What does Aditya Ghosh flying out of IndiGo mean for the stock?
IndiGo’s investors are unlikely to take news of Aditya Ghosh’s resignation kindly, since it comes at a time when InterGlobe Aviation intends to make key changes in its strategy and oil prices are on firm ground
On Friday, the BSE Sensex ended higher, but shares of InterGlobe Aviation Ltd, India’s largest airline operator, plunged 6.2%. Yet the announcement that Aditya Ghosh, the company’s president, had resigned came well after market hours. At first glance, it does look as if the market had a whiff of the development beforehand.
InterGlobe, which started operations in August 2006, runs IndiGo airlines. Ghosh took on the role of IndiGo’s president in August 2008 and has pretty much been the face of the airline. Investors are unlikely to take the news kindly, considering it comes at a time when the firm intends to make key changes in its strategy and oil prices are on firm ground.
Ghosh’s resignation comes at a crucial time, when IndiGo is on the verge of changing its 10-year-old strategy of moving from operational lease to owning some aircraft, points out Mayur Milak, senior research analyst, at IndiaNivesh Securities Ltd. It is also shifting to a multi-fleet strategy from single-fleet operations earlier, added Milak. IndiGo also intends to expand its international reach.
There are some soothing voices. Some believe the fact that IndiGo has announced a succession plan would reassure investors.
Gregory Taylor, whom the board will consider for appointment as president and chief executive officer, comes with more than 40 years of experience and experience of working in global airlines. “This, along with the appointment of expatriates in other functions shows seriousness and focus towards the international business,” said an analyst requesting anonymity. Others argue that the promoters—Rakesh Gangwal and Rahul Bhatia—oversee the business closely and have made IndiGo what it is today.
For investors, however, it would have been a comfort to have Ghosh at the helm to see through this transition, given his successful past track record. His exit is bound to leave a void, as the airline performed well under his leadership.
Operating revenue rose to Rs18,581 crore for fiscal 2017 from Rs3,833 crore in fiscal 2011. During the same period, pre-tax earnings increased to Rs2,144 crore from Rs715 crore.
Fiscal 2018’s revenue is set to exceed that of FY17, what with revenues for the nine months ended December already at Rs17,222 crore.
To be sure, the phase of low crude oil prices that began in mid-2014 was immensely helpful for all airlines and IndiGo was no exception. Still, IndiGo was flying above the rest by a wide margin and the equity markets rewarded that. IndiGo’s market capitalization now stands at Rs54,000 crore. Debt is relatively small at Rs2,423 crore and free cash stood at Rs8,098 crore at the end of December. Market share for the March quarter is close to 40%.
Currently, the IndiGo stock trades at nearly 19 times estimated FY19 earnings, not particularly cheap. Now, with Brent crude oil price flirting with $75 a barrel, there is a threat to earnings anyway and the stock’s already high valuation doesn’t help.
The management changes bring in uncertainty and investors will have to wait and watch how the new management responds. “Whether this entire change will have an impact on the Air India deal remains to be seen,” says the analyst cited above, who did not wish to be named.
We should have some clarity in the March quarter earnings conference call scheduled on Wednesday.