Will InterGlobe Aviation help your portfolio take off?

Summary

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• Low Cost Carrier that transformed the entire landscape of Aviation Industry
• Optimistic Management which has taken right decisions at the past to survive during hard times when others sinked
• Adoption and Slight Alteration of Air Deccan `s Strategy has helped InterGlobe Aviation Limited save millions of money

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Detailed Analysis of InterGlobe Aviation Limited

What made IndiGo the market leader?

IndiGo is a pioneer in bringing the low-cost aviation to India. Every customer wants to buy more products or services at cheaper prices and enjoy the most with it. Having this principle in mind, they have built one of the lowest cost structures globally. Need not wonder why they are the market leaders in Aviation sector as they have one of the best managements in the entire sector. They are meant for their strategies like taking the best fleet at lease so that it will save huge amount of cost of purchase of new fleet and its depreciation.

What has Covid done to this industry?

Covid has impacted many businesses. Aviation Industry is one of the most affected because of huge fall in number of passengers. Air Cargo is expected to get back to normal this year but it will definitely take a year or two get back to pre-covid levels for passengers. As per reports of IATA, the industry is forecasted that it will incur net losses of $118 billion this year globally, cutting these losses to $38 billion in 2021. It also states that Airline financial performance is expected to recover first in Asia Pacific followed by airlines in the developed market regions which is a great news for IndiGo shareholders. Want to know the reason how it is related to IndiGo shareholders? It is very simple. IndiGo is the market leader in India. Even though IndiGo has got limited International presence, it is very strong in Domestic circuit. All you need to remember before lockdown comes to end is the goodwill and brand image of the company. Because of low-cost structure, IndiGo will definitely attract customers post lockdown and there will be huge demand for this airline. Smart Investors will invest when others exit due to fear. Let`s be smart.

Insights and minute details about the Company by the CEO of InterGlobe Aviation Limited:

IndiGo recently made a strong statement saying, they have shifted their focus from profitability and growth to management of cash and liquidity. I personally see this as a strong statement. We all know the importance of having strong financials. At the time of pandemic, we all understood the importance of having healthy reserves and cash balance. At the end of FY 2020, the company had a very healthy cash balance of 204 billion rupees. The best part is out of 204 billion rupees, 89 billion rupees was free cash flow. We also need to look at their debts. They are slowly decreasing their debts and I strongly believe that the company can become a debt free company in a couple of years. 

They are focusing on their brand presence [Globally as well as in their domestic circuits]. During the last financial year, they have strengthened their international presence. Their agreement with Qatar Airways helped them to extend passengers experience IndiGo across the world. They have also added 12 global online travel agencies to their network. Not to forget, IndiGo has been recognised as the most valuable and strongest airline brands as per Brand finance airlines 50 report for 2020. For the third time in a row, IndiGo was awarded as Asia`s Best Low-Cost Airline by TripAdvisor`s 2019 travellers` choice airline awards. Point to be noted is that the award is based on customers` direct feedback. Once again this proves that customers trust and love this brand. IndiGo was also awarded the `Best Domestic Airline` at FICCI `s first edition of Travel and Tourism Excellence Award.

IndiGo has added 18 new destinations during FY 2019-20, out of which 10 are new domestic and 8 are new international destinations. During the initial stage of full lockdown when people were very panicked. IndiGo was one of the very few airlines who operated relief flights. Though it was risky, they saw the opportunity, demand and shortage of supply. They took calculative risk and have made huge profits and increased their reputation amongst people. They also played a huge role in transportation of medical equipment, vaccines and other resources across the country at their own cost.

The fact to be noticed is for Domestic Demand, CAGR is 13.6% in terms of revenue passenger kilometres from FY 2009 to FY 2019. The above graph clearly indicates that by 2023 it is expected that the airlines industry will cross Pre-Covid levels. India is now the third largest domestic aviation market in the world. We all know the fact that Air passenger traffic in India has been growing very strong since 2000s, after rise in incomes and affordable fares.

Airlines aren’t just used for passengers but its also used for cargo also. Cargo has seen a huge demand over the past few years. So, I can say that the Growth in trade and Growth of the Aviation sector goes hand in hand.

Financial Performance:

1. Passenger ticket revenue increased by 25% from Rs. 2,51,576.91 million in FY 2019 to Rs. 3,14,470.59 in FY 2020.
2. Revenue from ancillary products and services primarily include cargo, cancellation, In-flight sales and tours increased by 30.2% from Rs. 30,309.56 million in FY 2019 to Rs. 39,458.47 million in FY 2020.
3. Other income increased by 15.9% from Rs. 13,245.98 million in FY 2019 to Rs. 15,355.09 million in FY 2020.
4. Revenue per available seat kilometre increased by 5.6% from Rs.3.57 to Rs.3.77.
5. Simultaneously the Total expenses also has increased by 25.3% from Rs. 2,99,687.48 million in FY 2019 to Rs. 3,75,471.79 million in FY 2020.
6. Aircraft fuel expenses increased by 4.3% from Rs. 1,19,427.93 million in FY 2019 to Rs. 1,24,537.94 million in FY 2020.
7. Cost per available seat kilometre [CASK] increased by 5.8% from Rs.3.59 in FY 2019 to Rs.3.80 in FY 2020.

