IndiGo flies high on market debut

IPO takes promoters Rahul Bhatia and Rakesh Gangwal to the billionaires club

InterGlobe Aviation, the operator of the country's largest airline IndiGo, made a stellar debut at the bourses on Tuesday with its shares climbing around 15 per cent over its issue price.

The shares of the company ended at Rs 878, up Rs 113, or 14.8 per cent, compared to its IPO price of Rs 765 per share. The strong listing dispelled concerns over valuations raised by some analysts and helped the country's most-profitable airline command a market value of around Rs 31,655 crore - nearly seven times that of its rival Jet Airways and 11 times that of SpiceJet.

IndiGo's IPO - first by an airline in nearly a decade - catapulted its two promoters and co-founders Rahul Bhatia and Rakesh Gangwal to the country's billionaire club.

At Tuesday's closing price, Bhatia's holding stood at Rs 13,784 crore ($2.07 billion) and Gangwal's at Rs 13,472 crore ($2.03 billion).

Bhatia owns 43.56 per cent in the airline largely through holding company InterGlobe Enterprises, which he set up in 1989.

The duo together own around 86 per cent in the airline, which they will have to pare to at least 75 per cent in three years.

Gangwal, former president and chief executive of US Airways, has been instrumental in driving the airline's big ticket aircraft orders and low-cost philosophy.

He owns 42.57 per cent - 16.89 in his name, making him the largest individual shareholder; and the remaining through his wife and a trust - in the airline.

IndiGo's over Rs 3,000 crore IPO, the largest public offering since 2012, had seen robust demand with the issue seeing six times more demand than the shares on offer. The institutional investor and high net worth investor segment of the IPO had particularly seen robust demand, including an application from famed investor Rajesh Jhunjhunwala.Investment bankers said demand from investors who missed out on allocation in the IPO supported the share price on Tuesday.

IndiGo raised fresh equity of Rs 1,272 crore in IPO, which it plans to utilise towards retiring debt and for acquiring ground equipment.

"IndiGo's operational excellence and differentiated business model is being endorsed by investors in India and abroad," said Vinay Menon, head of equity capital markets of JP Morgan India. IndiGo is the largest domestic airline in India with 36.5 per cent market share and is also the most profitable airline in the country. Strong focus on cost control and operational efficiency, product simplicity and a strong network have been the ingredients of its success. Going forward, the management wants to stick to basics - keep costs lower than revenue, create strong leadership and expand network.

"We were always confident. Our story is a different from others," said IndiGo President Aditya Ghosh, adding the recent weakness in the secondary market did not make him nervous.

On Warren Buffet's investment mantra of not investing in airlines stocks, Ghosh said: "Our founders disregarded that advice 10 years ago, and have gone from being millionaires to becoming billionaires. The opportunities that India provides are vast. If you can create the right product, there will be demand. Execution is the key."