How Rakesh Gangwal reaped a ₹45,000 crore IndiGo harvest
It isn't easy for a non-tech founder to walk away with eye-popping returns by selling his shares. But that's exactly what Rakesh Gangwal managed in less than 20 years. The exit comes as part of an agreement with his co-founder Rahul Bhatia.
In one of the most remarkable exits by a company founder, Rakesh Gangwal has sold the majority of his stake in IndiGo, turning a 2006 investment of ₹14.7 crore into a monumental ₹45,000 crore or $5 billion in less than 20 years. The sale, which follows his departure from the airline, highlights a chapter that saw his aviation acumen help transform IndiGo into India's largest airline.
Gangwal's IndiGo windfall comfortably beats that of Flipkart's Bansals, who made over $1 billion each in selling shares to Walmart in 2018, as it acquired the Bengaluru-based company for $16 billion. This is among the most successful stake sales by the founder of a homegrown firm since the start of the century, according to two investors and one investment banker.
"A ₹15 crore investment giving this kind of return in less than two decades is spectacular. It surely would count as one of the most successful exits for a founder, which is especially more because it was in a non-tech business," a Bengaluru-based investor said on the condition of anonymity.
Bold bet
Aviation veteran Gangwal had joined hands with Rahul Bhatia to launch IndiGo, making a daring bet on India's coming aviation boom. What proved to be a graveyard for rivals turned out to be a goldmine for IndiGo, as the low-fare airline went from strength to strength, swelling its valuation multifold along the way.
Gangwal had paid ₹14.7 crore to take 48% shares in InterGlobe Enterprises Ltd, which operates IndiGo, the company's IPO prospectus shows. IndiGo listed on the stock exchanges in 2015, and Gangwal's shareholding in the company stood at 36.6% in December 2021.
Through 15 transactions starting September 2022, he has sold 32.5% and earned ₹45,146 crore, according to a review of stock exchange filings seen by Mint. With this, Gangwal has sold nearly 90% of his original stakeholding in IndiGo, under an agreement with co-founder Rahul Bhatia.
Gangwal announced yet another sale on Tuesday; once that is concluded, he will own 4.1% in IndiGo, which is worth ₹9,580 crore, given the airline's ₹2.34 trillion market capitalisation on Tuesday.
Efficient operations
IndiGo Co-founder and managing director Bhatia owns 35.7% which, as of the end of Tuesday, was valued at ₹83,415 crore. Bhatia's notional wealth is higher is mainly due to a nearly 200% increase in IndiGo's share price since Gangwal first sold his shares in September 2022.
"Gangwal is to be credited for having played an important role in helping run IndiGo efficiently. Not taking credit away from the co-founders of the carrier (IndiGo), running an airline is not easy either, due to the volatility and challenges. However, the economic growth witnessed by the country over the last two decades, with more people flying, also helped the carrier," said the head of a Mumbai-based portfolio management services firm.
Any business pursued with true passion deserves to create wealth for both investors and promoters, said Deven R Choksey, founder and managing director DRChoksey FinServ Pvt Ltd. "IndiGo is a classic example, an airline that built its success on precision, customer-focused service, and careful attention to detail, all while maintaining one of the lowest cost structures in the industry. Their wealth creation is not just smart strategy but also the result of consistent effort and sound decision-making by the promoters and management," he said.
"For budding entrepreneurs, the key lesson is to build businesses around the customer. One clear takeaway is that ventures founded with a strong customer-centric approach tend to achieve higher success rates and deliver superior returns", said Choksey.
Indigo, which first flew in August 2006, now commands a 64% share of India's airline market, powered by a fleet of 416 Airbus aircraft. Last month, the airline reported a 6% annual revenue increase to ₹21,543 crore, while profits declined 20% to ₹2,176 crore.
IndiGo's outperformance comes against the unforgiving backdrop of Indian aviation, which has seen the demise of at least a dozen carriers including Jet Airways, Kingfisher and GoAir. The country's first private carrier East-West Airlines had folded in 1995 after the murder of its founder Thakiyudeen Abdul Wahid.
Background
Gangwal, a US citizen, graduated with a degree in mechanical engineering from the Indian Institute of Technology, Kanpur, and later completed a Master's in Business Administration from the Wharton School, University of Pennsylvania. He also worked at Ford and Booz Allen and Hamilton. He spent 17 years working with global airlines, including United Airlines, Air France and US Airways.
His friendship with Bhatia led to the two setting up the company in 2006, which they took public in 2015.
Gangwal oversaw IndiGo's strategy for the so-called sale-and-lease-back model of aircraft financing. Under this model, IndiGo negotiates attractive deals when placing bulk orders with Boeing or Airbus. IndiGo would later sell the aircraft at a premium to leasing companies, which would in turn rent the plane back to IndiGo for monthly payments.
Split
However, in late 2019, problems surfaced between the two friends. Gangwal accused Bhatia of corporate governance lapses. Gangwal wrote to market regulator Sebi, pointing to issues such as related-party transactions and the chairman’s lack of independence.
In 2022, Gangwal resigned from the board of directors of InterGlobe Aviation. Subsequently, the two resolved their differences, and Gangwal agreed to sell his nearly 37% stake by 2027.
While Gangwal's earnings are clearly an outlier, founders have bagged hefty payouts on their exits.
In 2008, Japan's Daiichi Sankyo Co bought Malvinder and Shivinder Singh's 34.82% stake in Ranbaxy for $2.4 billion. The total deal value was $4.6 billion. In 2010, Ajay Piramal-led Piramal Healthcare sold its domestic formulations business to Abbott Laboratories for $3.72 billion.
In 2023, Titan acquired online jeweller Caratlane founder Mithun Sacheti's 27% stake, following the Bengaluru-based company's initial investment of 62% in 2016, making Sacheti richers by over $550 million.
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