and not parent group InterGlobe Enterprises Pvt. Ltd, which also runs hotels and other travel-related businesses, the executive said.
In an emailed statement, the airline said it has “some banks working on it (fund-raising plans)”. “But no decision has been made yet,” it said.
In the fiscal ended March 2009, the unlisted carrier promoted by InterGlobe’s Rahul Bhatia and ex-US Airways chief executive Rakesh Gangwal earned a profit of of Rs82.16 crore, the first since its launch in 2006, according to its annual submission to the Directorate General of Civil Aviation (DGCA). The profit came on Rs1,876.35 crore of revenue.
A top industry executive who deals with IndiGo and spoke on condition of anonymity said an IPO “is very much on the cards”, noting that “their hotel business has taken off, the airline has stabilized so there will be some restructuring (at the group)”.
India’s airline industry has been struggling with high costs and competition although passenger traffic has rebounded after being hit hard by the economic downturn stemming from the global financial crisis. Indigo’s peers SpiceJet Ltd, Kingfisher Airlines Ltd and Jet Airways (India) Ltd have all announced plans to raise funds that have proven elusive.
“This is not an easy time to be raising capital in any industry, let alone for airlines, which have often not yielded upside on their cost of capital in most parts of the world,” said Vikram Krishnan, an analyst with US-based aviation consultancy Oliver Wyman.