CMP:
Rs. 864.95; Market Cap: Rs. 441.68 Cr; 52 Week High/Low: Rs. 1,394.85/ Rs.
698.35.
Total
Shares: 36,12,03,806 shares; Promoters : 31,04,38,237 shares – 85.95 %; Total
Public holding : 5,07,65,569 shares – 14.05 %; Book
Value: Rs. 75.93; Face Value: Rs. 10.00; EPS: Rs. 53.74; Dividend: 3516.90 %;
P/E: 16.12 times; Ind. P/E: 11.33; EV/EBITDA: 9.85 times.
Total
Debt: Rs. 3,200.79 Cr; Enterprise Value: Rs. 33,637.74 Cr.
INTERGLOBE AVIATION
LIMITED: Incorporated in 2004, and is
based in New Delhi. InterGlobe Aviation Limited,
formerly known as InterGlobe Aviation Private Limited, is an India-based
company engaged in operating passenger airline. InterGlobe Enterprises Ltd is
the holding company of Interglobe aviation Ltd. The Company offers aviation,
hospitality and travel related services. It operates through two geographic
segments: Domestic, which includes air transportation within India, and
International, which includes air transportation outside India. Interglobe
aviation came with an public issue of 26,112,000 equity shares of Rs. 10 each
at Rs. 765 each 0n October 27, 2015 and got listed on November 10, 2015 at Rs.
855.80 and made day high of 899.50 with low of 849. The object of the issue was
to utilize the funds for the retirement of certain
outstanding lease liabilities and consequent acquisition of aircraft and for
the purchase of ground support equipment for airline operations and general
corporate purposes also to receive the benefits of listing of the Equity Shares
on the Stock Exchanges. The company has not given any splits in face value of its
shares and has not declared any bonus shares. Its
business lines include InterGlobe Air Transport, InterGlobe Aviation,
InterGlobe Hotels, InterGlobe Technologies, InterGlobe Technology Quotient and
InterGlobe Education. InterGlobe Technologies provides integrated information
technology and business process outsourcing services. InterGlobe Technology
Quotient distributes Travelport in India and Sri Lanka. It has four trademarks,
namely, IndiGo Airways, IndiGo Airlines, IndiGo and IndiGo Air. It has around
96 aircrafts, and operates scheduled services to approximately 33 airports in
India, with a maximum of around 593 domestic flights per day. INTERGLOBLE
AVIATION LTD is locally compared with Jet Airways ltd, SpiceJet Ltd, Kingfisher
Airlines, Jagson Airlines Ltd, Bluedart Express, MFL India Ltd, Global Vectra
Helicopters Ltd, Patel Integrated Logistics ltd and Globally compared with
Southwest Airlines Co of USA, Virgin America Inc ofUSA, JetBlue Airways
Corporation of USA, Spirit Airlines Inc ofUSA, American Airlines Group of USA,
Delta Airlines Inc, United Continental Holding of USA, Alaska Air Group of USA,
Skywest Inc of USA, Etihad Airways of UAE, Iran Air, British Airways Plc of UK,
AIR CHINA of China, Cathay Pacific Airways Ltd of Hongkong, Qantas Airways of
Australia, Alliance Aviation of Australia, Eva Airways corporation of
Taiwan,Transasia Airways of Taiwan, Thai Airways International of Thailand,
Bangkok Aviation of Thailand, Asia Aviation Pcl of Thailand, Tiger Airways
Holding Of Singapore, Singapore Airlines of Singapore, A-Sonic Aerospace of
Singapore, AirAsia of Malaysia.
Investment Rationale:
Interglobe
Aviation Limited was incorporated in 2006,
Interglobe Aviation Ltd is India based aviation, hospitality and travel related
service provider. Company own and operate 'IndiGo', India's largest airline
with over 33 % of domestic passenger market share. IndiGo Airline, the low-cost
airline carries the brand message of providing "low fares, on-time flights and a hassle-free experience" to
air travellers in India. IndiGo has scheduled services to 33 cities within
India and 5 cities like Bangkok, Dubai, Kathmandu, Muscat and Singapore internationally
with 623 daily flights. Company also has a joint venture with Accor Asia
Pacific since 2004 to develop a network of 'ibis' hotels throughout
India, Nepal, Sri Lanka and Bangladesh. With 10 ibis hotels open and 9 under development, the company shall have a
portfolio of 19 operational hotels with room inventory of about 3500 rooms by
2017. The company have maintained its discipline in execution of the low-cost
carrier business model with single aircraft type, high aircraft utilization,
high operational reliability, no-frills product and low distribution costs.
