Parent InterGlobe Aviation’s shares bear the brunt, drop more than 17% intraday

Shares of InterGlobe Aviation Ltd, the parent of the country’s largest airline, IndiGo, slumped more than 17% on Wednesday amid a tussle between its co-founders on corporate governance. The stock touched a low of ₹1,291 during the day before closing at ₹1,397.75, down 168 points, or 10.73%, on BSE.

In the last one year, shares of InterGlobe rose 28.19% while rival SpiceJet was up 7.84%. In 2019, so far, shares of SpiceJet outperformed (up 34%) InterGlobe (up 20%). Shares of IndiGo gained 82.7% from its issue price of ₹765 a share listed on 10 November 2015.

The dispute may have an overhang on the stock, said Gagan Dixit, aviation analyst, Elara Capital. However, the stock will not be re-rated until there is any major or further escalation of the dispute, he said. “Operationally the stock is fine with fair valuations compared to its peer,” Dixit said.

InterGlobe trades at 22.33 times based on one year forward of FY20 earnings, while the figure for SpiceJet is 11.97 times, according to Bloomberg data.

Of all the analysts covering the InterGlobe share, 13 have a “buy” rating, five have a “hold”, while five have a “sell” rating, shows Bloomberg data.

After Jet Airways shut its operations in April this year, analysts said that its misfortunes may have turned a panacea for SpiceJet and InterGlobe Aviation.

According to Elara Capital’s estimates, IndiGo’s earnings per share is at ₹102 for FY20 and ₹143 for FY21 on margin recovery from an increase in airfare and reduction in capacity by Jet Airways. “We expect InterGlobe to gain a 5% market share post grounding of Jet Airways,” the brokerage firm said in a report on 25 June.

Profits of the aviation sector are likely to continue to surge in Q1FY20 across the sector with earnings rising 30 times year-on-year (y-o-y) for IndiGo, according to Edelweiss Securities Ltd. In a report on 4 July, analysts at Edelweiss said that IndiGo is estimated to continue to clock a steady 25% passengers growth y-o-y, bolstered by international operations and its yields are likely to rise 10% y-o-y because of a surge in fares on routes vacated by Jet during April. “Aviation turbine fuel prices are down 1% y-o-y, adding to profits. Passenger load factors are estimated to remain steady at 89.4% at IndiGo as capacity additions will broadly match passenger growth,” Edelweiss said.

Domestic passenger growth at IndiGo has been around 20%, while international growth has been close to 60%. Edelweiss expects IndiGo’s market to have crossed in to double-digit territory in Q1FY20 versus 6% last year.

Rakesh Gangwal, one of the two co-founders of IndiGo, in an 8 July letter addressed to Securities and Exchange Board of India chairman Ajay Tyagi alleged several violations at the airline, including those pertaining to related-party transactions, appointment of senior management personnel, directors and the chairman, who has always been an independent director by convention.

The charges were denied by co-founder Rahul Bhatia, who accused Gangwal of trying to dilute the controlling rights of his holding company InterGlobe Enterprises Pvt. Ltd in the low-fare carrier, IndiGo.

“Absolutely nothing has really changed for any of us. I will just go about doing my job to the best of my abilities and I know I can count on you to do the same. Thank you for your dedication and efforts towards delivering our promise of on-time, courteous and hassle free experience,” Ronjoy Dutta, chief executive, IndiGo, said in a letter to employees.

Watch: Rift between IndiGo co-founders widens as tussle reaches SEBI doorstep