SECURITY ANALYSIS -

INTERGLOBE AVIATION LTD.

DATE – 29-01-2022
PREPARED BY: VANSH KHANUJA
CONTACT: vanshkhanuja78@gmail.com
_________________________________________
Disclaimer
I do not have any investments in Interglobe Aviation ltd.
(hereinafter referred to as ‘The Company’ and/or ‘Indigo’).
This report1 is based upon my reading of the company’s
annual report and other public documents.
I have endeavored to distinguish clearly between facts and
opinions and tried my best to include all necessary
information. If, however, I have made any errors, or if any
readers have additional facts that I have not considered, I
would welcome hearing from you.
As to opinions expressed here, others may disagree with
some or all of them. I urge anyone interested in the
company to read its public filings and to consult whatever
other sources they deem appropriate in order to form their
own opinions on the topics covered in this report.
This report is not intended as investment advice to
anyone.
1 For more reports, visit my website- http://thesecurityanalyst.weebly.com

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 Table of Contents
I) OVERVIEW................................................................2-3
II) INTERGLOBE AVIATION LTD. BUSINESS
ANALYSIS.....................................................................3-5
III) FINANCIAL STATEMENT ANALYSIS...................5-10
• Auditor’s report
• Balance Sheet
• Income Statement
• Valuation
IV) CONCLUSION..........................................................10
V) NOTE....................................................................10-11
I) OVERVIEW. Interglobe Aviation is in the low-cost carrier
(LLC) segment of the airline industry in India. The principal
activities of the Company comprises of air transportation
(which includes passenger and cargo services) and
providing related allied services including in-flight sales.
As per Indian Brand Equity Foundation (IBEF), the Indian
aviation market is expected to become the world’s third
largest market in terms of passengers by 2024. This high
growth industry will obviously witness great competition
driving margins lower in the long run.
Covid-19 had a great impact on the profitability and
liquidity of all aviation companies. I will not consider the
numbers which were affected. The net revenues for indigo
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were 156,769 million INR for the year ended March 31,
2021 as compared to 372,922 million INR for the year
ended March 31, 2020.
II) INTERGLOBE AVIATION LTD. BUSINESS
ANALYSIS
• Impact of Covid-19
Indigo, being in the airline business, faced tough times
during the covid crisis. The company has raised 66 billion
rupees of additional funds in FY 2021 and also announced
additional liquidity of 45 billion rupees for FY 2022. The
company has also announced raising of funds by issue of
equity shares through Qualified Institutions Placement of
up-to 30 billion rupees. Company’s fixed cash burn was
around Rs. 400 million per day in March 2020. Cash burn
was gradually reduced to Rs. 150 million per day.
To reduce cash burn, the company focused on efficiency
of its fleet in terms of fuel consumption by replacing CEOs
with the more modern NEOs. NEO aircraft are 15% more
fuel efficient than CEO aircraft. (CEO – Current Engine
Option, NEO – New Engine Option)
According to information provided in the annual report,
IndiGo’s international operations in FY 2021 were only
around 17% of its pre-Covid operations.
• Opportunities
The aviation sector is one the fastest growing sector in
India. As of March 2021, India had 137 operational
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airports. Government has envisaged increasing the
number of operational airports to 190-200 by FY 2024.
As per Indian Brand Equity Foundation (IBEF), the Indian
aviation market is expected to become the world’s third
largest market in terms of passengers by 2024. The
industry’s growth is being propelled by development of
airports across multiple city tiers; increasing adoption of
information technology and a strong focus on regional
connectivity.
“Large untapped markets lie within a six-hour range of our
principal cities.” (*Source: Annual Report)
With the growing Indian economy, the company can easily
grow at high rates. As per DGCA (Directorate General of
Civil Aviation), Indian carriers carried 164 million
passengers in FY 2020, having grown at a CAGR of
12.2% during FY 2016 to FY 2020. Tier 2 and Tier 3 cities
are also developing at a fast pace which further provide
opportunities.
Indigo is the best bet to capitalize on these opportunities:
airline company with nearly 55% share of the domestic
passenger traffic, superior cost structure, comfortable
liquidity position.
• Fleet
IndiGo commenced operations in August 2006 with a
single aircraft and has grown its fleet to 285 aircraft (Out of

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which 56% are NEO aircrafts) as of March 31, 2021. [net
addition of 23 aircraft during FY 2021]
The company had also placed an order with Avions de
Transport Regional GIE, or ATR, in August 2017, for the
purchase of up to 50 ATR72-600 turboprop aircraft. These
aircrafts are more suitable for smaller cities that either did
not have reliable air services so far or were subject to
exorbitant airfares. As of March 31, 2021, IndiGo had 26
ATR aircraft in its fleet. This enables Indigo to fully
capitalize on smaller markets.
During the year, the company has also initiated a freighter
programme, under which it is in the process of sourcing 4
A321CEO aircraft which will be converted to full freighter
configuration. These new revenue streams helped
compensate for the reduced passenger flight revenues.
III) Financial Statement Analysis
For the financial statements, I’m going to analyze the
consolidated statements which includes a wholly owned
subsidiary ‘Agile’.
“Agile is a wholly owned subsidiary of your Company and
is engaged in the business of providing ground handling
services to your Company at various airports in India. The
total income of Agile for FY 2021 was Rs. 2,953.87 million,
lower by 16.00% over the previous year’s income of Rs.
3,516.69 million. The PAT was Rs. 233.65 million
indicating a growth of 61.35% over PAT of Rs. 144.81
million for FY 2020.” [*Source: Annual Report]
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 • Auditor’s report
The auditor’s report for the financial statement highlighted
the undermentioned:
Revenue Recognition Note 21
Lease Accounting Note 16.b
Aircraft Maintenance Note 17
Impact of covid-19* Note 42
*Impact of covid-19 was also mentioned under ‘Emphasis of Matter’