Company enjoys a structural cost advantage. Large Airbus aircraft orders enable
favorable terms on aircraft, engines and components. Company has Young, modern
and fuel-efficient fleet, Strong brand recognition, maintained consistent
profitability and strong cash flow generation, balance sheet and liquidity
position. Interglobe Aviation Ltd (IAL) has an ordered
430 aircrafts and expects delivery of 14 aircrafts before this fiscal end. IAL’s
domestic passenger volume increased at a CAGR of 25.8 % during fiscal 2011-2015
from 95 lakhs to 2.37 Cr. India is one of the world’s largest and
fastest-growing air travel markets, according to the report by Centre for
Asia Pacific Aviation India Private Limited (CAPA) Report. Historically, the Indian air
travel market was comprised of individuals in relatively high income brackets
as well as corporate travellers. Additionally, many members of the Indian
middle class did not have a viable option to meet their long distance travel
requirements as surface transportation infrastructure was relatively poor and air
travel was relatively expensive. Starting in 2003, the Indian government introduced
several measures to further liberalize the air travel market, including a
reduction in fuel excise taxes, elimination of the 15 % Inland Travel Tax and
the awarding of new airline licenses to private operators, which is reflected
in the growth of domestic passenger volume at a CAGR of 19.4 %. Since then a
large number of Low Cost Carriers (LCCs) have entered the Indian air travel
market and stimulated prices through their low-cost business models. By using
price stimulation as a core business strategy, LCCs were able to cater to
India’s middle class segment. In the decade that followed, Indian air travel
entered a period of considerable growth. By 2014, India’s air travel market had
become the sixth largest in the world as measured by total domestic seats of
approx. 9.73 Cr and ninth largest in the world by total domestic and international
seats of approx. 15.59 Cr. Going forward, the domestic Indian aviation market
is forecast to be the world’s fastest growing aviation market with Revenue Passenger
Kilometers (RPKs) growing at a CAGR of 9.5 % between 2013 and 2033. Going
forward, the Indian air travel market is expected to enter a period of accelerated
growth. Between FY2015 and FY2020, domestic ASKs are forecast to grow at a CAGR
of 12.7 %, while domestic passenger volume is forecast to grow at a CAGR of
12.8 %, according to the CAPA Report. India is expected to be one of the
fastest growing major economies in the world over the next four years, with Real
GDP expected to grow at a CAGR of 7.1 % between CY2014 and CY2019. This rate of
Real GDP growth exceeds that of China, APAC, and the world over the same
period, which is forecast to grow at a CAGR of 6.4 %, 4.5 %, and 3.0 %,
respectively. The IMF expects India to surpass China’s Real GDP growth rate in
CY2015 and CY2016, with respective growth rates of 7.5 % compared to 6.8 % and
7.5 % as compared to 6.3 %. India is the second most populous country in the
world with 1.26 billion people through CY2014, according to the IMF. The IMF
projects that India’s population will grow at a CAGR of 1.3 % to reach 1.34
billion by the end of CY2019. The expected growth in India’s population between
CY2014 and CY2019 is higher than the average growth in population of the top 20
domestic air travel markets in the world. The increase in the Indian population
is expected to be a continuing driver of growth in the Indian air travel market.
India’s annual per capita income has grown at a CAGR of 12.6 %, from Rs. 46,249 in FY2010 to Rs. 74,380 in FY2015. India’s
growth in per capita income and overall population has caused the rapid
expansion in the size of India’s middle class, defined as households with a
disposable income of more than USD 5,000 per year (more than approximately Rs. 3,35,000 per year). The number
of Indian middle class households is expected to increase from 5.36 Cr in
CY2014 and reach 10.79 Cr households by 2019 implying a CAGR of 15.0 %. In
addition, Mumbai and New Delhi are expected to have the 25th and 30th highest
increase in household disposable income globally between 2013 and 2030. The
tourism industry in India is fast-growing and an increasingly significant contributor
to India’s economy, according to the CAPA Report. The total contribution of
travel and tourism to India’s GDP was Rs.
