FINANCIAL ANALYSIS OF INDIGO AIRLINES FROM LENDER’S PERSPECTIVE

5/20/2018 FINANCIAL ANALYSIS OF INDIGO AIRLINES FROM LENDER S PERSPECTIVE

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FINANCIAL ANALYSIS

OF INDIGO AIRLINES

FROM LENDERS

PERSPECTIVE

COMMERCIAL

BANK

MANAGEMENT

END TERM PROJECT REPORT

Submitted to:

Prof DN Panigrahi

Submitted by,

Group 3, Sec ABC1,

Abhinav Kohale2013004

Abirbira Samal2013007

Anil Kumar Reddy2013031

Anshul Rajora2013046

BNV Karthik2013072

Ganesh Kamath - 2013100

INSTITUTE OF MANAGEMENT TECHNOLOGY, NAGPURPGDM 2013 - 2015



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Indigo Airlines

Company Profile:

IndiGo Air or IndiGo Airlines sports the deep colour of IndiGo as its signature colour. It is a

privately owned low-cost domestic airline based in Gurgaon with Indira Gandhi International

Airport as its main base. IndiGo Airlines started operations on 4th August 2006 and is owned

by InterGlobe Enterprises and Mr. Rakesh Gangwal. This airline is amongst the best, offering

professional services, economical prices with great deals and discounted airfares. It operates

to all the major cities of India. IndiGo air tickets can be booked online and the services

provided are user friendly while at the same time, extremely comprehensive. IndiGo Airline

provides what no other airline can. It is a low cost carrier and the largest airline in India with

a market share of 31.7% as of May 2014. IndiGo is one of the fastest growing low cost carriers

in the world. With its fleet of 79 new Airbus A320 aircraft, the airline offers 504 daily flights

connecting to 36 destinations (31 Indian and 5 International).

Market Scenario Analysis of Indigo:

Market share of the Airline industry in 2011:



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Market share of the Airline industry in 2012:

Market Share of the Airline Industry in 2013:



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Market Share of the Airline Industry in 2014:

Indigo Market share Trend line and projected trend line for the next two periods:

Actual (%) Projected (%)

Year 2011 2012 2013 2014 2015 2016

Market Share of

Indigo 19.2 24.7 27.4 31.7 35.8 39.82

Air India

18%

Jet Airways

17%

Jet Lite

4%Spice Jet18%

Go Air

10%

Indigo

32%

Air Costa

1%

Market Share by Carrier (May 2014)

Air India

Jet Airways

Jet Lite

Spice Jet

Go Air

Indigo

Air Costa

19.2

24.727.4

31.7

35.8

39.82

0

5

10

15

20

25

30

35

40

45

2011 2012 2013 2014 2015 2016

Market Share of Indigo in Terms



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Financials of the Company:

(Rs. Million) 11-Mar 12-Mar 13-Mar

12 mths 12 mths 12 mths

Total income 39,765.50 58,173.80 95,825.40

Sales 38,254.10 55,744.70 92,030.80

Income from non-fin. services 38,254.10 55,646.70 92,030.80

Income from fin. services 1,098.10 2,204.70 3,249.00

Other income 159 129.7 210.8

Prior period income 254.3 94.7 334.8

Change in stock

Total expenses 33,657.00 56,895.00 87,951.90

Operating expenses 31,229.20 55,558.30 83,250.40

Raw material cons. 196.8 262.6 423.8

Financial charges 1,207.80 1,307.20 1,782.40

Total provisions 1.2 0.3

Non-cash charges 628.7 666.7 858.8

Provision for direct tax 591.3 -639.7 2,058.80

Prior period expenses 1.3 1.2

PBDITA 8,536.30 2,614.20 12,573.80

PBT 6,699.80 639.1 9,932.30

PAT 6,108.50 1,278.80 7,873.50

PBDITA (PE&OI&FI) 7,024.90 186.4 8,780.40

PAT (PE) 5,854.20 1,185.40 7,539.90

Networth 2,511.30 3,790.10 5,287.20

Borrowings 9,383.50 10,205.10 18,018.90

Current liabilities & prov. 20,990.10 26,384.90 40,323.90

Net fixed assets 8,311.60 8,860.10 17,644.70

Current assets 9,101.90 15,685.80 20,602.20

Growth (%)

