InterGlobe Aviation - Indigo


Detailed report released by Motilal Oswal today.

Disclosure : bought today…12% of portfolio

Mcap when posted : 37323 cr


There will be some delays in delivery of new aircraft. News of this has led to a 9% fall in shareholder value, which i feel is unwarranted. With crude falling everyday, airlines are best positioned to benefit from lower oil prices.

With air travel now a necessity, not a luxury, this story has just begun.

Mcap today : 41572 cr.

(Vineet Reynolds) #43

The company obviously didn’t disclose the details behind the delay, but informed people know about it. Hence the drop in stock.

The underlying reason is not some manufacturing delay where in supply of A320neo is not catching up demand. Instead, there is an issue with the engines supplied by Pratt and Whitney. Indigo chose PW1100G as the engine, and as an airline operator they have to operate the engine within the guidelines issued by the engine supplier, Pratt and Whitney in this case. One of the guidelines has a negative effect on the airline operators because operators have to keep the engine at idle for 3 minutes after startup. It is not just a safety issue at this point, but a logistics one, because having an aircraft on the ground for more time is the same as not realising profits.

At this point, it becomes a matter of how they negotiate with P&W. I expect them to be compensated for the downtime if P&W cannot fix the problem - they’re already working on a solution. The issue of compensation is implied of Lufthansa in the article, and it may carry over to Indigo, unless P&W removes the operating restriction. Compensation is expected because engine operators are moving or have already moved to use a pay-by-hour model, better known as Performance-Based-Logistics. As an example, if the spec by the manufacturer claims fuel consumption of X kiloliters for operating the engine for Y minutes (which is the expected outcome), then the operator pays them a certain amount. If the expected outcome is not achieved, then the operator has cause to seek compensation. This is just an example though; actuals would be significantly different.

(brajeshrawat) #44

Motilal Oswal recent coverage on Interglobe Motilal 151210.pdf (1.4 MB)

(brajeshrawat) #45

Disc: Invested via IPO


some articles relevant to the company

discl : invested


I dont see Air India maintaining its market share with negative publicity such as this. good for competition !

Discl : invested in Indigo

(Abhishek Basumallick) #48

On the contrary, I traveled in Air India after maybe 15 years on a overseas flight and found it to be very good. Brand new aircrafts, great stewards/stewardess’, good food, punctual. Air India has appointed Mr Ashwani Lohani as the new CEO, who has a very good track record of turning loss making PSUs profitable.

AIr India and Indigo are not really on the same segment, and I believe that the airline sector in India can grow manifold from here. And I travel a lot on Indigo as well and believe that they are running very efficiently.

A lot of the benefit of low oil prices is getting priced in though. Time to be cautious of fresh investments.

Disclosure: I am not invested in any airline stock.


oh say
rightly said sir investor should take a call after qtrly results only.
avoid broker bullish reports before results.
after few qtrs cash will increase as guided by promoter ,time to deliver on results .
upcoming results are priced in …

dislo…27.30% of portfolio IPO


Rajeev Thakkar talks about InterGlobe Aviation Ltd. (Indigo) and Aviation Sector


experts have started favoring airline most wise investors will follow in last…

(Srinivasan Sundaram) #52

IndiGo owner InterGlobe tanks 19% post Q3: What irked investors?

(Vishnu Ch) #53

CONFERENCE CALL - from Capital Markets

Interglobe Aviation

Delay in delivery of Neo Airbus aircrafts can lead to some lower than anticipated yields

Interglobe Aviation (Indigo) held its conference call on 21st Jan 2016 which was addressed by Aditya Ghosh Whole Time Director
Key Highlights

Average fuel prices for Dec’15 quarter was lower by 31% on YoY basis and average rate per ticket is down by around 14% to Rs 4517 per air ticket on YoY basis.

As per the management, while the company has passed on some benefits of lower fuel costs to the customers, given the further fall in crude oil prices, some more benefits will be passed on. Government in view of lower crude oil prices is also reducing the ATF prices and so accordingly, the benefits will be passed on eventually.

The company has started flights operating from Delhi and Mumbai to Udaipur during Dec’15 quarter. With this, the company is now flying to around 34 destinations including international. Average about 646 flights operate on a daily basis.

