Indigo was not only stock which I was considering to invest to increase my allocation to consumer business.
The reason I am interested in consumer business is that it is very simple to understand, as SOIC says, look at double digit volume growth.
I agree with the SOIC point of view as B2C business are very difficult to scale when we are looking at the double digit volume growth then something good is happening.
I am also aware of the 80 20 rule.
The 80-20 rule, also known as the Pareto Principle, used mostly in business and economics, *states that 80% of outcomes results from 20% of causes.
I like business with very few moving parts and hence which can be easily tracked and lot less surprises.
Other options that I was looking was
- Zomato
- Mrs Bector
- Senco Gold
I avoided Zomato as it was highly valued and I can’t pay that premium.
I am aware that Blinkit and quick commerce in general is scaling like anything and hence I considered Zomato for review.
One other reason for considering Zomato is that being from ecomm background I understand Zomato better than some people. If it was not for valuation, I would have added Zomato. One other reason for avoiding it for now is that I already have Alibaba and Amazon.
I have reviewed Mrs Bector in the past when it was near to 700 when many mutual funds were adding it. I again reviewed recently, I found other businesses showing better volume growth and hence ignored it.
Senco Gold, seems to be good business showing good volume growth. I was confused with Senco Gold and Indigo at last. Considering when opening new stores, it takes hit on Senco cashflows due to inventory a new store has to maintain, I avoided it. Also, recently in past 1 year in Lucknow, many jewellery stores are opening and I thought maybe competition is intensifying.
Looking at the Senco Gold growth for last quarter now, I think I might be wrong but I don’t like business with unstable cashflows.
Hence Indigo looked as the perfect option to me which is showing good revenue growth. Also the competition in Airlines has consolidated. It also came in my notice few months ago when some mutual funds added it but at that time, Neuland and Kama looked better option.
The moat in Airline industry comes with low cost. Indigo airlines are 20 percent more fuel efficient than Tata Airlines. Considering 30 percent of the revenue goes in fuel cost. The Indigo airlines has 4 percent margin advantages in comparison with Tata Airlines just due to fuel efficiency.
The only issue that Indigo is facing is the Pratt and Whitney issues for their planes.
Indigo Thesis
Industry structure - 11 percent growth in airlines till 2030.
Indigo is the market leader with 55 percent market share.
Indigo uses moslty a320neo - one of the most economical engine.
Debt
Still analysing as it is difficult to analyse.
Pe expansion possible
Pe ratio - less than 20 and yes. Forward PE is lesser.
Margin expansion possible
Yes if Pratt and Whitney does not ruin things and competition remains consolidated
Vstop
Positive
Stage
Stage 2
Tailwinds
Increasing ticket prices(short term)
More airports(mid term)
Consumption in india(long term)
More airplanes(long term)
Negatives
Operating deleverage can kick in if planes capacity remains unused due to Pratt and Whitney issue.
Need to check the tata airlines growth.
Need to analyse the debt
Pratt and Whitney issue - new planes are of Leap engine. Ratio of 50 50 on 350 planes will change going forward. Currently less than 40 planes are grounded as per Q2FY24. They are doing certain things to bring more planes on different models to overcome Pratt and Whitney issue. More planes are grounded as per new issue in Q3FY24.
Questions still need answering
What is the benefit of the company which gives planes on lease to Indigo?
Management needs to be analysed.
Exit criteria
Competition and Pratt and Whitney issues intensifying.
I have near to 1 percent in Indigo at 3500 levels which I will increase if my understanding improves.
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