Outlook lifts India's most profitable airline IndiGo in debut

By Karen Rebelo and Abhishek Vishnoi

MUMBAI (Reuters) - The owner of IndiGo, India's biggest airline by market share, surged as much as 17.6 percent in its market debut on Tuesday despite a premium valuation, as investors bet on future profits in one of the world's fastest-growing aviation markets.

InterGlobe Aviation Ltd raised 30.1 billion rupees ($453.52 million) last month, valuing the carrier at around $4 billion. It was India's biggest initial public offering (IPO) since telecom tower firm Bharti Infratel Ltd raised $750 million in December 2012.

IndiGo has outperformed rivals by keeping its cost base and debts low, while building a reputation for punctuality. The issue was subscribed over six times, driven by demand from foreign investors.

IndiGo is also expected to outperform peers in an industry benefiting from cheaper fuel.

"Clearly the whole sector is benefiting from the crude oil slump. It is the best-run company, so it should get a significant premium to peers," Pankaj Murarka, head of equities at Axis Mutual Fund, said of IndiGo.

InterGlobe shares were trading at 893.10 rupees at 2:20 p.m., up 16.7 percent from the IPO price of 765 rupees. The Nifty was down 0.9 percent, while rival Jet Airways (India) Ltd fell as much as 4.3 percent and Spicejet Ltd as much as 6 percent.

INDIGO PREMIUM

IndiGo's EBITDAR margin, a measure of profitability that excludes the impact of depreciation and aircraft and engine rentals, was 27.5 percent in the year ended March, according to brokerage India Infoline.

That compared with an EBITDAR margin of 11.3 percent for Jet and 4 percent for SpiceJet.

Bankers used the differential to justify higher premiums, pricing IndiGo at 1.9 to 2.1 times enterprise value over sales, compared with around 0.7 times for Jet and Spicejet, India Infoline estimated.

Analysts said IndiGo was likely to benefit more than rival budget carriers as more Indians become wealthy enough to fly. Brokerage Edwelweiss estimated IndiGo had an over 35 percent domestic market share and was consistently profitable over the previous seven years.

Overall passenger numbers are up 20 percent this year, while air travel penetration is still tiny at just 0.04 trips per person each year, a fraction of China's 0.3 trips.

India has seen mixed performance in its IPOs this year. Among 10 listings of at least $50 million this year, half have fallen on their debut, led by Coffee Day Enterprises Ltd which sank 17 percent because of a valuation that investors fretted did not match its complex structure.

($1=66.3700 rupees)

(Writing by Rafael Nam; Editing by Clara Ferreira Marques and Clarence Fernandez)