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Wednesday, December 11, 2019

IndiGo board meets today: Promoter rift likely to overshadow strong Q1 earnings

IndiGo, India’s largest airline by domestic market share, extended its lead during the quarter due to the fall of Jet Airways that caused a sudden capacity crunch in the aviation industry leading to an uptick in fares and increase in yields for airlines.

Written by Pranav Mukul | New Delhi | Updated: July 19, 2019 2:23:54 am
 indigo, indigo share price, interglobe aviation share price, indigo tussle, indigo infighting, rakesh gangwal, rahul bhatia, sebi, IndiGo promoters conflict, indian express explained, today explained, explained today, indian express Friday’s Board meet is expected to throw light on where the dispute is headed and whether Damodaran, a former Sebi Chairman, manages to draw a truce between the promoters.

The Board of Directors of InterGlobe Aviation, the parent company of IndiGo, will meet on Friday in what is expected to be a turbulent congregation. On the one hand, the Board will approve results for three-month period ended June 30, wherein the firm’s bottomline is expected to jump over 20 times year-on-year, for what was a strong quarter for Indian aviation companies.

On the other hand, the Board of the airline led by chairman M Damodaran will discuss the rift between the two promoters Rahul Bhatia and Rakesh Gangwal in light of allegations about corporate governance lapses by the latter — something that the Street is looking at negatively.

IndiGo, India’s largest airline by domestic market share, extended its lead during the quarter due to the fall of Jet Airways that caused a sudden capacity crunch in the aviation industry leading to an uptick in fares and increase in yields for airlines. In addition to the Jet episode, airlines were supported by softened aviation turbine fuel (ATF) prices during the June-quarter, which is considered to be a seasonally strong period for air travel.

READ | Government seeks explanation from IndiGo on Gangwal’s complaint

“With net addition of 17 aircraft in the quarter, IndiGo continues to aggressively add capacity. Benefiting from Jet’s fiasco, we expect IndiGo to report yield expansion (7.5 per cent on year) along with high load factors (around 89 per cent). With ATF prices in check (down around 1.2 per cent year-on-year), we expect IndiGo to report strong EBITDAR (earnings before interest, taxes, depreciation, amortisation, and aircraft and engine rentals) margins and profitability,” brokerage firm Prabhudas Lilladher said in a research note. Edelweiss Research expects InterGlobe Aviation’s EBITDAR to increase by 178 per cent on year, while it sees the airline’s core profit after tax for the June-quarter rising to Rs 858.90 crore, compared with Rs 27.8 crore in the same period last year.

However, expectations of a good financial quarter has failed to cheer the markets, primarily on account of the feud between the two co-founders. Shares of InterGlobe Aviation fell nearly 1 per cent Thursday ahead of the Board meet. The scrip declined 0.55 per cent to close at Rs 1,458.65 on the BSE. In a separate report, Edelweiss Research noted: “Although we do not see any serious repercussions as yet, management distractions could impact Interglobe Aviation’s currently strong franchise. Moreover, current valuations reflect high growth expectations in an industry characterised by low barriers and innumerable past failures”.

Explained

Markets to watch firm’s commentary for clues

Given that InterGlobe Aviation’s share price has declined around 7 per cent since July 9, when the spat between the promoters became public, the market is expected to watch out for indicators of a resolution, if any, from post-earnings commentary.

The differences between the promoters, which have been simmering for nearly a year, have brought InterGlobe Aviation under the regulatory scanner with both the Sebi and the Ministry of Corporate Affairs (MCA) seeking response from the company over the allegations leveled by Gangwal.

Thursday, the company informed the stock exchanges that it has received a notice from MCA asking it to furnish explanations pertaining to the complaint made by Gangwal.

The airline has also been asked by Sebi to respond to Gangwal’s complaints of corporate governance lapses by Friday. Bhatia-led InterGlobe Enterprises, which, along with associates, owns around 38 per cent stake in InterGlobe Aviation, has issued statements refuting various charges mainly around related party transactions and unusual controlling rights over IndiGo. The MCA, according to sources, is expected to check the adherence of the shareholders’ agreement between Bhatia and Gangwal with the Companies Act. While the management of the airline has distanced itself from the episode suggesting that the company’s functioning remains unaffected, analysts expect that the disagreement between the promoters could impact the airline’s strategy.

“Impact of the feud on earnings as a function of possible change in business strategy is contingent on the outcome of the current dispute,” JM Financial Institutional Securities noted in a report.

Friday’s Board meet is expected to throw light on where the dispute is headed and whether Damodaran, a former Sebi Chairman, manages to draw a truce between the promoters.

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