More than a quarter of Inter-Globe Aviation’s anchor book that was opened on Monday has been subscribed to by marquee investors participating in an Indian IPO for the first time. What’s more, they have invested in the world’s biggest, most profitable budget airlines. The first time investors include Neuberger Berman, a long term fund, APG a Dutch pension fund, Harvard Management Company and hedge funds Davis International Fund and Hutchin Hill which are invested through a P-note entity, said two people in the know.
Other names include Acacia Partners LP (Ruane, Cunniff & Goldfarb or RCG which had invested in the MCX IPO in 2012) and Columbia Threadneedle which is back after three years, he added.
Most of these are or have invested in global low fare carriers, the person said: Neuberger in Southwest Airlines, the world’s biggest budget airline, JetBlue, EasyJet and Spirit Airlines; APG in EasyJet, Ryanair and Air Arabia, RCG in EasyJet and Davis in JetBlue, Southwest and Spirit.
Columbia Threadneedle manages $471 billion of assets across developed and emerging market equities, fixed income, asset allocation solutions and alternatives. Neuberger Berman in 2014 managed assets worth $251 billion, according to its latest annual report. Harvard Management manages the eponymous Ivy league university’s $37 billion endowment as well as its related financial assets, using a hybrid structure integrating internal and external management. RCG runs the flagship Sequoia Fund and manassets worth over $30 billion. The origins of the fund can be traced back to one of the late founder Bill Ruane’s friendship with Warren Buffet.
This shows the airline is bringing in new names to invest in India’s corporate story. “A new investor is typically more cagey about putting in money than one with experience. These names show investors believe in IndiGo’s business model and India’s growth story,” said Prithvi Haldea, chairman and managing director of Prime Database, a tracker o …
Even Kapil Kaul of CAPA (Centre for Aviation) said the same thing when asked about re rating of the aviation sector. If SpiceJet can present a business case and the capability to execute and deliver, it will get better valuations.
On a lighter note, don’t read too many articles during a company’s IPO, the ‘nice’ articles about the company would far out weigh the ‘candid’ articles. Too much money, self interest, conflict of interests, bakra making is involved in media, Investment bank circles during this time. The most important moot points are, WHY is the company coming for an IPO and WHY NOW? If the answers point towards genuine reasons, then pick it up.
You are going to have to deliver quarter on quarter because you are going to be a listed entity. Let me talk to you about specifics. If you can take us through the kind of applications that you have got as far as the QIB portion is concerned. Can you take us through the number of applicants that actually came in, in the QIB category?
A: I know that the anchor book had more than 40 investors. QIB of course saw a huge amount of response as you said, close to 20 times subscribed. More than just the numbers what we feel is sense of pride and the kind of investors who have now come in either after a long period of time into India or for the very first time in an IPO in India. So, it is just the quality of people and these are some of the biggest players, some of the most sophisticated investors from around the world who have seen a lot of companies around the world and some in India as well. That is what kind of makes us feel good with what we have been able to do and once again a lot of trust in us now, lot of faith in us now, we have got to kind of be able to deliver on that faith and trust.
Possibly because many of these people actually have holdings in some of the very best airlines around the world, some of the most profitable airlines around the world. They have had holdings there for a long period of time.
India is a complex story. The airline business in India has been very different from what you see in many other parts of the world. In that for someone to really appreciate what IndiGo is doing, how IndiGo is just so structurally different from anybody else. However as we become a listed company, as people start watching us more carefully, as people start seeing us on delivering on some of the things that we have been saying in the roadshows, I think the understanding for the airline business and more importantly how IndiGo is just so very unique and different from everybody else is something that will grow in on the Indian investor as well.
What kind of demand environment are you expecting. We are at the start of the festive season now. In the short term, medium term and in the long term all kinds of estimates have been put out by IATA, CAPA, so on and so forth about what the long term promise looks like. But let me start by asking you about the short term demand environment, the medium term and then talk about the long term prospects.
A: We expect it to be in the kind of late teens. So, 18-20 percent year-on-year (Y-o-Y) for the next few quarters just as it has been in the past. Going up to 9.5 percent Compound Annual Growth Rate (CAGR) over the next 20 years but what I am saying is not rocket science. You look at India, look at the size of India, look at how underpenetrated the aircraft market is. A country of 1.3 billion people, less than 400 commercial airplanes in this country. So, there is going to be huge amount of demand. It is for people like us to be able to take advantage of that opportunity, execute to that perfection and add more and more airplanes, more and more capacity so that more people can fly and hopefully if cost structures start coming down even further then the propensity of travel increases even more and then the growth takes an even bigger kicker.
I feel there is a difference in the point of view of FIIs and DIIs towards Indigo and aviation sector in general. The folks in the west are closer to the happenings on crude front (disruption owing to fracking, US becoming energy sufficient from crude importer sometime back etc.) and I feel they are seeing crude at low levels for good amount of time. Besides, they are seeing how Airlines in the US are making money owing to low crude. Most of the marquee investors in Indigo also own LCCs in the west, as per the article above.
On the other hand, the crude impact is yet to be fully play out and hence appreciated by the Indian firms, hence the DIIs have probably not bought into this yet. Also, Indian aviation industry has had a terrible track record in the last decade.
Overall, I feel once Indigo starts throwing dividends, indian investors will start flocking to it.
Hi @Vivek_6954. I see you’re quite optimistic about the company. I personally like the model however the management gives me jitters. They seem to be so money oriented. I would suggest reading the two links below in particular(they have been posted earlier). I just get very bad feeling about this. In the long term, this is a potential value destroyer mainly because of the people who are running it. I disagree when you say that the company is in safe hands.
applied on first day @ upper price band got 240 .i may reduce my holding soon…and will remain invested for long term.now analyst on TV are saying in positive but don’t forget they all said it is expensive means now it is becoming more expensive.
Still not convinced.Please go through RJ interview explaining his conviction on Indigo
Can you imagine he invested Rs 300 crore, he has taken away Rs 3,500 crore as dividend? The Return on Capital (RoC) is 300 percent. And if you just make his first quarter’s earnings into four he will earn about just 640 multiplied by 4 is Rs 2,600 crore which is about Rs 80 per share. Rs 80 per share what price is it coming. At 765 it is coming at 10 times earnings and I am very bearish on oil prices. I don’t see them going anywhere in 3-5 years. So, it is a leader, the industry - one large player is shrinking, others don’t have money, he has got the largest planes on order, he is the lowest cost operator. It is a no brainer