Total income 48.83 46.29 64.72

Net sales 47.04 45.69 65.13

Total expenses 58.52 69.04 54.59

PBDITA(PE&OI&FI) 66.41

PBT 37.6 -90.46 1,454.11

PAT 11.35 -79.07 515.69

PAT (PE) 11.83 -79.75 536.06



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0.00

20,000.00

40,000.00

60,000.00

80,000.00

1,00,000.00

1,20,000.00

1,40,000.00

1,60,000.00

2011 2012 2013 2014 2015

Sales ( in Million)

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

2010 2011 2012 2013

PBDITA ( in Million)

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

Profit after tax ( in Million)



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Ratio Analysis:

11-Mar 12-Mar 13-Mar

Profitability (%)PBDIT(PE&OI&FI)/sales 19.91 -0.81 11.78

PBDIT/total income 21.47 4.49 13.12

PBT/total income 16.85 1.1 10.36

PAT/total income 15.36 2.2 8.22

PAT(PE)/total income(PE) 14.82 2.04 7.9

Returns (%)

RONW 253.75 37.62 166.13

ROCE 37.67 9.13 40.35ROA 20.17 3.23 14.41

Liquidity (times)

Debt equity ratio 3.75 2.7 3.41

Current ratio 0.21 0.27 0.24

Interest cover 8.69 4.79 54.62

For checking the company analysis the following ratios are to be analysed:

Profitability Ratios

Long term and Short term Liquidity

Solvency Ratios

Debt Coverage Ratios



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Profitability Ratios

Profit Margin

Profit margin measures the relationship between profit and sales. As the profit may be gross

or net, there are types of profit margin-

Net Profit Margin= (Net Profit /Sales)*100

NPM (in % terms) for 2011 is 15.36 and 2012 is 2.2 and 2013 is 8.22. In 2012, Tax savings on

interest paid and depreciation claims helped company have a profit margin of 2.2% at least.The performance is very poor in 2012. But again in 2013 it reclaimed its aura by increasing

net profit margin to 8.22%. This is a positive sign for the company to claim good profits in

future, unless political and economic factors like- fuel rates will be decided market forces-

will make the company to incur huge expenses leading to less profit margin.

Operating Margin= EBIT/Net Sales

0

2

4

6

8

10

12

14

16

18

Mar-11 Mar-12 Mar-13

Net Profit Margin ( in percentage)

0

5

10

15

20

25


Operating Margin (in percentage)



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Here the Operating Margin (in % terms) is 21.47 in 2011 and 4.49 in 2012 and 13.12 in 2013.

We see a drastic change in the ratios year on year. This is mainly accounted to the expenses.

Airlines have fuel and employee salaries as the major expenses. In operating Margin only fuel

is to be considered as it is the only COGS for service industry like airlines, fuel expenses in

2012 almost doubled but the sales has not doubled. This lead to a big cut in the gross margin.But in 2013, though the fuel price and consumption almost doubled compared to 2012, sales

has increased more than the increase in expenses. This is the reason for the company to have

a positive operating margin in 2013. Also Indigo came up with the strategy of on time airlines

which lead to the great revenue for the airlines in 2013. Increase in competition made to have

less margin compared to 2011. This ratio is a very positive symbol for the banker to lend to

the airlines.

Return on Capital Employed

ROCE is the type of Return on Investment (ROI) and measures the overall effectiveness of the

management in generating profit with its available Resources.

ROCE = (EBIT/Average Capital Employed)*100

ROCE in 2011 is 37.67, 2012 it is 9.13 and in 2013 it is 40.35. This is mainly accounted to less

profit that Indigo got in 2012. This accounted to low ROCE to the company. Yet it has boosted

in 2013 and got a ROCE of 40.35%.

Liquidity Ratios

Current Ratio= Current Assets/ Current Liabilities

Current Ratio of the company is very low. Generally banks accept the current ratio above 1.33.

