It’s Been A Smooth Take-off

The $465 million (Rs 3,018 crore) initial public offering (IPO) by InterGlobe Aviation, the parent of India’s largest airline Indigo, in October 2015 created many a record. It was the largest on two counts: the largest IPO since 2012 and the largest ever by an economy airline in Asia. But, the best record was its huge success in a market that was full of negative sentiments on aviation industry — known for only loss making operators and failed ventures.

As InterGlobe Aviation wasn’t so sure about such a spectacular success of the issue due to negative market perception and serious criticism for temporary net worth erosion of the company after a huge dividend payout, it banked almost fully on the smart execution of the launch by its lead managers, besides global investors, who backed it as anchor investors. “The IPO process was the toughest point in my days at the airline,” says Aditya Ghosh, president and whole-time director at InterGlobe.

Citigroup, J.P. Morgan and Morgan Stanley, the global co-ordinators and book running lead-managers for the issue, successfully led the IPO with end-to-end seamless execution marked with innovative initiatives.

Premium Value
For the IPO, InterGlobe achieved premium valuation of 7.1x in key financial metrics such as performance projection for the next 12 months (NTM EV) and profitability (EBITDA) as compared to 6x for competing low-cost airlines in Asia and 5.8x for Indian peers. The valuation was also much above the typical 5.5x for global peers in the low-cost segment.

“This is a globally best airline,” says Ravi Kapoor, managing director and India head, Corporate and Investment banking at Citigroup. “When InterGlobe did extensive roadshows and contacted in excess of 150 investors, it reached out to many who were invested in globally best-in-class airlines. If you look at those benchmarks, the response it got from investors in the roadshow as well as what it has delivered, the pricing compares favourably with the best,” adds Kapoor.
Indigo was benchmarked as the best in class among global low-cost airlines such as Ryan Air, Wizz Air, Easy Jet and Air Asia. Indigo enjoys 33.9 per cent passenger market share in India and has scheduled services to at least 33 cities within India and five international cities including Bangkok, Dubai, Kathmandu, Muscat and Singapore. An outstanding performer in the country’s turbulent aviation industry, the airline has been posting profits continuously for the past many years. And parent InterGlobe was also rated positively as an integrated travel services company with aviation, hospitality and other travel-related service businesses in its fold.

The group’s unique financial and operational strength was key for its premium valuation. Indigo’s main strengths are its biggest market share in the fastest growing aviation market; its disciplined execution of the low-cost carrier business model including single aircraft type, high aircraft utilisation and operational reliability; no-frills service and low distribution costs. Besides, its structural cost advantage leveraged through large Airbus aircraft orders enabling favourable terms on aircraft and its young, modern and fuel efficient fleet make the business profitable and sustainable.

The lead managers for the issue could also successfully devise the restructuring of the holding company to free up the foreign direct investment headroom for foreign institutional investors to participate in the IPO. The IPO was subscribed 6.5x with robust subscription across all tranches despite the pricing of the issue at the top end of the range Rs 700 and Rs 765. Creating yet another record, the stock delivered 17 per cent returns on listing day and 32 per cent within a month of listing that ultimately lifted the mood in the market even for other airline stocks.

“This huge success to our IPO and listing, however, increases the pressure and responsibility on us as we are now bound to get back to the public every three month with all the facts,” says Ghosh.

That’s what you call flying high.