IndiGo IPO flies mostly on global wings

70% of bids from foreign investors; share offering lapped up six times; retail quota under-subscribed

The Rs 3,000-crore initial public offering (IPO) of InterGlobe Aviation, which runs IndiGo, sailed through without any turbulence, with foreign investors on board. It was subscribed a little over six times. The 30-million share offering saw nearly 185 million bids, worth about Rs 14,000 crore. About 70 per cent of the offering, or 127 million bids, came from foreign institutional investors (FIIs).

Global investors scrambled to buy InterGlobe shares, hoping India’s air travel penetration would increase through the next few years. As of now, the penetration level is only 0.08 annual domestic seats per capita, against penetration rates of 0.35-0.6 in other developing markets such as Brazil, Turkey, Indonesia and China, according to Angel Broking.

IndiGo operates in the lucrative low-cost carrier (LCC) segment. On listing, the airline would be one of the world’s leading LCCs in terms of market value.

 

The qualified institutional buyer segment, which includes institutional investors such as FIIs, mutual funds and insurance companies, was subscribed 17.8 times. The non-institutional investor category was subscribed 3.6 times.

The retail investor category — those investing less than Rs 2 lakh — was subscribed only 92 per cent. Around 45 per cent of the IPO was reserved for retail investors, while seven per cent of the issue was reserved for InterGlobe employees.

Despite a 10 per cent discount on offer, the employee quota was subscribed nearly 13 per cent. The undersubscribed shares meant for the retail category, as well as employees, will be distributed among other investor segments, which saw high subscription.

Experts said the retail investor portion received a lukewarm response, owing to concern over valuations. Most domestic brokerages had termed the IPO pricing expensive; grey market activity, too, suggested marginal listing day gains.

For the IPO, InterGlobe had set a price band of Rs 700-765 a share. Given the heavy demand, the IPO is likely to be priced at the top end of the band. That will value the company at about Rs 27,500 crore. At Rs 765 a share, InterGlobe’s market value will be six times that of Jet Airways and 10 times that of SpiceJet.

Though most analysts had hailed IndiGo’s operational efficiencies, they felt the pricing had left little on the table for investors. “While we appreciate Indigo’s efficient operations and management capability to deliver profitable growth in a sector where few have succeeded globally, we find valuations expensive. At 10.2 times the FY15 EV (enterprise value)/Ebitdar (earnings before interest, tax, depreciation, amortisation and rent), at the higher end of the peer sector range, the proposed issue price fully factors profits on aircraft trading and lower than the sector’s aircraft maintenance costs in perpetuity, plus the benefits of lower crude prices and mid-teen volume growth through the next 10 years,” domestic brokerage house Ambit had said in a report.

"Foreign investors that applied in IndiGo have a record in being invested in other LCCs like RyanAir, Air Asia and others. So, they had a greater level of confidence, while for domestic investors, this offering was a first of its kind. That's why it was more FII-led. Still a deal of this size has seen good demand from most investors,” V Jayasankar,  head of equity capital markets, Kotak Investment Banking.

Investment bankers handling the IPO had said marquee global investors made big-ticket applications. According to reports, famed investor Rakesh Jhunjhunwala invested a significant sum. Business Standard couldn’t confirm this independently.

Citigroup Global Markets, JP Morgan, Morgan Stanley, Barclays Bank, Kotak Mahindra, UBS Securities were the investment banks that handled the IPO.