“The stock market rewards you if you know what you are doing. But if you don’t know what you are doing, it will show no mercy to make you poor”
These wise words probably from Warren Buffett emphasize the importance of knowing why you own a particular share. Because often it is not the investment that is risky but the investor or the lack of knowledge about any field.
That is why today I will review again, after nearly one and a half year, why do I still own Indigo. I have been holding this stock since October 2016. I currently have 213 shares as you can see in the screenshot. I have listed my reasons to own this company previously too. You can check it here. As I have gained more knowledge about the company and the sector it seems sensible to review it again.
- 65% of Indian Population is under 30. So, a lot of people will fly in the next 20-30 years.
- Booming middle class (I mean who doesn’t want to fly in an aeroplane). India is one of the fastest growing major economy with annual GDP growth rate of more than 7%. Everybody is investing in India.
- Indian aviation market is highly under-penetrated. Only close to 450 aircrafts for 1.3 billion people compared to nearly 4000 commercials aircrafts in the US for just 300 million people. Clearly, there is a huge room to grow.
- According to IATA, Indian airline industry is one of the fastest growing aviation industry in the world.
- Recently the government has decided to completely privatize the debt-laden flagship airline AirIndia. Privatising this airline will distribute the market share to the remaining airlines primarily IndiGo.
- Govt. has recently launched its UDAN (Ude desh ka aam nagrik) scheme under which it plans to connect small towns with air transport. IndiGo also has started its ATR operations with currently 6 ATRs in service.
- IndiGo has the largest market share among all airlines (40% as of February 2018)
- It has been consistently profitable for the last 8 years. Even during bad times in 2012 when fuel prices were peaking. All other airlines were making losses.
- Its fundamentals are very good. The balance sheet is clean, cash flows are healthy, no working capital debt, lots of free cash, consistent growth over time, consistent dividend payout and attractive valuations.
- It has an extremely good leadership and management. One of the founders of this airline is Mr Rakesh Gangwal who was the CEO & chairman of US Airways (currently American Airlines) the biggest airline in the world.
- It has also some of the people from United Airlines in the top management like Rohit Philip who is the chief financial officer of the company.
- It is rapidly expanding its operations and strengthening its domestic network. Adding 2-3 aircraft per month excluding the upcoming ATR fleet and adding more destinations & additional routes to existing destinations.
- Only IndiGo has expressed an official interest in buying the international operations of Air India. Air India has some coveted parking slots in airports around the world such as NewYork, Chicago & London besides 18 morning-departure slots in Mumbai alone. IndiGo could get all of this if it manages to acquire AirIndia.
- Update (18-Apr-18): Indigo has decided to not go after Air India after its announcement of 76% divestment as Indigo was interested in buying only the International operations of Air India which is currently not available in the Govt.’s offer.
- Indigo is seeking approval for flying to some of the European cities starting October 2018. This will be extremely profitable if executed successfully because IndiGo’s cost structure is lowest in the entire industry and it will definitely be customer’s first choice in flying abroad.
These are the major reasons why I decided to buy this stock in the first place and my reasons for holding the same. One of the benefits of knowing why you hold a particular share is that it helps you to continue to hold it and in fact buy more when the price of the shares fall and you are tempted to sell it.
If these fundamentals change which I don’t see changing at all, I should be selling. An Intelligent Investor changes his/her views on a particular stock if the information available to him changes.
I appreciate you reading this article and visiting my blog. Do share your thoughts on this article in the comment box below. I would love to hear from you. Until then keep investing and keep becoming wise every day.