Why do I own IndiGo?

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indigo

Interglobe aviation limited, (IndiGo) has been around since 2006. The company got delivered its first aircraft on 28th July 2006. Six years after, on 17th august 2012, IndiGo became the largest low-cost carrier airline and most profitable airline in India.

Following are the Pros and Cons as to why I own IndiGo. I have compiled this data from various sources on the internet and I will keep updating this post as the new information comes from the company.

Pros:

* It is the largest airline in India in terms of passengers carried, with a 39.8% market share as of July 2016 which is nearly equal to the combined market share of all its rivals i.e Jet airways, spicejet, Air India and GoAir.

* It has recently launched its IPO (November 2015). I see it as a positive.

* High promoter holding: Nearly 86% of the company is owned by the promoters. And only 2% of total outstanding shares are owned by financial institutions. This is in alignment with Peter Lynch’s rule that invest in company with high promoter holding and low institutional holding.

*I own IndiGo because of their consistent profitability. Despite other airlines making a loss, IndiGo has managed to make profits for more than last five years in a row.

*I own Indigo because of the untapped fast growing aviation market of India in which indigo has the largest growing market share. I think in the coming days more and more people will travel on airplanes in India. So the sales are going to increase.

*I also think that the ATF (Aviation Turbine Fuel) fuel which is the biggest expense of aviation company, will go down in future which will reduce the expenses. So increased profitability.

*I own Indigo because of their operational efficiency. They are the second largest low-cost carrier in Asia. If a company knows how to cut costs and maximize output from its limited resources then I love that company because it is sure that it is going to be profitable in coming days.

*They publish their quarterly results in a highly consumable format. I immediately went through the entire presentation and was able to understand what happened to the business during that quarter.

*It is expanding at a very aggressive rate. It currently has 119 aircraft in service and 400 unit orders already placed. As of 8th Nov 2016, it has a fleet of 118 aircraft and they aim to have a fleet of 136 aircraft by the end of this fiscal.

*They are converting their airbus a320s to airbus a320neos. The latter model reduces fuel consumption by 10-15% and fuel consumption is the biggest expense(50% of total expenses) of the airline. It will reduce expenses and increase profits.

*They are converting their airbus a320 neos to airbus a321 neos. Former has 189 seats while latter 240 seats. It will increase revenues and thus profits.

Cons:

* It has an inconsistent bottom line in the last five fiscals.

~ So, what?? Airlines is a cyclical industry. Airline businesses suffered as a whole in the years in which the company had low profits. In 2012 most of the airlines in India booked a loss. At least IndiGo did not book a loss and booked a decent profit of Rs. 127 crores.

* Valuation are highly expensive compared to peers.

~No, they are not. If we compare it with real peers (not Jet Airways and Spicejet) we find that the valuations are justified. If we go according to Peter Lynch, It is a 52.5% grower priced at a P/E multiple of 15 !!   What a bargain I am getting here! I think the valuations are extremely attractive. I think it would be fairly valued even at a P/E of 30 if it continues to grow at 50+% a year.

* On March 2015 promoters sucked in all the reserves and surplus by paying a huge dividend to themselves, resulting in negative net worth.

~ This is a highly exaggerated fact by the corrupt media a.k.a presstitutes. Just Refer to this article of business standard. You will come to know that the company had been paying such large dividends (amounting to 70-75% of net profits for the respective years) for every year and it was not something new that the company did to deceive its shareholders (i.e general public)

The company’s promoters and managers also showed a great prudence by not paying the dividend for FY12 when earnings were low.

 

Update (26 Feb 2017): IndiGo has apparently hired Cindy Szadokierski, a former united airlines executive. Also, IndiGo’s current CFO, Rohit Philip, and one more senior level executive Greg Taylor have previously worked for United Airlines, according to an article in economic times.

Rakesh Gangwal, one of the two founders of this airline and the largest individual shareholder was previously Chairman and CEO in the world’s biggest airline American Airlines (then US airways). He has also served in a senior level position in United Airlines.


As you can see the Pros far outweigh the Cons. I am glad that I didn’t pay attention to the corrupt IPO reviews of some brokerage houses. (Read this review of Ambit Capital). Currently, I own 17 shares of IndiGo and I am planning to add more as soon as I get a lucrative price.

Also, check out the Wikipedia article on civil aviation in India for more insights on the aviation industry

2 comments

    1. Hi Freddie!

      Yes it’s been a long time I have written a post and that is because I am having my Exams these days. By 2nd December my Exams will be over, you can tune in after that to read some awesome blog posts 🙂

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