10 key things to know about IndiGo IPO

It will be interesting to see how IndiGo’s parent IPO performs when much-touted Coffee Day IPO met with a lukewarm response. The initial public offer will open on October 27 and close on October 29, with the allotment for anchor investors scheduled for October 26. Promoter holds 94 percent and which will come down to 82 percent post IPO.

Aviation stocks are jostling to list on the bourses with the primary market heating up on renewed investor appetite. The much-anticipated InterGlobe Aviation initial public offer (IPO) is likely to be followed by the Wadia Group-promoted budget carrier GoAir. InterGlobe Aviation which operates the popular brand IndiGo has been profitable since 2009, surviving in a sector in which companies are either debt-laden like SpiceJet and Jet Airways, or have fallen by the wayside (the flamboyant Kingfisher Airlines). IndiGo today is India's number one carrier by market share (over 33 percent) and seventh largest low cost carrier globally. 
#1 InterGlobe Aviation has fixed price band for its initial share sale at Rs 700-765, through which it could raise up to Rs 3,268 crore. The initial public offer will open on October 27 and close on October 29, with the allotment for anchor investors scheduled for October 26. Promoter holds 94 percent, which will come down to 82 percent post IPO. Under the offer, InterGlobe will have fresh issue worth Rs 1,272.2 crore as well as an offer for sale of little over 2.61 crore shares. The price band has been fixed at Rs 700-765 per share having a face value of Rs 10 each. 

#2 Proceeds from offer for sale (net of Issue related expenses incurred by the Selling Shareholders) will go to the selling shareholders. Proceeds from fresh issue will be used to: (a) Retire certain outstanding lease liabilities and consequent acquisition of aircraft- Rs 1,165.6 crore  (b)Purchase of ground support equipment for airline operations. The company proposes to deploy an aggregate amount of Rs 33.4 crore towards purchase of certain ground support equipment for airline operations, such as ramp coaches, tractors, ground power units and push-backs. (c)General corporate purposes 

#3 In April-June quarter, IndiGo posted a net profit of Rs 640.44 crore. During the same period, total revenues stood at Rs 4,317.19 crore. For the year ended March 2015, the carrier recorded a net profit of Rs 1,295.58 crore on revenues of Rs 14,309.14 crore.  As of December 31, 2014, it had a total indebtedness of Rs 4,002.8 crore and Rs 2,474.6 crore of net debt (net of free cash of Rs 15,28.2 crore) 

#4 Cause of worry, however, has been its networth slipping to negative. Its net worth fell to a negative Rs 139.39 crore at the end of June 2015. The company has attributed this to payment of interim dividend. Net worth of the company was Rs 426.22 crore as of March 31, 2015 . The company says this may make it difficult or expensive to obtain future financing or to meet liquidity needs. 

#5 IndiGo has the lowest Cost per Available Seat Kilometres (CASK), commonly used measure of unit cost in the airline industry, according to a report by SAP. In India, jet fuel prices tend to be higher than many other countries due to higher taxation imposed by local governments, according to the SAP Report. As per the  SAP  report, IndiGo’s CASK excluding fuel cost reduces further to USD 2.51 on the exclusion of maintenance reserves. 

#6 According to the DGCA, Indigo enjoyed 33. 8 percent market share of domestic passenger volume for fiscal 2015. As of April 2015, it has 96 aircrafts. Currently, it has an order book of 180  A320neo aircraft and expects to take delivery of 15 additional aircraft, including nine A320neos, by March 31, 2016. From fiscal 2010 to fiscal 2015, its domestic passenger volume increased at a  CAGR of 29.3 percent from 6.6 million domestic passengers in fiscal 2010 to 23.7 million domestic passengers in fiscal 2015, according to the DGCA. 

#7 Key risks to Indigo's growth include: a) inability to grow domestic networks and frequencies in a profitable manner b) inability to acquire additional licenses and traffic rights  c) delay or inability to procure, flight slots on financially viable terms d) changes to cost structure e) greater exposure to exchange rate volatility 

#8 Indigo has cautioned that on newly  commenced  routes,  load  factors  and  fares initially tend to be lower than those on established routes, resulting in  initial  losses. 

#9 Failure to comply with covenants contained in aircraft and engine lease  agreements or financing agreements could have a negative impact on IndiGo.

 #10 Unlike most full-service  carriers,  Indigo does not offer a frequent flyer  program, free lounges or include food and beverages in ticket price for non-corporate passengers. These items have helped to further reduce its cost base.