Home >Markets >Mark To Market >IndiGo sets its sights on liquidity as it ventures into unchartered territory

It was common knowledge that InterGlobe Aviation Ltd would report massive losses for the June quarter due to the lockdown and ensuing travel restrictions. The moot point was, how much?

InterGlobe, which runs budget airline IndiGo, reported a net loss of 2,849 crore on revenue of 767 crore. It also said that fixed cash burn dropped to about 30 crore per day in June from roughly 40 crore per day in March. This improvement was helped by cost-cutting initiatives and a gradual increase in the number of flights. For the June quarter, IndiGo’s employee costs and supplementary rentals & maintenance cost declined sequentially by about 17% and 56%, respectively.

The carrier expects cash burn to drop further as it scales up operations, boosting its liquidity position. Speaking of cash, the sequential drop in its free cash was curtailed to 1,400 crore. By June-end, free cash stood at 7,527 crore, offering comfort to investors that the airline has adequate cash to be able to sail through this storm.

Overall, IndiGo’s liquidity measures and cost-control efforts have helped contain the drop in cash balances vis-à-vis reported performance, say analysts. In other words, the operating performance suggested cash reserves should have depleted more, and likely points to other liquidity enhancing measures taken by the company.

Cash comfort
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Cash comfort

But how long will the free cash last given the uncertain business conditions? According to ICICI Securities Ltd, “Based on Q1FY21 run rate and considering IndiGo is following a strategy of continued induction of (A320) neos, the present free cash of IndiGo will last for four quarters even without any vendor negotiations and seven quarters including the impact of negotiations seen in Q1FY21."

While announcing its March quarter results, IndiGo had explained various steps that would provide 3,000-4,000 crore of liquidity. In its June quarter earnings call, Aditya Pande, chief financial officer, InterGlobe Aviation, said it was also working on sale and leaseback of its owned planes and obtaining moratorium on some loans. “We expect that these actions will help us raise additional liquidity of approximately 2,000 crore," Pande said. The company is also looking to raise funds.

While IndiGo has risen to the occasion during this pandemic crisis, its capacity guidance is a bit underwhelming. The airline expects its September quarter capacity to be about 40% of year-ago levels and that of the December quarter at 60-70%.

Of course, how demand pans out is paramount. As long as people shy away from flying, cost-cutting measures can only help to a limited extent. Unsurprisingly, the IndiGo stock is about 38% away from its pre-covid high in January.

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