IndiGo owner InterGlobe tanks 19% post Q3: What irked investors?


Shares of InterGlobe Aviation tanked 19 percent intraday Friday, on a day when benchmark indices are rallying. The much-sought-after aviation stock, which owns popular brand IndiGo, is feeling heat of investors’ wrath after September and December quarter results were announced. On first day of listing on bourses last November, the stock rallied 18 percent, gaining 14 percent in just a month. It raised Rs 3,017 crore from its IPO in 2015.

In December quarter, its net profit rose 24 percent to Rs 657.28 crore and revenue jumped 12 percent to Rs 4407.49 crore on annual basis. “Our business continues to perform well on the back of increased fleet size, robust demand in the market, and lower fuel prices. The lower fuel prices have allowed us to report higher profitability and to offer lower fares further stimulating the markets,” Pankaj Madan, CFO said.

So, what went wrong now?

#1. Though Q3 results may be sound which is seasonally a good period for the industry, IndiGo did not see a strong growth in September quarter. Its Q2 profit fell steeply to Rs 112.6 crore from Rs 640 crore in Q1FY16 while revenue also slipped 18 percent to Rs 3539 crore versus Rs 4317.1 crore (Q-o-Q). This is its first declared earnings after listing on exchanges.
#2. The low budget airline’s average fare declined 14.2 percent to Rs 4,517 in Q3 from Rs 5,262 in year-ago period. However, its load factor has increased to 84.6 percent in the period from 81.2 percent (year-on-year).

#3. Its revenue per available seat kilometre (RASK), which indicates an airline’s profitability, fell 7.2 percent in the quarter. However. cost per available seat kilometer (CASK) has also fallen by 9.8 percent in Q3 (Y-o-Y) whereas CASK excluding fuel has jumped 10.8 percent. “This is on account of the average fuel price in the quarter ending December 2015, which was lowered by 31 percent than the same period last year,” Madan added. Inflationary rise in costs, Indian rupee depreciation and component accounting impacted expenses.

#4 IndiGo’s high employee cost is also a cause of worry. Its employee expenses rose to Rs 466.96 crore in Q3 against Rs 313.69 crore in Q3FY15. In Q2 too, employee cost climbed to Rs 447.24 crore.

Aditya Ghosh, President and Whole-time Director, said in a conference call post results, that the company continues to invest in early recruitment of pilots and cabin crew to not only resource current operations, but also to cater for growth. “Type rated airline pilots are a scarce resource and we have a jet pilot training program to create a long-term pipeline of A320-ready pilots. Therefore, while this does have a slightly adverse impact on our cost per ASK, we believe that the investment in this very critical bench strength helps serve us well in pursuit of our growth strategy,” he says. As of December, it has over 1600 pilots and about 3000 cabin crew.

#5 Delivery of A320 Neo aircraft has been delayed due to “industrial reasons.” The management expects delivery of A320 Neos to get delayed beyond FY16. InterGlobe had, earlier, ordered 180 A320 Neos followed by 250 more A320 Neos. The new version of aircraft is considered to result in 15 percent less fuel consumption per aircraft, 8 percent lower operating costs and less noise production. It allows up to 20 more passengers enabling in total over 20 percent less fuel consumption per seat.

However, Ghosh said, “To address shortfall in capacity due to delay in delivery, we’ve been working on other options including leasing more used aircraft to mitigate some of the capacity shortfall.” As of December, it operated at a peak of 647 daily flights, including international operations.

#6 Due to Chennai floods, it had to cancel 310 flights. In comparison, it operated a total of 56,000 flights in December 2015 quarter. As a result, there was a very limited impact of the Chennai floods on financial performance of the company.