The load factor was up by 340 bps on YoY basis to 84.6% for Dec’15 quarter. The company flew about 83.30 lakh passengers up by 28% YoY. Management expects further lower fuel oil prices, will further stimulate the demand.

The company has added 3 additional aircrafts during the Dec’15 quarter. Average fleet age of Indigo stands at around 4.2 years.

As per the management, Chennai flood had limited impact on the overall performance of the company for Dec’15 quarter.

There was a delay in delivery of Neo Airbus from the Airbus Airlines due to some industrial issues which the company is facing. As a result Indigo may not be able to meet the guidance of 111 Aircrafts on Mar’16. The current aircraft fleet stands at 101.

As per the management, there is no update on the schedule of the delivery of aircrafts from the airbus. This can lead to some delay and thus, affect some yield and margin benefits that were discussed during the public offering.

The company had taken some 22 aircrafts on lease basis and 17 of them have already been delivered.

During the Dec’15 quarter, the company continued to invest heavily in pilots and other ground staffs. These had lead to some increase in employee costs. Further as 60% of company’s total costs are in US $, due to rupee depreciation, costs were higher on YoY basis.

As per the management, there is not much competition seen on price cutting etc.

The company has cash and equivalent of Rs 5746 crore as on Dec’15 and debt of Rs 3930 crore. Management expects some debt to be paid in Mar’16 quarter.

(Sunil) #54

At current levels Indigo seems to be fairly priced.

Spicejet can be good short to medium term bet on current valuation basis.

Since Mr.Singh tookover there have been many positives

  1. Promoter shareholding increased to 60%
  2. Debt reduced from 2000Cr to 800Cr in year link.
  3. All four quarters in profit. The recent Dec 15 result generated 250Cr profit
  4. Crude prices at lows since quite some time.

Thesis of bet
Current MCap - 5200Cr
The Dec season company posted 250Cr profit as it was festive season and low crude prices.
Using conservative estimates of 180Cr for next 3 quarter total 1 year profit comes to be 790Cr.
If we assign a PE of 8-9 (Assuming low growth and 12% return rate) the Mcap comes around 7000Cr (approx 30% upside from current level)

This is all assuming crude price stays low for some time and the recent result numbers are not cooked. If anything changes thinga can go for a toss.

Regarding occupancy levels I was traveling from Bangalore airport on a Saturday morning during last week of Jan and I had to wait for around 30min in queue for security check. I did not see such kind of rush before.

Also I believe the income levels have increased since past few years in service sector but the prices of air travel have not increased in same proportion so the affordability for air travel have increased.

Disclosure : I do not own spicejet. Still want to understand how long can they leverage low crude price. Please do not consider this as a stock recommendation and do your own analysis before taking any position.

(Anupam) #55

(Raj) #56

So many great investors of India became super bullish and invested in Indigo IPO citing the example of Southwest airlines(an exception within airline companies).
Only time will tell that Indigo becomes an exception. However, signs so far do not suggest. so.

Disc: Not Invested

(Anupam) #57

Not invested.

Contrary to popular belief Market knows it right, Market is seldom correct. Either its over optimistic or over pessimistic.look at indigo , just dial- rise & fall like waves of tsunami. Honestly it requires tremendous skill to accurately identify fair value & predict future even with 60% accuracy

(arjunvirsaroya) #58

New to the forum! Hope to make some new friends.

If one is to believe Motilal’s estimates for FY17 EPS of 85 RS, Indigo would be trading at a forward PE of 9.6 as of the time of writing. Given the long term growth prospects of domestic air travel alone, coupled with Indigo’s management track record over the last 10 years, and their clear position as market leader, it would appear that they are being unfairly punished by short term or speculative IPO investors.

I’m interested in people’s 3+ year outlook on the company, and what they think of the quality of service the airline provides. Brand loyalty is almost nil, so will Indigo keep attracting customers through great service at a reasonable cost, or is the airline market such that competition may take an approach of going even lower frills to steal market share?

Currently invested

(Anupam) #59

High chance IPO itself was over priced. Let’s not forget low oil prices have enabled airlines to make sudden profits. What if scenario if oil was to rise to 100 usd per barrel in 3 years. Please check Motilal Oswals assumption on cost of fuel. Is it current level extended or increase in cost taken into consideration.

(Raj) #60

On a lighter note IPO means “It’s Probably Overpriced” which is true in majority of cases.