The long awaited airline IPO or Interglobe Aviation which operates Indigo is set to hit the primary markets, from 27th to 29th October 2015. The company is coming out with Rs 1272.2 crore issue at a price band of Rs 700-765, offering 1.66 Crore Equity Shares. Besides this, company also planned to offer up to 26,112,000 additional chunk of shares via OFS aggregating the share sale up to Rs 3268 Crores. However, on the first day of their IPO roadshow (19th Oct) few of the promoters decided to offload less shares as part of OFS, thus IPO size came down by 250 cores to Rs 3018 Crores at the highest band.
Turn-ons vs Turn-offs
Indigo, despite being a component of a very volatile airline industry has seen exponential growth in the last few years. The company has been profitable in 7 out of 9 years of its existence and has focused only on the Low Cost Carrier (LCC) approach for its survival. The LCC operations means sticking to single aircraft type, low fares, no-frills approach and concentrating on “point to point operations”. The company has the highest market share of 37.4% in domestic operations as on 30-Aug-2015.The company also has the highest 11.4 hours per day of aircraft utilization and average age of 3.12 years (youngest fleet) amongst the domestic carriers.
On the flip side, negative net worth and whopping dividend outflow to the promoters have been the most concerning pointers. The RONW was very good since last years but suddenly tanked into red as on Q1 of the ongoing fiscal. The whopping dividend to the promoters just before the IPO has raised eyebrows but company justified it that they have been always investor friendly and will continue this practice even when the company goes public. The negative net worth was also attributed to the dividend outflow to the promoters.
On a thorough analysis, the company paid 80% of the profits as dividends in FY14 and 83% of the profits as dividend in FY15. Analysts have also questioned Indigo’s approach of paying hefty dividends and not building reserves or lowering debt which tantamount to mammoth Rs 3912 Crores as on Jun 30, 2015. The industry and subsequently company also enjoys a huge advantage of lower oil prices and there is no guarantee that crude will continue to be at this bottom or trough over the long run.
Amidst all these favourable and unfavourable pointers, the IPO price band of 700-765 has been also questioned by the analysts. The analysts and brokerage house feel IPO pricing is on the higher side and company is quoting a huge premium for the all advantages it relishes in the airline industry.
Social Media Outlook
In an effort to capture social media vibes and overall sentiments around the Indigo IPO. I used “Talkwalker”, a Social Media Listening and Analysis tool. The timeline chosen for the analysis was from 20th-Oct-15 to 26th-Oct-15.
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