Rosy Outlook Lifts IndiGo in Debut

The owner of IndiGo, India's biggest airline by market share, surged as much as 17.6 per cent 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 raised over Rs 3,000 crore last month in India's biggest initial public offering since telecom tower firm Bharti Infratel Rs 4,000 crore in its December 2012 debut.

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 strong demand from foreign institutional investors.

IndiGo is also expected to outperform peers in an industry benefiting from cheaper fuel, unlike Coffee Day Enterprises, India's other big debut of 2015.

Coffee Day sank 17 per cent in its market debut last month because of a valuation that investors fretted did not match its complex structure.

"It's a well-run business," Pankaj Murarka, head of equities at Axis Mutual Fund, said of IndiGo.

"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."

At 1:09 p.m., shares of IndiGo was up nearly 16 per cent to Rs 887 against a 1 per cent decline in Sensex.

IndiGo's EBITDAR margin, a masure of profitability that excludes the impact of depreciation and aircraft rentals, was 27.5 per cent in the year ended in March 2015, according to brokerage India Infoline.

That compares to an EBITDAR margin of 11.3 per cent for Jet Airways and 4 per cent for SpiceJet.

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

Investors said IndiGo was likely to benefit more than rival budget carriers as more Indians become wealthy enough to fly.

Passenger numbers are up 20 per cent this year, while air travel penetration in India is still tiny, at just 0.04 trips per person each year, a fraction of China's figure of 0.3 trips.