Transport Airlines

India’s Largest Airline Considers Right Moment for its Public Offering

Nov 25, 2013 3:00 am

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Is now the right time or is it better to wait? The confusion over timing speaks to the general chaos that is the Indian aviation market.

— Jason Clampet

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Vivek Prakash  / Reuters

File picture of an IndiGo Airlines A320 aircraft parked on the tarmac at Bengaluru International Airport in Bangalore. Vivek Prakash / Reuters


Privately held IndiGo, India’s largest airline by passengers carried, may consider raising funds from the public but an analyst said the firm will have to wait for the right time.

IndiGo had hired five investment bankers, which included JM Financial Ltd, Credit Suisse Group AG, Citigroup Inc., UBS AG and Morgan Stanley, in 2010 for a potential initial public offering (IPO), Mint reported on 4 October, 2010. The plan did not materialize.

Rivals Jet Airways (India) Ltd and SpiceJet Ltd are listed at BSE.

“Is it gonna happen tomorrow? No, I don’t think so. In overtime maybe… Is it imminent? I don’t think so,” IndiGo promoter Rahul Bhatia told reporters on Saturday on the sidelines of launching a new pilot training facility in Greater Noida.

IndiGo, owned by InterGlobe Aviation Pvt. Ltd, announced a more than sixfold increase in profit to Rs.787 crore for 2012-13 in September this year.

To a question on why did the airline announce record profits publicly this time and whether that was an indication of a forthcoming IPO, Bhatia said he wanted to set the record straight on profits.

“We always suffer an opinion of the world that everything about IndiGo is unreal. The results are unreal. It’s a fictitious number and stuff like that so there was some sort of pent-up desire… We pay honest taxes to the government, we pay real taxes to the government,” Bhatia said adding, “We have nothing to hide.”

IndiGo may look at an IPO in the next 12-18 months “with the changing market structure”, consulting firm Capa had said in May in its 2013-14 outlook for Indian aviation.

While Jet Airways has sold a 24% stake to Abu Dhabi-based Etihad Airways PJSC in a deal totalling $900 million, Tata Sons Ltd is entering a joint venture with Malaysia’s AirAsia Bhd to launch a domestic low-fare airline as well as teaming up with Singapore Airlines Ltd for a full-service airline. Forthcoming airlines such as Air Costa, which is already flying, and AirOne, which is under regulatory approvals, are also likely to give competition.

“Is there space for new players?” Bhatia asked in reply to a question before answering, “We will find out.”

To a question on whether there will be more consolidation in the industry, Bhatia said there have been mostly failures. “You have seen three of them already and all three of them unsuccessful,” he said.

Kingfisher Airlines Ltd bought Air Deccan, Jet Airways bought Air Sahara, and Air India Ltd and Indian Airlines merged into one as Air India.

IndiGo, which uses an all Airbus A320 fleet, may also look at the regional space at some point in the future, details of which have not been decided yet.

“But will we get into that space at some point? Hopefully, yes. Not immediately,” Bhatia said. “I don’t know if there is a market between Delhi and Meerut, but there is a regional market out there.”

IndiGo uses 69 planes to operate 434 daily flights connecting 34 destinations.

Asked about the high air fares, Bhatia said it was going to stay due to rise in input costs, especially rising fuel prices and devaluation of rupee against the US dollar.

“Airline business was high-currency business but in IndiGo we try to keep the fares low. We plan to keep fares low, fill the planes with passengers and earn profit,” he said.

New York-based former chief executive of Jet Airways Steve Forte said IndiGo’s IPO may look good in 2015.

“I suppose they will have to wait for a strong upturn in the economy and a stronger rupee before thinking about an IPO,” Forte said, “Jet’s IPO happened at fairly good economic time. Not the best but fairly good and with many uncertainties in the future, they ran with it when they did. When you launch an IPO you want an environment with investors rich in cash flow and eager to invest in almost anything and for the moment I don’t see it for next year. All indications seem to point to a weak recovery for 2014, and, unless something drastically positive happens, the weakness of the rupee versus the dollar will not change by much. As you know this is one of the most important elements to impact the aviation industry. In my opinion, as it stands now, 2015 will be a better year for IndiGo’s IPO consideration, as many of today’s uncertainties such as the strategies and the impact of Tata-Singapore and Air Asia India will become an open book and the existing domestic airlines will be able to adjust their market strategies accordingly.”

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