IndiGo, India's Largest And Most Profitable Airline, Wooed By Global Banks For A Role In $400M IPO

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IndiGo Airlines
Passengers disembark from an IndiGo Airlines A320 aircraft at Bengaluru International Airport in Bangalore on March 7, 2012.

At least nine banks are vying for a role in the upcoming public offer of India's largest and most profitable airline, according to local reports.

IndiGo, a low-cost carrier with a 32 percent share of the Indian market, is gearing up for a $400 million initial public offering, or IPO, in the second half of 2015. And sometime over the next two weeks, Indigo’s management will be pitched by banks, both foreign and local, for the role of principal banker. The airline, which was founded in 2006, is the only profitable airline in India's crowded aviation sector, which has recently seen the entry of foreign players like AirAsia and a joint-venture between India's Tata Group and Singapore Airlines.

“The time is approaching to leverage this achievement and an IPO is likely in FY2015, possibly in the third quarter. If it proceeds, it is expected to be the largest ever aviation IPO in India,” Capa Centre for Aviation said, according to Mint, a local business newspaper.

HSBC Holdings (NYSE:HSBC), Citigroup Inc. (NYSE:C), Morgan Stanley (NYSE:MS), JM Financial (BOM:523405), Kotak Investment Banking (BOM:500247), CLSA, Barclays (NYSE:BCS), Axis Capital (NYSE:AXS) and Deutsche Bank (NYSE:DB) will reportedly present to the airline's management in Paris. Neither the company nor the banks have confirmed the development, but local media reports have said the airline will appoint a principal banker soon.

IndiGo, which operates 79 aircraft and has orders for 186 planes, plans to place an order for as many as 250 more aircraft at the Farnborough air show later this month, Mint reported, citing Capa. The airline is based in Gurgaon, near New Delhi, and is co-owned by InterGlobe Enterprises and, Rakesh Gangwal, former president and CEO of U.S. Airways Group, which later merged with American Airlines Group Inc (NASDAQ:AAL). According to IndiGo's website, the airline serves 31 Indian cities and five international destinations.

"The financial health, performance and valuation of other carriers cannot be a benchmark for IndiGo. It has over a longish period of sustainable growth and profitability proven it is in a different league than others. The only concern is increasing competition from other carriers such as AirAsia," Prithvi Haldea, chairman of Prime Database, which tracks India's primary capital market, said, according to The Economic Times, or ET, a local business newspaper.

However, the IPO announcement comes at a time when the industry is struggling to recover from record losses.

In the 2014 fiscal year, the Indian aviation industry expects to lose about $1.4 billion and has accumulated losses worth $10.6 billion, amid the entry of two new players in the market -- AirAsia and Tata Asia.

IndiGo is being valued at nearly $2 billion and earned a net profit of $131.76 million with a 65 percent growth in revenues in 2013, according to ET. In 2015, Indigo’s revenues are expected to exceed $1.84 billion, CNBC TV 18, a local business news network, reported.

“IndiGo is definitely one of the better-run airlines in India today. However, given that their fares are pretty much the same as the other low- fare airlines in the market and their cost structure isn’t dramatically different from the others, its financials won’t be too different either,” Bharat Mahadevan, an independent consultant said, according to Mint, adding: “It is impossible for them to post profits on operations alone and IndiGo’s profits are probably related to sale and leaseback of aircraft and other exceptional non-operating items.”

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