Non-core income props up IndiGo's numbers

Total non-operating income for the quarter was around Rs 443 cr

The stock of IndiGo, India’s largest airline by market share, fell two days in a row after declaring weaker numbers. 

Though the airline managed to remain in profit for a consecutive ninth year, analysts say the profitability rose due to a significant rise in other income. For the December-March quarter, IndiGo reported a profit before tax of Rs 619 crore. A closer look at the numbers suggests a major portion of this was due to non-operating income, which includes income from investments and cash and non-cash income from aircraft and engine manufacturers.

Total non-operating income for the quarter was Rs 443 crore. Excluding other income, profit before tax was Rs 176 crore; after taxes, it stood at Rs 124 crore. 

Other income for this quarter, which consists of finance income — income from fixed deposits and mutual funds — was Rs 177 crore. With the rupee strengthening against the dollar, foreign exchange gains due to the weakening currency, coupled with other non-operating income, amounted to around Rs 83 crore, an analyst said. 

“Other income for IndiGo rose sharply by 59 per cent to Rs 293 crore owing to forex gains of Rs 82.6 crore,” Vishal Rampuria, an analyst with HDFC securities said in a report.

“Indian aviation companies with around 65 per cent of their costs directly or indirectly linked to the dollar will be the biggest beneficiary of rupee appreciation. A stronger rupee, coupled with reduction in air turbine fuel prices, bodes well for the aviation companies,” SBI Cap wrote in a research report on April 28.

One more component of the income of IndiGo has been from the sale and leaseback model, which the airline has successfully used over the years. 

For the quarter, IndiGo’s income from sale and leaseback was Rs 150 crore. Low-cost carriers across the world have been users of this and leaseback model under which a lessor will purchase the aircraft from the airline and lease it back. This removes the aircraft debt from the airline’s balance sheet and allows it to invest equity for some other purpose. 

According to sources, IndiGo makes around $4 million per aircraft under such transactions. As of March, IndiGo had 131 aircraft, of which 17 were owned or on finance lease, while 114 were on an operating lease.

“Other income, finance costs, exceptional items, tax expenses, and extraordinary items… these reflect neither the strengths nor weaknesses of an airline’s operations and commercial strategy,” said an independent aviation analyst who wanted to remain anonymous.

The IndiGo management was quizzed on this by the analyst during the post-results call. Chief Financial Officer Rohit Philip said, “We have followed the rules of financial reporting. That’s why I have given the full disclosure so that investors can look at our numbers and understand fully.”