7,642.5
billion in CY2014 which was 6.7 % of GDP and is forecast to rise by 7.3 % per
annum to Rs. 16,587.2
billion which is 7.6 % of GDP by CY2025, according to the World Travel and
Tourism Council. According to the Ministry of Tourism of India, India witnessed
7.7 million foreign tourist arrivals in CY2014, which had grown at a CAGR of
8.3 % during the period from CY2009 to CY2014. According to the EIU, the number
of foreign tourist arrivals is expected to increase at a CAGR of 9.2 % during
the period from CY2015 to CY2019 to reach 12.0 million in CY2019. This is due
to, among other factors, government initiatives to promote India as a tourist
destination, such as successful implementation of the e-Tourist Visa program
for passport holders of 113 countries, as well as the government’s plan to make
electronic visas available eventually to visitors from over 150 countries. India
has a very large rail travel market in terms of passengers carried, and India’s
domestic air travel market of 70 million passengers carried in FY2015
represents a very small percentage of the total rail passengers carried, according
to the CAPA Report. While the size of the rail travel market is not indicative
of the potential addressable market for air travel, and while only a portion of
rail travel can reasonably be expected to be substituted by air travel in the
near future, the substitution of rail travel by air travel presents a
significant growth opportunity, according to the CAPA Report. Rising income
levels are expected to cause the Indian middle class to increasingly prefer air
travel to rail and road travel because of its convenience, shorter duration and
competitive pricing, according to the CAPA Report. The Indian air travel market
is serviced by domestic and international LCCs and full-service carriers (FSCs).
Domestic carriers in India include LCCs such as IndiGo, SpiceJet, GoAir, Air
India Express, and AirAsia India, as well as FSCs such as Jet Airways, Air
India, Air Costa, Alliance Air and Vistara, according to the CAPA Report. These
domestic carriers also compete with international and regional carriers, new
entrants in the airline industry, Indian Railways, the state-owned railway
company of India, and with different forms of road transportation, according to
the CAPA Report. The competitive landscape of the Indian air travel market has
undergone meaningful change as carriers have entered and exited the market and
current carriers have undergone considerable changes, such as in their composition,
market share, load factors, and cities served, according to the CAPA Report. It
is expected that the growth to be driven by numerous factors like strong
economic growth; continued population growth; expansion of the middle class; strong
growth in tourism; rail travel substitution; increasing aircraft penetration
from currently low penetration levels; expansion in aviation infrastructure;
and an increasingly favourable regulatory environment. Looking at these
InterGlobe Aviation Ltd is best placed to be benefited.
Outlook and Valuation:
Incorporated
in 2004, Indigo commenced operations in Aug’06 with a single aircraft, and has grown
its fleet to 97 aircraft, all Airbus A320. It placed an order for 180 A320 neo
aircraft with Airbus in Jun’11. The purchase agreement determined a series of
scheduled deliveries from Nov’15 to Nov’23. Indigo improved its fleet from 25
aircraft in FY10 to 97 in FY16. This has resulted in an increase in market
share to almost one-third that of the industry, placing it as the market
leader. It operates on a low-cost-carrier (LCC) business model and focuses on
the domestic Indian air travel market. It caters to 35 airports in India and
five international destinations.
The
increase in the number of LCCs combined with macroeconomic factors such as India’s
relatively low per capita income and price-sensitive consumers have led LCCs to
dominate India’s air travel market. LCCs’ share of the Indian air travel market
has increased from 40.5 % in FY2010 to 62.2 % in FY2015, according to DGCA data.