But in this scenario the company is an airline company, which is more of a service oriented

company rather than production oriented.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%


ROCE



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It will have more of fixed assets and less of current assets. And to run the company, they

definitely need money and that is being borrowed from banks and they have leased the

airplanes which they have to pay every year and that accounts to a lot of current liabilities.

That is why the current ratio is very low.

Debt-Equity Ratio = Debt/Equity

Debt-Equity ratio of Indigo is 3.75 in 2011, 2.7 in 2012 and 3.41 in 2013. This is a bit high value

in banks lending perspective. Because a debt equity ratio of nearly 1 is an ideal one that

bankers are looking for.

As for as industry is considered, there is a huge competition that is increasing every year. So

with a simple policy change by government or because of some hazard happened and

perception of customers change, the companys market share will tumble down. Then the

only source to pay debt is through the equity of the company. So this debt equity ratio is not

justifiable. But there is another angle to this one. Because of high debt-equity, the investorswill get more returns and so they will invest more in near future.

0

0.05

0.1

0.15

0.2

0.25

0.3


Current ratio

0

0.5

1

1.5

2

2.5

3

3.5

4


Debt Equity Ratio



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Debt Coverage Ratios:

Interest cover =EBIT/Interest

Interest coverage has increased drastically from 4.79 to 54.6 from 2012 to 2013. This is

because of Gross profit increasing compared to previous year. As the company is doing goodand expected and project financials are very good, there is a good sign of this ratio going to

increase yet more. So in a lending bankers perspective, we are good to lend seeing this ratio.

Credit Rating:

We have to give an Internal rating based on questionnaires asked on the parameters

like business risk, industry risk, financial risk, and management risk and if the rating is

matching their minimum rating required then the probability of the company repaying

loan is good and we can lend them loan.

The four risk parameters are as follows:

o Business riskis analyzed in four categories: country risk, industry risk, competitive

position, and profitability. Analysis of business risk factors is supported by factual

data, including statistics, but ultimately involves a fair amount of subjective

judgment. Understanding business risk provides a context in which to judge

financial risk, which covers analysis of cash flow generation, capitalization, and

liquidity. The business risk includes geographically availability of customers and

availability of resources and manpower are very essential for the smooth

conduction of airline services. Also environmental risks pertain to the effect of

government policies and other country risk factors on the obligor's business and

financial environments, and an entity's ability to insulate itself from these risks.

The factor such as customer count (spread of customers), bargaining power of

suppliers, price of raw material, position of entity in target market, marketing and

selling arrangement, market position and capacity utilization also belongs to

business risk as it can increase the overall costs and can contribute to lower

bottom-line. Finally but more importantly, factors such as flexibility in

manufacturing, factory inspection, contract with buyers, frequent change in

norms, audits and banks credit policy are also important to be counted in business

risks as they are important to be managed properly in order to maintain good

working relationship with people and organizations working for thebetterment

of service and also to maintain a good reputation of the airline in the market.

o

Financial riskis based on the ability to raise debt and equity in the capital structure

in order to perform smooth working of the business. Financial risks also covers

future financing options, accounting, financial governance and policies/ risk

tolerance, cash flow adequacy, capital structure/ asset structuring and also

managing liquidity/ short-term factors.

o Industry riskis automatically taken from the system rating which is calculated and

provided by CRISIL (Credit Rating Information Services of India).

o Management risksincludes the risk followed from constitution of the borrower,

competence/ technical skills of management, management succession plans, past

payment record and track record, ability to meet achievement of profit

projections, management experience in the business field and also on financial

interaction with group components.



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These questionnaires are rated internally and the rating is taken as internal rating.

We can get the External Rating given by companies like CRISIL, CIBIL etc. for assessing

the credit worthiness of the company and based on this we have to give to compare

with the banks general acceptable rating.

Conclusion:

After going through the market share analysis, projected market growth and financial analysis

of Indigo, it is highly recommended that bank can give loan to the Indigo. All the factors of

the analysis is suggesting positively. Thus from the lender bankers perspective, we can

analyse a company for the lending purpose.

FINANCIAL ANALYSIS OF INDIGO AIRLINES FROM LENDER’S PERSPECTIVE

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