INDIGO (Interglobe Aviation Limited) is India's largest airline - one of the few success stories in a highly competitive Global Aviation Industry.
Here are a few numbers
Market Share : 49% ( SpiceJet No.2 is a distant second with market share of 14.8%)
Stated Operations : 2006
Sales in 2006-2007: Rs.216 crores. (Loss of Rs.202 crores)
Sales in 2018-2019: Rs.23,021 crores. (Net Profit of Rs.2242 crores)
Shareholding Pattern of INDIGO
Entities Controlled by Mr. Rahul Bhatia : 38.26%
Mr. Rakesh Gangwal and Family : 36.68%
Foreign Portfolio Investors : 14.98%
Mutual Funds : 5.03%
Individual Shareholders : 1.84%
AIF : 0.01%
Others : 3.11%
What is the problem?
Here are a few numbers
Market Share : 49% ( SpiceJet No.2 is a distant second with market share of 14.8%)
Stated Operations : 2006
Sales in 2006-2007: Rs.216 crores. (Loss of Rs.202 crores)
Sales in 2018-2019: Rs.23,021 crores. (Net Profit of Rs.2242 crores)
Shareholding Pattern of INDIGO
Entities Controlled by Mr. Rahul Bhatia : 38.26%
Mr. Rakesh Gangwal and Family : 36.68%
Foreign Portfolio Investors : 14.98%
Mutual Funds : 5.03%
Individual Shareholders : 1.84%
AIF : 0.01%
Others : 3.11%
What is the problem?
Mr. Rakesh Gangwal, a former CEO of U.S. Airways Group Inc., has dashed off a letter to the Indian stock-market regulator alleging corporate-governance lapses.
He says partner Mr. Rahul Bhatia, who owns 1 percentage point more than U.S.-based Gangwal’s 37% stake, is dragging IndiGo into transactions with his other businesses, which are mostly housed under InterGlobe Enterprises Ltd. (IGE Group), without adequate auditing.
The airline pays rent to IGE’s (a company owned by Rahul Bhatia) real-estate unit; the crew stays at hotels operated by joint venture with Accor SA; pilots are trained at IGE’s flight simulator, a collaboration with Canada’s CAE Inc.; a Bhatia firm has also acted as a sales agent for IndiGo.
These deals amount to $22 million in all. These are related-party transactions, but for a carrier that took in $4 billion in annual revenue, doesn’t exactly smack of a governance scandal.
Mr. Bhatia, for his part, wants to know why Mr. Gangwal is questioning the arrangements now when he “did not raise for 13 years a whisper.”
The India-based partner says he took most of the economic risk when setting up the airline.
So is this the only reason or there is something else to the story? Well many have started saying that Mr. Gangwal is perhaps not able to tolerate higher shareholding of Mr. Bhatia (ego problem!!).
Then there is also the fact that Mr. Bhatia and his associates have a higher representation in the board. ( by virtue of a shareholding agreement between the two which is to expire in October this year).
SEBI on its part has clarified that it will follow due procedure to sort the matter.
There is more to the story which has just begun in the public space...
Stock Price
In terms of valuations, the stock price has fallen 15 percent following the news in two days and 23 percent from its 52-week high, making the valuation very attractive (4 times FY21 projected EV/ EBITDAR).
In fact, it is trading at discount to its global peers.
IndiGo became No. 1 by making flights take off and land on time more often than most other large global airlines.
Its a case study in successful execution to scale up a new business.
However With major shareholders at loggerheads, decision-making in the company could face delays. IndiGo is facing the crisis at a time when the domestic air travel industry is going through a realignment after the collapse of Jet Airways (India) Ltd.
Its a high risk call to invest in these times.....
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