IndiGo’s big IPO may lead to re-rating of airline stocks

Mumbai: India’s leading low-fare carrier IndiGo, run by InterGlobe Aviation Pvt. Ltd, is planning to raise $500 million (Rs2,215 crore) through its initial public offering (IPO), the highest ever for an Indian airline, and this may lead to a re-rating of airline stocks, said sector analysts.

Shares of Jet Airways (India) Ltd, Kingfisher Airlines Ltd and SpiceJet Ltd are traded on Indian exchanges.

The IPO is scheduled for the last quarter of the current fiscal ending March 2011, said two persons close to the development. One of them is an airline executive and the other is an investment banker.

IndiGo has hired five investment bankers, including JM Financial Ltd, Credit Suisse Group AG, Citigroup Inc., UBS AG and Morgan Stanley for the proposed IPO.

Ahead of the IPO, IndiGo is looking at an equity placement that could result in dilution of promoters’ stake of as much as 25%. Last week, the company conducted investor roadshows in Hong Kong and Singapore for the equity placement.

“The exact details of the proposed IPO are yet to be finalized but IndiGo is planning to raise 10 times its earnings,” said one of the persons mentioned earlier. He added that the low-fare airline, which held a 16.4% market share in August through 188 flights across 22 destinations, will raise more than the Rs1,899 crore that rival and full-service airline operator Jet Airways raised five years ago.

Aditya Ghosh, president of IndiGo, did not return calls made to his mobile phone nor did he reply to text messages.

“The IPO is expected to leverage the success story of IndiGo,” said Kapil Kaul, India chief of Sydney-based aviation consultancy Centre for Asia Pacific Aviation, adding that the airline’s valuation would set the benchmark for industry stocks.

“This could be significantly higher than low-fare airline stock and even higher than full-service carriers such as Jet Airways,” he added.

A successful and large IPO by IndiGo could put pressure on other stocks of airline companies such as Jet Airways and Kingfisher Airlines that are also competing to raise funds from the market.

On Monday, airline stocks took a beating, with all three listed airlines losing value even as the Bombay Stock Exchange’s benchmark index, the Sensex, rose 0.15% to close at 20,475.73 points.

SpiceJet slipped 3.25% to close at `74.40, Jet Airways—India’s largest carrier by traffic—fell 1.26% to `806.15, and Kingfisher fell 1.75% to `73.05.

Since January, Jet Airways has risen 45.74%, SpiceJet 31.1% and Kingfisher 15.59%.

Read more: http://www.livemint.com/2010/10/04234454/IndiGo8217s-big-IPO-may-lea.html