Inter Globe Aviation Indigo Priced to Perfection?

Inter globe aviation Indigo is holding on its stock price.Is it priced to perfection? Can Globel slowdown dent Indian aviation Traffic in a price sensitive country like India?Can crude will remain at 12 year low for long time ?Does other beaten down blue chips are better option?Will dream run contnue in a industry not known for giving profits for long ?I dont know but We need to question and search for answer .What is view of Dear members? We need participation to find answer

 

@kharb sir i think indigo will command premium over other players because it is the only profit making co. in both listed and unlisted airlines.although profits may vary yoy but the leadership and premium will remain there, i think so. only if crude goes to higher prices like 100$ only then indigo will come down sigificantly. thats only a possiblity not sure of that thing hapening in near future.
one important thing is all biggies like rakesh jhunjhunwala and RK damani, Ramesh damani have invested in indigo. so there will additional nvestor interest than usual. so indigo may not come down.

 

The time to look at aviation stocks was before and during the IndiGo public issue but you were sceptical and so were the experts/gurus, now IndiGo has become a good story to sell all and sundry aviation stocks. "Value" investors have now boarded IndiGo and using numbers, ratios to justify why it should soar to even greater heights. Not surprised to see people jump ship following their gurus/wizards.

IndiGo is also driven by the fact that the public holding is low & an even lower float. But it has certainly helped Jet if you consider that it has been one of the best performers in the last 6 months and one of the most traded scrips.

GoAir is the other profitable airline.

 

Yes I am no fan of airline industry,although I did not ruled out listing gains if you can go through my earlier posts.I am very conservative person and preferred to play crude down turn through Asian paints ,HUL and RIL in place of more direct bets like risky OMC and Aviation stocks..But yes I did not anticipated stock performance shown by Indigo Inter globe Aviation. I have read some time questioning by competetrs about business model of Indigo ,Which does not look like simple passenger carrier and its accounting .It looks to me it buys new aircrafts,then sell ,then take back on lease ,I dont know if it is so profitable ,why others dont follow it.But definitly I don't know and understand its business model and accounting and is more Governed by historical busting of many airlines around the globe,with long list of risk factors .So this exploratory post to know more about business model .

 

The accounting is called 'Leaseback' which is short for 'sale and lease back'.

Leaseback is very often used in commercial aviation to essentially take back the cash invested in assets. Commercial Airlines,often sell aircraft and engines to lessors, banks or other financial institutions who, in turn, lease the assets back to them

Due to the high price of aircraft and engines, especially new, the cash from such a leaseback are used by airlines to improve their financial performance.

Perfectly valid, legal and well accepted approach. Widely used too.

 

RIL undoubtedly is your favorite. But everybody knows how RIL became what it is today. Perhaps you know it better.

The promoters of IndiGo are industry veterans. Gangawal headed US Airways and Bhatia is from travel/hospitality.

We're chasing a billion $1 ideas - IndiGo CEO

Power by Hour - pay for every hour the plane is in air

those articles will better explain how they are doing it differently

i'd just like to quote this from a Forbes interview by Rahul Bhatia -

"I ask Bhatia what he makes of mutterings by rivals that IndiGo’s profits are a mirage having to do with the lucrative sale-and-leaseback agreements for its planes, which are estimated to net $5 million for each plane. Bhatia counters that if sale-and-leaseback were such a sure-shot formula then every airline in the world would be profitable : “That’s a loose statement for the birds. Our profits are real.”

 

On price to book basis ,it looks highly priced, Price to Book 57.This is not in knowledge Sun Rise Industry.Can it it sustain if crude has to reverse or slow down in a price sensitive country like India where stock market crash and real estate has dented financial health of many indviduals,although no doubt airlines occupancy is at high presently.Does its future justfies ,sky high 57 Price to Book .I don't know,but want to know from friends,does it have bright future or just ready for Big Fall with deley due to low float.I fly by Vistara also.Looks good.Vistara has backing of Tata group and Singapur airlines ,both with deep pockets and huge experince.They may also expand in a big way along with other existing airlines if proftibilty in Sector continues.Does Indigo model can not be challenged successfuly???Will present market with not much competiton due to grounding of King Fisher will continue for ever??? Better member give their further view .

 

Where are you looking up the valuations? Since going public, it'll be the first earnings tomorrow.

Should one value any stock based on P/BV in isolation? I'll leave it to you. In an earlier post, you cite what the company does - buy, sell & lease back - the assets aren't on IndiGo's books. It will be more of FCF, EV, EBITDA and the traditional PE, P/BV in comparison with other listed peers.

Screener.in shows a book value of Rs 137 and it works out to less than 10!

To quote RJ on a question about his Jet buy and aviation -

"Let me first make disclosure that I am interested in every stock that I talk about. I may buy it any time, I may sell it any time, I may contradict what I am saying. So, please be warned. What makes me very excited about aviation is and about Indigo in particular that 85-88 percent capacity utilisation, Air India's market share is shrinking every year. There are not many planes on order. Indigo is the lowest cost airline.
Can you imagine he invested Rs 300 crore, he has taken away Rs 3,500 crore as dividend? The Return on Capital (RoC) is 300 percent. And if you just make his first quarter's earnings into four he will earn about just 640 multiplied by 4 is Rs 2,600 crore which is about Rs 80 per share. Rs 80 per share what price is it coming. At 765 it is coming at 10 times earnings and I am very bearish on oil prices. I don't see them going anywhere in 3-5 years. So, it is a leader, the industry - one large player is shrinking, others don't have money, he has got the largest planes on order, he is the lowest cost operator. It is a no brainer."

