GoAir banks on low-cost structure, promoter backing for successful IPO

The company has filed DRHP to raise Rs 3,600 crore

Strong confidence in the revival of Indian aviation market after the pandemic, a rigid philosophy of sticking to simple, low-cost operations, backing of the Wadia group and a buoyant market are what GoAir is counting on to see a successful public listing.

The company has filed the Draft Red Herring Prospectus (DRHP) for a Rs 3,600 crore initial public offering (IPO) of its shares. While sources said that the Wadias, who are promoters are willing to dilute 25-30 per cent stake in the firm, the company in the DRHP said that it is also considering raising Rs 1,500 crore before the IPO which may reduce the size of share sale.

People aware of the development said that senior leadership of the company have been holding meetings with large institutional investors to assure them about the solvency of the company and its determination to stick to the ultra-low cost model which would keep its unit cost the lowest among Indian airlines.

“First thing is GoAir under Jeh Wadia has successfully remained profitable due to its lean cost structure and its razor sharp focus on low cost model. The company unlike its peer IndiGo hasn’t diversified to any turboprop model which increases complexity. Nor does it want to go long haul which increase cost,” said a head of an institutional investor.

The airline also has a pending order book of around 90 A320 Neo aircraft-of it expects to add eight aircraft in FY22, fourteen in FY 23 and the remainder subsequently.

While GoAir has been contemplating a public listing since FY19, the impact of Covid-19 and a subsequent second wave forced its requirement. “After the second wave, there is not a single airline in India who can remain afloat without infusing fresh funds,” said a company executive.

Market leader IndiGo’s board of directors has recently approved to raise Rs 3,000 crore through QIP to shore up liquidity, while Tata Sons since the outbreak of the pandemic has periodically infused cash into its two airlines- Vistara and AirAsia India.

The aviation industry faces significant business challenges as a result of the COVID-19 pandemic's effects on the industry.

An analyst of a brokerage firm said that GoAir promoters have shown intent and ability to back the firm and hence it is much better placed than rival SpiceJet, which is currently valued at around Rs 4,000 crore (Rs 40 billion). “So selling 25 per cent for Rs 2,500 crore-Rs 3,000 crore assumes a valuation of Rs 10,000 crore,” he said.

The company recently raised Rs 5,460 million as equity from Baymanco Investments Limited, a company owned by the Wadia group.

During FY21, due to the letter of credit given by the Wadia group, the company could get a fresh line of credit of Rs 500 crore from ICICI Bank. Additionally, it has availed an additional facility of Rs 3,42 crore from Deutsche Bank AG.

While the company’s auditors have raised a material uncertainty as to ability to continue as a going concern. However, due to the letter of support received from our promoters and our measures to improve our operations, the financial statements as of and for the nine months ended December 31, 2020 have been prepared on a going concern basis.

The airline intends to use the proceeds from the public offering to meet debt obligations, payment to oil companies and for replacement of letter of credit to aircraft lessors for lease rental payment and future maintenance of aircraft.

The company mentioned that it has received default notices related to 24 aircraft and the total amount claimed under these notices is $35.75 million.

About 22.56 percent of the company is also pledged to a consortium of lenders led by Central Bank of India.