Short-term investors in IndiGo can book profit, say analysts

Shares of Interglobe Aviation, the company that operates low cost carrier IndiGo, debuted at the bourses on Tuesday at Rs 856, up 12 per cent as compared to its initial public offer (IPO) price of Rs 765 per share.

On the National Stock Exchange (NSE), IndiGo hit a high of Rs 899.5 in intra-day deals and a low of Rs 849 with over a million shares being traded in the first 30 minutes. The company had raised Rs 3,009 crore though the IPO, which was subscribed a little over six times.

Stock strategy

With over 15% listing gain, should you book profit in the counter or look at adding more to your portfolio?

Analysts suggest that investors who got the allotment during the IPO and can hold the stock only from a short-term perspective should book profit given listing gains. However, those in for the long haul, say two - three years, can stay put and get the likely benefit of a handsome dividend as well.

G Chokkalingam, founder and managing director of Equinomics Research & Advisory, explains: "While the long-term investors who would like to hold beyond a year can stay invested, short-term investors may consider booking profits as at current price. The stock trades around 17x FY16 estimated EPS (earnings per share). In FY15, its profits grew exponentially, but similar rate of growth is not possible going forward as scope for further steep expansion in the margin is limited."

"However, the long-term investors who can hold the stock for two to three years may hold the stock, as we believe that the aviation business in India would become a significant growth story in the medium-to-long term," he adds.

 

Jagannadham Thunuguntla, head of fundamental research at Karvy sees the gains on listing as a good news for the aviation industry in general. The strong listing, he feels, could prove to be a catalyst for the primary market.

"The upcoming aviation policy of the government, which is likely to be announced soon, will give more clarity on how the government envisages the future of the aviation industry. Having said that, the aviation industry faces a lot of challenges like low margins, stiff competition and high taxes. Even the crude oil prices are low now, but we don't know how long they will remain subdued," he cautions.

On the other hand, institutional players who have a large appetite for this kind of a product in the aviation space are likely to stay invested, suggests Deven Choksey, MD and CEO, K R Choksey Shares and Securities. He expects them to buy the stock at lower levels given the kind of growth and the expansion the company has undertaken.

But this investment philosophy, he says, may not apply to the retail investors and suggests they book part profit given the listing gains.

"From a long-term perspective on a fundamental basis, the company is on a strong footing. Another aspect here is that over the next few years, the promoters will have to bring down their stake to 75% in the company as per regulations. So whenever one invites new investors, the pricing generally tends to be higher. This is likely to be the situation with IndiGo as well. I expect the stock to remain at higher levels, going ahead. That apart, the company is expected to pay higher dividend. To those investors who want to stay on for the dividend going ahead, may stay invested for the long haul."