SWOT Analysis of InterGlobe Aviation Limited:

Strength:

1. Provide access to smaller cities
2. Providing mobility to people

Weakness:

1. Not much of International Presence [Slowly taking measures to increase Global presence]
2. Less Product differentiation

Opportunities:

1. Boosting tourism and Economic Growth
2. Increasing market share in an ever-growing industry

Threats:

1. Inadequate market supply of pilots and inability to recruit and retain key talent
2. Exceptional variation in fuel prices
3. Operational issues with new aircraft and engines.

Fleet Management Strategy of IndiGo:

1. IndiGo always prefers making bulk orders for aircraft whenever it does.
2. IndiGo follows a Sales and Leaseback model.
3. It then leases the same aircraft back from them.

Awards and Recognitions: [Source – AGM Report]

During FY 2020, your Company received multiple awards and recognition. Some of the significant awards are listed below: 

1. Awarded for ‘Customer Service, Domestic & International Operations and Business growth’ for the second year in the row and maiden award for ‘Cargo Airline of the Year (Domestic)’ by Bangalore International Airport Limited (BIAL) 
2. Awarded ‘Best Low-Cost Airline in Central Asia and India’ at the SKYTRAX World Airline Awards for the tenth time in a row. 
3. Ranked as one of the best airlines in terms of OTP for the third consecutive year amongst the top 20 mega airlines globally.
4. Awarded ‘Best Domestic Airline’ by the Federation of Indian Chambers of Commerce and Industry.
5. Awarded ‘Best Conversational Brand – Online’ at Sammie Awards 2019.
6. Awarded ‘Companies with Great Managers Award’ by People Business in partnership with The Economic Times.
7. Awarded ‘Best Safety Partner’ by Delhi International Airport Limited (DIAL).
8. Awarded ‘Safety Champion’ in Hazard Reporting for the Year 2019 by Delhi International Airport Limited (DIAL). 
9. Our Learning academy - ‘ifly’ has won six accolades for best practices in Learning and Development at the TISS.
10. LEAPVAULT Chief Learning Officer (CLO) Awards by the Tata Institute of Social Sciences.
11. Awarded ‘Best Customer Services’ Award and the ‘Fastest Baggage Delivery’ Award by Kannur International Airport Limited (KIAL).

 

Financials:

 

Market Capital	62084.26 Cr.
Earnings Per Share [EPS]	-143.69
Price-Earnings Ratio [PE]	-
Industry PE	-
Book Value Per Share	47.98
Price to Book Value	33.62
Dividend Yield	0.00
No. of Shares Subscribed	38.49 Cr.
Face Value	10

 

Balance Sheet:

 

PARTICULARS	MARCH 2020 [Rs in Crores]	MARCH 2019 [Rs in Crores]	MARCH 2018 [Rs in Crores]
Share Capital	384.80	384.41	384.41
Reserves and Surplus	5482.63	6520.72	6638.94
Shareholders Funds	5877.94	6945.81	7077.36
Non Current Liabilities	19486.40	10069.71	7928.91
Current Liabilities	16437.46	8010.36	6123.03
Total Capital and Liabilities	41801.80	25025.88	21129.30
Non Current Assets	19345.34	6908.83	6497.73
Current Assets	22456.46	18117.05	14631.56
Total Assets	41801.80	25025.88	21129.30

 

Profit and Loss Statement:

 

PARTICULARS	MARCH 2020 [Rs in Crores]	MARCH 2019 [Rs in Crores]	MARCH 2018 [Rs in Crores]
Total Sales	34885.29	27767.4	22350.86
Total Income	35756.00	28496.77	23020.89
Total Expenses	31671.39	28645.77	19991.15
Operating Profit	5620.12	1175.60	3976.59
Adjusted EPS	-0.61	0.41	5.83
Equity Dividend	0.00	5.00	6.00

 

Cash Flow Statement:

 

PARTICULARS	MARCH 2020 [Rs in Crores]	MARCH 2019 [Rs in Crores]	MARCH 2018 [Rs in Crores]
Cash from Operating	6971.80	3175.50	3903.10
Cash from Investing	-4568.00	-2536.10	-4159.50
Cash from Financing	-2407.50	-592.20	766.00
Net Cash Flow	-3.70	47.33	509.51

 

Is it worth buying IndiGo?

To conclude, I would say that IndiGo will be probably one of the safest bets regardless of what financials say! Financials are also equally strong. The Company has got huge reputation and are the market leaders at the moment. Management is very optimistic about their future also. So yes, IndiGo is a safe bet.

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Exclusivity:

This article is exclusive to investoguru.

Stock Disclosures:

The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Author Disclosures:

This Article represents the Author's own personal views. The Author did not receive any compensation and do not have any business relationship with any of the companies mentioned in the Article.