• BALANCE SHEET
FY18 FY19 FY20 FY21
Non-current assets 64,977 69,097 196,446 222,372

Current assets 146,315 181,170 224,564 206,685

Non-Current liabilities 79,289 100,706 197,856 240,166
Current Liabilities 61,230 80,103 164,374 189,236
Total Equity 70,773 69,458 58,779 1,108
(INR in millions)

Continued losses after covid-19 wiped the equity. The

major concern for the company is that new LCC airline
companies are now in the game. During the 2008 financial
crisis, Indigo emerged as a clear winner because the
company prioritized the essential services over luxury.
This resulted in higher profit margins as compared to other
airlines like Kingfisher.
Various decisions made by the company like supporting
airbus over Boeing when airbus was facing many technical
issues made Indigo the clear winner over the past decade.

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(Indigo made bulk purchases when Airbus was struggling
and hence had better bargaining power)
Fast forward 10 years and today the industry has changed
drastically. Every new airline company will focus on cost-
efficient methods like Indigo. Hence, the competition will
be way tougher. I still expect Indigo to be the leading
airline company, but with a reduced market share.
Coming back to the balance sheet analyses, the condition
for now seems poor for Indigo but it is way better than
negative equity other airlines are carrying on their balance
sheets. [Air India had negative equity of (374,551.1) [INR
in millions] as at 31 March, 2020]
The major increase in non-current assets have been due
to the addition of right of use assets. Under this head,
according to note 4, the company has leased aircrafts and
engines of INR 170,935 million. This strategy of Indigo is
called the sale and leaseback model. Indigo purchases
aircrafts from Airbus, then sells it to a third party which
further leases the aircrafts back to Indigo. This helps
Indigo maintain liquidity. (*Source: The Indigo Story by
Shelly Vishwajeet)
Total bank deposits, investments, cash and cash
equivalents are INR 185,684.65 million but according to
Note 44, INR 114,687.59 million is under lien. Making
current free cash (and equivalents) INR 70,997.06 million.

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Comparing with other airline companies, Indigo has a
strong balance sheet but the main concern would be
future health of the company. (More on this in valuation)
• Income Statement
Particulars For the year ended March 31
2021 2020 Change
EBITDA Margin 4.3% 14.2% -10.0 pts
Net Profit Margin -39.7% -0.7% -39.0 pts
RASK(Rs.) 3.30 3.77 -12.4%
CASK(Rs.) 4.58 3.80 20.7%
CASK Ex-fuel (Rs.) 3.74 2.50 49.4%
RASK – Revenue per available seat kilometre
CASK – Cost per available seat kilometre
CASK Ex-fuel – CASK without fuel expenses

The Company reported a net loss of Rs. 58,064.27 million

in FY 2021 against a net loss of Rs. 2,336.78 million in FY
2020.
The company was profitable prior to the year 2020. The
company made Rs.1,572.47 million in FY19 and Rs.
22,423.24 million in FY18.
The major costs for the company are fuel expenses and
aircraft maintenance expenses. The company was still
cash flow positive in FY20, making Rs. 69,717 million (net
cash from Operating activities) whereas the same for
FY21 was Rs. (16,141) million. [parenthesis indicates
negative value]
• VALUATION
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For valuing the company, I will use some past figures.
The industry is expected to grow at 12%, for the next 10
years, Indigo’s revenues will be projected. I will use 10%
growth rate for the first 5 years and 8% for the next 5.
(Taking FY20 revenues)
Here, 10% is completely reasonable because Indigo is
expanding at a high rate. Given how the company has
performed in the past, even 15% can be justified. [Note
that Indigo is also entering new markets]
I am using EBT margin at 12% (it has been around 13-
14% in the past). Tax rate of 25% and sales-capital ratio of
4 (calculated for previous years). The required rate of
return will be 10% (discount rate). For terminal value, I will
be using perpetual growth rate of 2%.
I will be reducing 25% at the end (Margin of safety)

The numbers are Rs. In millions. The intrinsic value after

applying 25% margin of safety is 50,000 Crore Rs.
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The current price of Indigo is 71,516 Crore Rs. (LTP:
1856.65 Rs. /share).

IV) CONCLUSION
As evident from the excel calculations, Indigo is a bit
expensive as of now. I used numbers from the previous
years, not taking into account the impact of covid-19
(which was also emphasis of matter according to the
independent auditor). How Indigo will recover from this
covid crisis is unpredictable given new LCCs entering the
market.
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Note:
After my report on Amazon, a few people commented on my
calculation of FCF from Net profits. I will explain the same here.
Revenues are projected and Net profit is calculated. After this,
sales-capital ratio needs to be used. This ratio is increase in sales
/ capital invested. For example, If I invest 10$ in a business and
generate extra 50$ in revenues, then my sales-capital ratio is 5. I
used 4 in this analysis based on past performance. Using this
ratio, I calculated the reinvestments and deducted them from the
net profits. The major concern people had were regarding the
difference between net profits and cash flow from operations. The
latter is usually higher because non-cash expenses are adjusted
for.
The difference is not going to be huge if I project every line item in
the financial statements. I have seen DCF models that project
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every line item and then arrive at an intrinsic value. Here, I prefer
my method because how simple it is. [“We’d rather multiply by 3
than by pi” - Warren Buffett]
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