Of course, all this is not to take away from the impressive performance in the June quarter
Investors would rather have a firm resolution on the matter, than the company’s well-intentioned assurances
If distractions were really helpful, InterGlobe Aviation Ltd’s June quarter results are as good as they come. In the midst of the messy, public spat between the airline company’s co-founders, the company reported a standout performance, with reported net profit being about 60% higher than the Street’s already optimistic estimates. InterGlobe runs IndiGo, India’s largest airline.
As an analyst at a domestic brokerage puts it, “While the results are impressive, it’s unlikely that the IndiGo stock will go back to its earlier highs because of the unresolved spat between the co-founders." IndiGo’s management tried to assuage investor concerns by saying that the only disagree between the co-founders was related to their shareholder agreement, and that other matters such the airline’s international expansion plans are unaffected. But as the wise saying goes, “When elephants fight, it is the grass that suffers."
Investors would rather have a firm resolution on the matter, than the company’s well-intentioned assurances. It hardly helped either, that the company said it doesn’t plan to make a board-commissioned report on related party transactions public. While companies often resort to the excuse that such reports contain confidential information that don’t belong in the public domain and especially with competitors, there is always the option of releasing a version with such confidential portions redacted.
The statement that it would rather not make the report public only sends the wrong signals.
Of course, all this is not to take away from the impressive performance in the June quarter. IndiGo’s net profit for the June quarter was Rs1203 crore compared to 28 crore in the same period last year and Rs590 crore in the March quarter.
IndiGo’s profitability last quarter was primarily helped by robust revenue growth, thanks to the exit of Jet Airways. Besides, as teh chart alongside shows, costs fell on a per unit basis as fuel costs were relatively benign.
“Cessation of services of Jet Airways positively impacted our profits this quarter helping our unit revenues to grow by 2-3% to the best of our estimates," said Ronojoy Dutta, chief executive officer in a post results conference call.
Yields, a measure of pricing, increased by a commendable 12% on a year-on-year basis. Note that this is the second consecutive quarter of 12% increase in yields.
To be sure, the flight ahead may not be as comfortable. For one, the boost from Jet’s exit is wearing off. Dutta points out, “We do not expect any meaningful impact of Jet Airways to continue as all airlines have now replaced the capacity vacated by Jet." Plus, the outlook on fares from a near-term perspective is not bright given the seasonality factor.
Moreover, as pointed out earlier, the promoter squabble is likely to grab investors’ attention in the days to come. Sure, June quarter results clearly show that the promoter disputes have not cast a shadow on operational performance. But at least some analysts are worried it can eventually impact performance. “The dispute has the potential of lingering on and becoming a significant headwind for the Indigo stock," Credit Suisse Securities (India) Pvt. Ltd analysts had written in a report on 9 July.
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