AirAsia India is planning an IPO; why it needs to be profitable before that

AirAsia in the process of appointing a banker to find a partner for our profitable and successful shared services centre, he said

Tony Fernandes, the group chairman of AirAsia group on Wednesday said that the company was looking for a public listing and will seek shareholders' approval for appointing bankers for the process.

“AirAsia in the process of appointing a banker to find a partner for our profitable and successful shared services centre... AIRASIA will be seeking approval at the next AIRASIA India board to pick a banker to start prelim process. Very valuable asset with huge growth potential. Analysts giving zero value to AirAsia India. Not far from 20 planes and a potential IPO,” Fernandes said in a series of tweets.

Public listing guidelines of Sebi, however, mandates that to become eligible for IPO, a company should register average pre tax profit of Rs 150 million for at least three fiscal. AirAsia India is still in red. The company registered a net loss of Rs 1.4 billion for the previous fiscal, which was 23% less than almost Rs 1.82 billion it reported in fiscal 2016. Revenue rose nearly 45% to Rs 9.52 billion. The joint venture of Malaysia’s AirAsia Berhad and India’s Tata Sons that started operations in June 2014, continued to make losses in a market that is the fastest growing in the world. At the end of March, it had accumulated losses of Rs 4.85 billion. 

Industry sources, however, said that the airline is looking to consolidate its operations and clock profit before going public. “IPO is immediately not on mind. What does a market look when it invests in a company? It looks at the past which was not very smooth. It looks at future which we don’t know. Presently, the company is trying to steady the ship and consolidate operations,” a person aware of the development said.

AirAsia India CEO Amar Abrol had said that the airline was looking to be profitable by FY 19. “We have an eye on profitability and be there sooner than later, perhaps by 2019,” he said. According to him, it has charted out a three-step process in achieving the target- clock a positive gross profit margin at the first level then become cash flow positive and next become profitable at EBIT level.

The company, he said, is recording positive gross profit margin for the month of December and January and also expects similar results for February, accounts for which is yet to be closed. Gross profit margin measures the profit a company makes from its sale of goods.

The airline expects to induct 7 A320 planes this year which would take its total fleet to more than 20 making it eligible to start international operations.