This represents an approximate 55 % increase in LCCs’ market share over FSCs’
market share between FY2010 and FY2015. In addition to macroeconomic and India consumer
factors, the following factors have also contributed to the success of LCCs in
India, the LCC business model, characterized by such features as single
aircraft type fleets, aircraft with greater fuel efficiency and lower
maintenance costs, faster turnaround times to increase aircraft utilization,
and low debt positions; access to capital, when required, through promoter
funding and, in some cases, sale-and-leaseback transactions; superior execution
through sound management and strong delivery systems; competitive aircraft
pricing and favourable maintenance and support contracts; structured systems,
processes, and training; and liberalization of the Indian market. LCCs are
expected to maintain a domestic market share of 65 % to 70 % of passenger volume,
and LCC ticket price is expected to remain a key driver of demand as India is an
extremely price sensitive market. In addition to leisure travelers, LCCs have
also gained acceptance among corporate travelers in India by meeting corporate
market expectations for network density, frequency (particularly at peak
hours), schedules offering same-day returns, on-time performance, reliability,
new aircraft and quality service. LCCs have also been able to gain traction in the
corporate market through the strategic decision to focus on increasing flight frequencies
on metro routes, rather than seeking to stimulate untested, virgin markets. Indigo
has improving Operating metrics, which includes on-time departures and
arrivals, flight cancellations, and number of complaints, are often used in the
air travel industry to evaluate operating performance of carriers. In aviation
maintenance costs are one of the main cost components for any carrier. The maintenance
costs of a carrier are impacted by its business model, fleet composition and
overall fleet management. The maintenance cost per Available Seat Kilometre
(ASK) of the various Indian carriers for FY2015 was US¢0.18 for IndiGo, US¢0.34
for Air India, US¢0.35 for GoAir, US¢0.90 for SpiceJet and US¢0.95 for Jet
Airways. IndiGo’s maintenance costs are the lowest among Indian carriers. The
fuel cost per ASK for FY2015 was US¢2.94 for SpiceJet, US¢3.07 for IndiGo, US¢3.23
for Jet Airways, US¢3.37 for GoAir and US¢3.47 for Air India. The ownership
cost per ASK of the Indian carriers for FY2015 was US¢0.97 for IndiGo, US¢1.20
for SpiceJet, US¢1.23 for GoAir, US¢2.01 for Jet Airways and US¢2.62 for Air
India. IndiGo’s ownership costs are lowest and fuel costs are second lowest, on
per ASK basis, among Indian carriers. The Cost Available Seat Kilometer (CASK)
measures the unit costs of a carrier and is calculated as total costs divided
by ASK. The CASK of the Indian carriers for FY2015 was US¢5.95 for IndiGo,
US¢6.37 for GoAir, US¢6.68 for SpiceJet, US¢9.05 for Jet Airways and US¢9.82
for Air India, according to the SAP Report. IndiGo’s CASK is lowest among
Indian carriers. Air India has the largest fleet of aircraft of an Indian
carrier followed by Jet Airways and IndiGo. IndiGo maintains the largest
orderbook of any Indian carrier with 430 aircraft on order and is seventh
largest LCC in the world by total seats for FY2015. IndiGo was the fastest
growing carrier in India in terms of ASK growth between FY2011 and FY2015,
followed by GoAir and SpiceJet. The average age of a carrier’s fleet is
impacted by its business model, fleet composition and overall fleet management.
The Fleet age can impact the operating costs of a carrier, including fuel costs
and maintenance costs, among Indian carriers with at least six months of
operating history as of March 31, 2015, AirAsia India had the youngest fleet
age of 2.7 years and IndiGo had the second youngest average fleet age of 3.2
years, followed by GoAir at 3.9 years, Air Costa at 3.9 years, SpiceJet at 4.1
years, Jet Airways at 5.9 years, and Air India at 8.9 years, as of March 31,
2015, respectively. The Revenue Availability Seat kilometers (RASK), is a
measurement of unit revenue, minus CASK, is a measure of a carrier’s unit profitability.
Excluding fuel cost from the analysis provides an indicator of a carrier’s unit
profitability before taking in to account fuel costs, which can vary
significantly from region to region. IndiGo had the highest RASK minus CASK of
any carrier in India and a level in line with LCCs operating in Asia during
FY2015. IndiGo’s RASK minus CASK excluding fuel was the highest in India and
higher than all of the LCCs operating in Asia. Indigo follows the
pure low-cost principle which is intended to provide it with an advantage over
some of other LCC competitors in India who operate hybrid business models
between low-cost and full-service airlines, such as the inclusion of meals and
beverages in the ticket prices for non-corporate passengers, offering business
class seats and operating multiple aircraft types. They have employed a single
type of airframe and engine within their current fleet, which helps them to
reduce their expenses related to maintenance, spare parts, operation, crew training
and labor, as well as helping them to more efficiently manage crew rosters.
