IndiGo files documents for Rs 2,500-cr IPO

To raise Rs 1,272 cr via the offer, offload 30 mn shares valued at Rs 1,272 cr

InterGlobe Aviation, which operates IndiGo, India's largest and most profitable airline, on Tuesday filed a draft red herring prospectus with the Securities and Exchange Board of India (Sebi) to raise Rs 1,272 crore through fresh issue of equity in an initial public offering (IPO). The issue also includes an offer for sale of about 30 million shares by existing investors.

People familiar with the matter said the company was being valued at about $4 billion (Rs 25,500 crore), with the overall size of the offering pegged at Rs 2,500 crore. By comparison, listed entities Jet Airways and SpiceJet are valued at $494 million (Rs 3,200 crore) and $172 million (Rs 1,100 crore), respectively.

The IndiGo IPO comes about a decade after Jet Airways hit the market with an IPO in 2005.

Launched in 2006, IndiGo is co-owned by the Rahul Bhatia-promoted InterGlobe Enterprises and airline sector veteran Rakesh Gangwal. It has a market share of 38 per cent and a fleet of 96 A320 planes, with 180 similar aircraft on order. In October 2014, the airline had signed a term sheet to acquire 250 Airbus A320 planes, but that has lapsed and no purchase agreement has been signed.

For the first nine months of FY15, the airline has recorded a net profit of Rs 720 crore, aided by lower fuel costs and revenue growth. Revenue stood at Rs 10,359 crore. On an annual basis, the airline's revenue has grown from Rs 2,667 crore in FY10 to Rs 11,432 crore in FY14.

IndiGo is the fastest growing airline in India, increasing its market share from 30 per cent to 38 per cent in two years. Its fleet size has grown from 66 planes in FY13 to 96 aircraft. It is expected the fleet will increase to 137 by 2018.

As of December 2014, the airline had debt of about Rs 4,000 crore.

The company said it proposed to use the IPO proceeds to retire certain lease liabilities (Rs 1,166 crore) and for fresh aircraft acquisition, purchase of ground support equipment and general corporate purposes.

IndiGo's promoters hold 93.41 per cent of the airline's equity capital, individually and through group companies. Earlier, they held 99 per cent stake; their shareholding has now been reduced, following conversion of certain preferential shares allotted to top current and former executives. While Bhatia owns 48 per cent in the airline, Gangwal holds 45 per cent of its share capital.

Through the past few months, the airline's promoters have tweaked the shareholding structure to create headroom for roping in foreign investors. Gangwal, who earlier held 47.88 per cent in the airline through US-based Caelum Investment, now holds the stake in personal capacity and through other entities. His wife also holds a small stake in the company.

Gangwal is a non-resident Indian and under current norms, NRIs are allowed up to 100 per cent investment in an airline. Caelum Investment's equity stake in the airline was deemed as foreign investment and there would have been little headroom for promoters to offer shares to foreign investors without tweaking the shareholding structure.

Kapil Kaul of the Centre for Asia Pacific Aviation, says, "An IPO will positively re-rate the sector and allow another one-two airline IPOs to follow. IndiGo's IPO will be the first big listing after Jet Airways' successful IPO in 2005. I expect IndiGo's IPO to bring retail investors back to the airline sector. Since the 1990s, airline IPOs have hurt investors significantly, especially small investors, and Indigo's IPO is expected to restore confidence."

"So far, the airline has grown organically. We believe it could look at inorganic growth, too," said Dhiraj Mathur, partner (aerospace and defence), at PwC India.

Citigroup Global Markets India, JP Morgan India, Morgan Stanley India, Barclays Bank PLC, Kotak Mahindra Capital Company and UBS Securities India are the lead managers for the IndiGo IPO.