It is not so much the InterGlobe Aviation Ltd’s March quarter results that will bring cheer to investors but the fact that it recommended a final dividend of Rs.15 per share. InterGlobe Aviation runs India’s most profitable airline, IndiGo. With this, including the much-criticized interim dividend issued prior to its initial share sale, IndiGo’s dividend for fiscal 2016 works out to Rs.42.83 per share.
That translates into a dividend yield of 4%. IndiGo’s last three years’ average dividend payout has exceeded 90%, wrote analysts from Motilal Oswal Securities Ltd in their post results note on Friday. It’s worth remembering that IndiGo’s dividend to existing investors in June had left the company with a negative net worth then. The fact that IndiGo has been consistent with its dividend is likely to please investors, as it lays to rest suspicions about the company not being as generous post listing.
What of its future dividend policy? “As far as dividend is concerned, you will see, again, it is in line with what we have done in previous years,” said Aditya Ghosh, president and whole-time director, in an earnings conference call last Friday. “We don’t have a dividend policy but going forward, depending on what the cash requirements of the company are, what’s happening in the market place, what’s happening at a macro level, the board will figure out whether we pay more dividend, less dividend, or no dividend. But, again, in the past, if you see, we have been a very shareholder-focused and dividend-paying stock, which is what we have done this year,” added Ghosh.
How did IndiGo fare in the March quarter? In an announcement to BSE on 29 February, when the company said A320neo aircraft deliveries will commence from March, IndiGo had also guided about March quarter performance. Accordingly, analysts’ expectations had tapered. For instance, Kotak Institutional Equities had cut FY16 earnings per share estimates by 10% to reflect lower topline growth and margins in the March quarter and higher lease rentals.
In that sense, IndiGo’s March quarter numbers are largely in line. Revenue and earnings before interest, tax, depreciation, amortization and lease rentals, or Ebitdar, increased 7% each to Rs.4,090 crore and Rs.1,505 crore, respectively, compared with last year. That translates into an Ebitdar margin of 36.8%, steady year-on-year and two percentage points lower sequentially. Like every other airline, IndiGo, too, reaped the benefits of falling crude prices. IndiGo’s CASK (cost per available seat km) declined 5.7% from last year, but its CASK excluding fuel costs increased 10%. Rupee depreciation had an adverse impact, considering two-fifth of costs are dollar denominated. But net profit was at Rs.579 crore, slightly ahead of analysts’ expectations, helped to some extent by higher other income.
However, the upside in the stock may well be capped. That’s because after closing at a low of Rs.722 on 11 February, IndiGo’s share price has gone up as much as 48% so far. That’s still one-fifth lower, compared with its all-time closing high. Currently, the stock trades at 16 times estimated earnings for this year. Domestic passenger growth has been strong. According to data from the Directorate General of Civil Aviation, passengers carried by domestic airlines in January-March 2016 rose 24% year-on-year.
During FY16, IndiGo’s Ebitdar margins expanded significantly to 34.8% from 27.5% in FY15. No doubt, much of the margin increase can be attributed to the lower fuel costs. In keeping with that, whether the valuations will expand further over the medium term will depend greatly on crude prices, which have started showing strength of late. “The best case scenario would be if IndiGo is able to maintain its margins at the current levels,” says an analyst.