Mumbai: InterGlobe Aviation Ltd’s shares tumbled nearly 18% on BSE on Wednesday morning as the squabble between its founders intensified. InterGlobe runs IndiGo, the country’s largest airline. The stock eventually closed 11% lower at 1,398.

One of the co-founders, Rakesh Gangwal, has sent a letter to the Securities and Exchange Board of India (Sebi), alleging serious governance lapses at the company, including certain related-party transactions between co-founder Rahul Bhatia’s private firm and the airline.

Reports of differences between the two promoters, Gangwal and Bhatia, have been doing the rounds for a while. On 16 May, when the dispute became public, IndiGo shares had fallen 9% on BSE to 1,467 apiece.

But analysts and investors seemed convinced with the company’s response to the situation, and the company’s shares soon reached new highs, riding on the increase in market share after the exit of Jet Airways (India) Ltd.

Gangwal’s letter to Sebi changes things materially. Investors are now worried the spat will linger and result in uncertainty for the stock.

“The dispute has the potential of lingering on and becoming a significant headwind for the Indigo stock," wrote analysts from Credit Suisse Securities (India) Pvt. Ltd in a report on 9 July.

“With the conflict between the two promoters coming out in the public in great detail, we do not envisage a settlement anytime soon. We think that the uncertainty regarding the final resolution could cause weakness in the stock price," said analysts from Citi Research on 9 July.

Analysts aren’t particularly worried about any immediate impact on the company’s financials, though. “The dispute does not seem to have had any meaningful operational impact so far. However, an operational impact cannot be ruled out, particularly in case of a public dispute," added Credit Suisse.

According to an analyst who did not want to be named, “The success of IndiGo has been credited to the vision and execution skills by way of synergy between the promoters. If the dispute is not settled soon, it could result in concerns around dilution of the advantage to IndiGo from the synergy between promoters. This, in turn, could hurt the airline’s expansion plans."

IndiGo is at a crucial juncture with an international expansion overdue, and stability at the top will be important to execute its plans. “Promoter commitment is a vital ingredient of value creation. Minority shareholders will always value a business slightly better where promoters are more committed, present and hands on. On the other hand, if the promoters have differences, then their interest in the business will reduce and that can hamper business," said another analyst, who too declined to be named.

Still, a look at its premium valuations suggest investors aren’t overly worried yet. IndiGo trades at around 30 times estimated FY20 earnings, and its shares are still considerably higher on a year-till-date basis. Analysts say that since Gangwal has not convinced them about any specific wrongdoing, investors are giving the company the benefit of doubt.

Having said that, if the concerns about governance lapses are not allayed soon, it will affect valuation multiples eventually.

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