Indigo’s aircraft utilization in block hours was
11.4 hours per day per aircraft in fiscal 2015, which, was among the highest of
any airline in India. They have maintained
high aircraft utilization rates by keeping a low turnaround time between their
flights. Additionally, they operate a point-to-point route network with no
code-sharing with other airlines for passenger traffic, which further helps to reduce
turnaround time. Indigo has reduce their
distribution costs by increasing direct sales via their website, airport, call
center and mobile app and scaling down commissions paid to online and traditional
travel agents. Approximately 20.6 % and 22.0 % of their ticket sales were made
through these direct channels. IndiGo
management has highlighted that earlier they were largely passive towards low competitive
fares on key routes. However, the management hinted that they are might become
more aggressive in responding to competitive pressures going ahead. Management
highlighted that yields were lower YoY due to competitive headwinds. IndiGo
continues to look at India as a highly attractive market and is confident that
the market can profitably absorb additional capacity. IndiGo
management highlighted that they are maintaining their FY17 fleet guidance.
Last quarter it had guided for 34 % YoY ASK addition. And expects
to get in all 24 neo planes by March 2017 they currently have five neo planes.
However, the deliveries will be slowed down to give Pratt & Whitney time to
catch up with the delivery schedule. Management indicated that they are
facing operational issues in neo which include some software hiccups. For
1QFY17, management guides ASK growth of 25 % and updated that A320Neos have
proven to be 14.5 % fuel efficient vs. A320Ceos. The Rentals on neos are 15 %
higher than ceo planes. On financial side of Q1 FY17 they have added 2 aircraft
in 1Q including 1 A320Neo and now the fleet size is 109. Its Interest
expenses for the quarter included a one-off of Rs. 4.40 Cr due to redelivery of
airplane which resulted in renegotiation of ECB financing. Their employee
costs included Rs. 2.10 Cr related to issue of ESOPs. Management highlighted
that the excess bench strength earlier is being absorbed now with the delivery
of planes. Employee to aircraft has declined from 121 in 3QFY16 to 112 in
1QFY17. Management guided that tax rate was lower during the quarter due to a writeback
of tax credit which had been written off earlier. Going ahead management guided
normalized tax rates.
Indigo’s superior economics versus
peers should lead to premium valuation. However, management’s recent admission
that it has/intends to respond to competitor’s fares, indicates change in its pricing
stance. This coupled with its planned capacity addition will put pressure on load
factors as well as yields in the near term. Sustained low oil price is
strengthening airlines’ balance sheets and emboldening competition to announce
fleet expansion. IndiGo is the most profitable carrier in India,
& as measured by EBITDAR margins, with a margin of 19.8 %, while GoAir with
16.9 %, Jet Airways with 5.9 %, SpiceJet with 2.3 % and Air India with (9.0 %) during
the same period. Going forwards the stock can trade at 14 times the EV/EBITDAR
which could be around 20 % premium to its global LCC’s. At the current market price of Rs. 864.95, the stock is trading at a PE of 13.72 x FY17E and 11.45 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 63 in FY17E and Rs. 75.50 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also .
| KEY FINANCIALS | FY15 | FY16 | FY17E | FY18E |
|---|
| SALES (₹ Crs) | 13,925.30 | 16,140.00 | 20,800.00 | 27,340.00 |
| NET PROFIT (₹ Cr) | 1,304.20 | 2,000.00 | 2,270.00 | 2,720.00 |
| EPS (₹) | 42.50 | 55.50 | 63.00 | 75.50 |
| PE (x) | 19.10 | 17.60 | 15.50 | 12.90 |
| P/BV (x) | 83.40 | 19.10 | 16.00 | 13.40 |
| EV/EBITDA (x) | 13.00 | 11.40 | 10.30 | 8.50 |
| ROE (%) | 309.60 | 177.20 | 112.70 | 113.10 |
| ROCE (%) | 33.60 | 43.00 | 49.80 | 56.90 |
As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
*As the author of this blog I disclose that I do not hold INTERGLOBE AVIATION LTD in my any of the portfolios.
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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
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I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
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