India Ratings downgrades GoAir's debt, highlights liquidity concerns

Agency expects sharp decline in GoAir's revenue and operating margin in FY21; Airline's net loss estimated at Rs 1,346 cr in FY20 as against Rs 123 cr profit in FY19

India Ratings has downgraded GoAir's debt and has flagged concerns about liquidity and deteriorating ioperating performance in FY21.

GoAir' overall debt was up six per cent sequentially to Rs 1,891 crore in the June quarter and its unencumbered cash and bank balance nearly halved to Rs 72.5 crore during the same period, the rating agency has said in a report. The overall debt included borrowings from promoter group companies to support business operations. 

Domestic flight operations resumed after two months suspension on May 25 and even now passenger occupancy is less than 60 per cent. GoAir began operations from June 1 and is said to be operating 15-18 aircraft daily. Loss of revenue during lockdown, muted passenger demand at present and high fixed cost remain a concern.

In its latest revision, the agency has downgraded the rating for fund-based working capital limits and retained a negative watch on loan.

GoAir did not immediately respond to an email query on the matter.

The agency expects a sharp decline in GoAir's revenue and operating margin in FY21. As per provisional figures, GoAir's revenue grew 13 per cent to Rs 7,100 crore in FY20, supported by a 28 per cent increase in passengers.The airline is estimated to have made a net loss of Rs 1,346 crore in FY20 as against a net profit of Rs 123 crore in FY19 due to higher provisioning and foreign exchange loss.

But the airline's revenue profile will be hit in FY 21 and rupee depreciation will continue to weigh on overall costs of the company. The agency believes that cost saving measures like sending employees on leave without pay is unlikely to boost profitability.

GoAir had unencumbered cash and bank balances of Rs 72.5 crore as on June 30 (Rs 140.9 crore on March 31).  While the average working utilisation of the sanctioned fund-based limits stood at 55 per cent during the 12 months ending June 2020, the same increased significantly to about 89 per cent during March–June 2020. Given the loss of revenue during April-May 2020 and the likely impact of lower passenger traffic in the near term amid the fixed cost-heavy structure, India Ratings believes the liquidity needs would remain significantly high. 

India Ratings has said  need-based funding support provided by the Wadia group remains a key rating monitorable as the liquidity requirements in view of the COVID-19-led disruptions could remain significantly high.