Investors unfazed by dividend row: IndiGo

Analysts have questioned the Aditya Ghosh-led company's negative net worth due to a huge dividend payout ahead of an IPO

Ahead of its initial public offering (IPO), low-cost carrier IndiGo's leading shareholders on Thursday said the airline's potential investors were unfazed by a controversy about the company's negative net worth as of June 30 this year, due to a massive dividend payout to existing shareholders.

Asked if the company would have done anything differently in the run-up to the IPO, co-founder Rakesh Gangwal said, "It's water under the bridge. If we were to retrace history, we would probably end up doing the same thing. The bankers would give us the same advice. At none of the investor meetings, this issue (questions about the large dividend payout ahead of the IPO) raised its head. The investors will understand this."

Even as IndiGo's dividend payout to its promoters in the first quarter of this financial year exceeded the airline's cash flow, the company clarified it wouldn't promise dividend to stakeholders. "When we talked to investors, we made one statement very clear: 'we are not going to promise dividends'…If we set a policy that says we will declare a certain amount of dividend every year, we will attract a set of investors who will say 'I am buying your stocks for the dividends'…Look at what Ryan Air does - it pays enormous dividends, but not every year. Analysts asked us why are you not assuring of dividends and we said 'we will never do that'," Gangwal told Business Standard.

InterGlobe Aviation, which runs IndiGo, paid a dividend of $158 million in the first quarter of 2015-16, when its cash flow was $137 million. The proportion was much less in previous years - in 2014-15, when the cash flow was $381 million, the outgo on dividend was $173 million; in 2013-14, the dividend stood at $63 million, while the cash flow was $266 million. In 2011-12, the company didn't pay any dividend; its cash flow was $176 million.

"We are not in a steady business. This is an airline business and there will be volatility on fuel, competitors doing things. But our philosophy on dividends is very simply: We will have a certain amount of profit, keep what we need for capital needs, excluding aircraft and ground equipment, and the rest belongs to shareholders, which should go back to them. That is why we don't have a steady percentage dividend number," Gangwal said.

Analysts have questioned the company's negative net worth due to a huge dividend payout ahead of an IPO. As of June 30, the company had negative net worth of Rs 139.39 crore.

The company admitted it ran into issues in the run-up to the IPO but those were only related to "financial re-engineering". "In any IPO, you run into issues. We are happy our issues are not related to our business model or operations. It is not about the vision of the company; it's about some financial re-engineering, which is easier to deal with," Gangwal said.

"You should watch out on Tuesday. It will reflect whether the investors had a problem with this or not. That's the acid test for us," he added.

IndiGo has set a price band of Rs 700-Rs 765 a share and the sale will be carried out on October 27-29. "The types of investors who will come into this business because of the high valuations would be those who understand the aviation business. All I can say is bankers obviously feel the valuation is more than fair. Otherwise, they would have never let us put up a price band like this," Gangwal said.