Rosy outlook lifts IndiGo in debut

By Karen Rebelo and Abhishek Vishnoi

MUMBAI (Reuters) - The owner of IndiGo, India's biggest airline by market share, surged as much as 17.6 percent 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 Ltd raised 30.1 billion rupees ($453.52 million) last month in India's biggest initial public offering since telecom tower firm Bharti Infratel Ltd raised around $750 million 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 Ltd , India's other big debut of 2015.

Coffee Day sank 17 percent 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."

InterGlobe shares were trading at 878.9 rupees by 0500 GMT, up almost 15 percent from the IPO price of 765 rupees, versus a decline of 0.7 percent in the Nifty.

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

That compares to an EBITDAR margin of 11.3 percent for Jet Airways and 4 percent for SpiceJet Ltd .

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 percent 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.

($1=66.3700 rupees)

(Writing by Rafael Nam; Editing by Clara Ferreira Marques and Clarence Fernandez)