The bold text is very apt for my disclosure too.

Sustainability - there are flyers who have no option but to take a flight and then there are people who will switch from a train to a flight when the fares are low - discretionary spending.

Just my thoughts.

 

He said about competion that one airline is shrinking and other has no money.But why he did not include plan of Vistara in this answer? ,a Tata Singapur airline joint venture,who has experince and about money behind Vistara less said the better,deepest pocket behind any airlines in world have.I don't know any ABC about airlines business,just exploratory questions.?

 

Sustainability ( in terms of flyers) : reasonably assured. Everytime I fly, whether domestic or international, more than a handful flyers leave me wondering wow even such people have started to fly

Oil prices : probably right on the bearish outlook for next three years in the current BAU economic outlook
Geo-political risk and its impact on oil : will any middle eastern crisis trigger oil prices to spike up rapidly irrespective of the global economic condition?
Base-line advantage : oil's cracked over 70% the last 15-18 months. The resultant bottom line uptick advantage tapers off in subsequent years. What boosts profitability then?
Pricing power - probably inelastic. Discretionary disappears if fares are increased
Market share : key i suppose. indigo has done well to increase its share the last few years . How much can it erode others and at what rate is the pie itself increasing? whilst india per capita flying hours is probably one of the lowest any info on historic trends and/or research report with forecasts.

 

come on kharb, you gotta up your game now - shrinking - Maharaja - Air India (erstwhile Tata)

Vistara is just a year into operations and all the money and experience in the world just because of the name Tata & partner Singapore Airlines? By that same measure, Jet should be soaring because of the 24% Etihad stake. Do the Tatas have more money than the Sheikhs with oil wells?

Tata surely does hold a reputation as a brand and "desh ka namak" plays to its advantage. It'd be interesting to see where they rank globally, not in terms of brand repute but real money.

 

Am probably in the same boat as you in understanding the airline 'business'

Vistara One year old. Hasnt it a fair distance to cover to catch up with others ( irrespective of experience and deep pockets) and honestly i dont know if they are expanding faster ( in terms of planes and sectors) than others. Probably will grow at the expense of Air India and not Indigo.

 

Whole market has cracked and gone to extremly lower valuations,But Interglobe is holding on?Is its future so much bullish or just magic of strong hands and there is no free float to bleed?Stock defying logic of gravity and there is no world of comparitive valuation to market levels.For the same value this stock has one month ago,now you can buy double the no of good stocks of other compnies.Is it down trend proof or just ripe for sharp correction and good short just before some big investers may panic. .I don't know as I don't track airlines stocks.

 

and closed flat on a day when nothing was spared, i would bet it on the strong hands that bought in during the public issue and the value investors who have boarded after the stock caught fancy of these investors post listing, low float does play a significant part, let's look at its earnings tomorrow and what i feel is the bet is on the future potential, not the past performance

the big "anchor" investors who are in there aren't the ones who will panic - endowment funds, pension funds, sovereign funds, long funds - not FIIs with hot money

down 10% YTD

 

No one is panic proof, present market crash like all earlier one is result of panic by most of big entities like in your list .In my view retail Invster panic at last stage at lowest levels ,hence bear the maximum loss.But rest I definitly don't know ABC of this business,as mentained in my earlier post ,so you may be right.

 

All i would say is ...' enjoy these good times vis a vis airline stocks' but airline stocks and their promoters ( including anchor investors) certainly ain't the ' king of good times'

 

Well it was good discussing the subject but I'll stop now because my posts are looking like a "sell" side analyst trying to sell you a story.

I don't understand the business either. Just tried to dispel some notions with publicly available data.

Panic among those investors? I'll leave it at that. Does an LIC of India do panic selling or support the markets by buying during times of panic? Those are endowment/pension funds, not FIIs with hot money. And the IndiGo investment is precious little change compared to the corpus they have.

 

I have said this before too.... In here make your point upto a point ..... Then just simply move on.

But hey, if you do find any literature market shares, trends therein and in its size do share it. Like i said according to me thats the key. But with neither market and in this case even industry knowledge I could be wrong in my assessment of the relevance of this factor.

 

@Bombay boy-you give really very good inputs in this thread .Never feel offended by exploratory questions which are only to seek clearity on any subject from knowldgable members like U and are used for making opinions on any subject..Exploratory question don't represent thinking of questioner but want to know thinking of persons giving inputs .

 

its overpriced to perfection...in this market fundamentals have been ignored...yes Indigo has definitely created great name for itself...thanks to Air India's apathy and mismanagement of spicejet, kingfisher, but its not a stock which can provide further gains from here...the Tatas are already in the game...so it will be tough fight from here on