Subscribe to Interglobe Aviation IPO: Angel Broking

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Interglobe Aviation Ltd operates Indigo, which is the largest passenger airline in India with a market share of 37.4% (as of August 31, 2105). It is a low-cost carrier (LCC) with an asset light business model which enables it to have lowest cost and highest profitability amongst Indian airline companies.

Cost competiveness vs its peers: Interglobe Aviation (Interglobe) has been the only passenger aircraft operator in India to post consistent profits over the past seven years. The magnitude of the aircraft orders placed by the company has enabled it to negotiate favorable terms with Airbus, as well as with other suppliers and service providers. This has created a structural cost advantage for the company in terms of operations and maintenance of aircrafts compared to its peers.

Outlook and Valuation: At the upper end of the price band, Interglobe is valued at 2.1x EV/Sales and at a P/E of 21.3x (FY2015). The company is not comparable to domestic peers on P/E basis as most of them are loss making while the premium on EV/Sales basis is warranted due to Interglobe’s superior operating performance and profitability. We have compared Interglobe to its like to like international peer Ryanair, which trades at 3.2x EV/Sales and at a P/E multiple of 20.6x (FY2015). We believe that the valuation of Interglobe is justified, considering the opportunity present in the vastly underpenetrated Indian air travel market. Interglobe is better placed than its peers to capture higher market share on the back of its proven Management track record, continuous fleet addition and with its sustainable profitable business model. Hence we recommend a “Subscribe” to the issue at the higher end of the price band.