Indigo IPO Review

Incorporated in 2006, Interglobe Aviation Ltd is India based aviation, hospitality and travel related service provider. Company own and operate ‘IndiGo’, India’s largest airline with over 33% of domestic passenger market share.

IndiGo has scheduled services to 33 cities within India and 5 cities (Bangkok, Dubai, Kathmandu, Muscat and Singapore) internationally with 623 daily flights.

Company also has a joint venture with Accor Asia Pacific since 2004 to develop a network of ‘ibis’ hotels throughout India, Nepal, Sri Lanka and Bangladesh. With 10 ibis hotels open and 9 under development, the company shall have a portfolio of 19 operational hotels with room inventory of about 3500 rooms by 2017.

Company’s Strengths

1. Largest market share in one of the largest and fastest growing aviation markets in the world

2. Maintain disciplined execution of the low-cost carrier business model with single aircraft type, high aircraft utilization, high operational reliability, no-frills product and low distribution costs.

3. A structural cost advantage. Large Airbus aircraft orders enable favorable terms on aircraft, engines and components. Company has Young, modern and fuel-efficient fleet.

4. Company maintained consistent profitability and strong cash flow generation, balance sheet and liquidity position.

Company Promoters:

The promoters of the company are Mr Rahul Bhatia, Mr Rakesh Gangwal and InterGlobe Enterprises & Acquire Services.

Objects of the Fresh Issue

Company proposes to utilize the funds which are being raised through the Fresh Issue for the following objects:

1. Retirement of certain outstanding lease liabilities and consequent acquisition of aircraft;
2. Purchase of ground support equipment for our airline operations; and
3. General corporate purposes,
4. To receive the benefits of listing of the Equity Shares on the Stock Exchanges.

Highlight :

Issue Opens On: Tuesday, October 27, 2015
Issue Closes On: Thursday, October 29, 2015
Issue Type: 100% Book Building
Issue Price Band: Rs.700– Rs.765
Face Value Per Share: Rs.10
Minimum Bid Lot: 15 Equity Shares and in multiples of 15 equity shares thereafter
Minimum Order Value: Rs.10,500 to Rs.11,475
Issue Size: Rs.3,108 crore
Proposed Listing: Bombay Stock Exchange and National Stock Exchange
Lead Managers: Citigroup Global Markets India Private Limited, J.P. Morgan India Private Limited, Morgan Stanley India Company Private Limited, Barclays Bank PLC, Kotak Mahindra Capital Company Limited, UBS Securities India Private Limited
Registrar: Karvy Computershare Private Limited



In April-June quarter, IndiGo posted a net profit of Rs 640.44 crore. During the same period, total revenues stood at Rs 4,317.19 crore. For the year ended March 2015, the carrier recorded a net profit of Rs 1,295.58 crore on revenues of Rs 14,309.14 crore.

As of December 31, 2014, it had a total indebtedness of Rs 4,002.8 crore and Rs 2,474.6 crore of net debt (net of free cash of Rs 15,28.2 crore)


IndiGo enjoys Highest Domestic Market Share of 34% for fiscal year 2015 which has been increased to 37.4% for the five months ended 30th August, 2015.

IndiGo has been awarded for “Best Low-Cost Airline in Central Asia & India” at the SkyTrax World Airline Awards for six consecutive years from 2010 to 2015.

IndiGo is ranked seventh largest LCC in the world in seat capacity. IndiGo’s fleet has grown from a single aircraft to 97 aircraft in 9 years and company is expected to receive 14 more aircrafts by this year end.

IndiGo has the lowest Cost per Available Seat Kilometres (CASK), commonly used measure of unit cost in the airline industry, according to a report by SAP.


Its net worth fell to a negative Rs 139.39 crore at the end of June 2015. The company has attributed this to payment of interim dividend. Net worth of the company was Rs 426.22 crore as of March 31, 2015 . The company says this may make it difficult or expensive to obtain future financing or to meet liquidity needs.

Key risks to Indigo’s growth include:

a) inability to grow domestic networks and frequencies in a profitable manner

b) inability to acquire additional licenses and traffic rights

c) delay or inability to procure, flight slots on financially viable terms

d) changes to cost structure

e) greater exposure to exchange rate volatility

Failure to comply with covenants contained in aircraft and engine lease agreements or financing agreements could have a negative impact on IndiGo.

Unlike most full-service carriers, Indigo does not offer a frequent flyer program, free lounges or include food and beverages in ticket price for non-corporate passengers. These items have helped to further reduce its cost base.

The board member and promoters of Indigo airlines are involved in some legal/criminal cases which may affect on business/financial condition, brand of Indigo.

Company has contingent liabilities of Rs.92 crore which if materialized can adversely affect the profit of current year.


If the US interest rates start rising, it will increase the borrowing cost of lessors thereby making it less viable for them to buy planes from IndiGo. In addition, IndiGo may end up paying higher lease rentals. IndiGo’s networth turned negative as of June 30, 2015. This is due to high dividend payout.

indigo (2)


“On the valuation front, the company looks expensive comparing with most of its peers in the Europe, the Middle East and Africa (EMEA) and American regions. Further, comparing EV/EBITDA and P/E multiples with the players in the EMEA and American regions, the company is priced higher.


Retail investors should wait for secondary market listing. Hence this appears to be a ‘High Risk/Low return’ bet.

And if you are applying for Indigo IPO with the intention of selling it for a premium on listing day, please keep an eye on Bihar election results on 8 th Novemeber. Performance of BJP may directly affect the market sentiment and IPO listing price.

Difference between FDI and FII

Foreign Institutional Investors (FII).

“ FII’s sell out in the stock markets resulted in sense’s crash or major stock market correction” is now a days routine news at least once in couple of months. Certainly there are international or domestic reasons for FII sell out. But let us understand technicalities of FII, rules & regulations related with FII investments & their investment strategies.

Institutions established or registered in other countries (i.e. outside India)to make investment in the securities listed/unlisted in the Indian stock exchanges, but equally in India they have to register them selves with SEBI & governed by the rules & regulations of SEBI.

Along with the existing securities FII’s are also allowed to participate in Initial Public Offer commonly known as IPO.


However since 1st June 2014,for better administration of all classes of investments & better conceptional clarity, Ministry of Finance & RBI has merged three classes of investors i.e. . FII, Qualified Foreign Investors (QFI) & , Sub accounts & introduced one class of investor i.e.”FOREIGN PORTFOLIO INVESTORS” & insured smooth transition from FII to FPI. So technically now FII concept as such ceased to exist now.

In India FPI’s are allowed to invest in any Indian company’s shares up to 10 % of paid up capital of the company & any investment more than that known as FDI ( however any official definition as such does not exist). But in 2013-14 Union budget Finance Minister has introduced the internationally accepted standards of 10 % cap on FII investment ( as mentioned above) to distinguish the between FDI & FII.

Some of the examples of registered FII’s are
:- pension funds, Mutual Funds, Investment Trust, Banks, Insurance & reinsurance companies, Sovereign wealth Funds, etc.

FPI’s may invest in any tradable/non tradable equity shares of the company, Govt bond ,debentures, MF schemes, security receipts, commercial papers, Indian depository receipts(IDR).

FII can also invest on behalf of sub account i.e. any person outside India on whose behalf investments are proposed to be made in India by FII. But for sub accounts investment cannot exceed 5 % of paid up capital of the company.

FII and there sub accounts are required to appoint Indian custodian (registered with SEBI) to ensure daily reporting of their trading activities to the SEBI, preserves record of transactions for specified period.

Difference between FDI & FII..

Besides the basic difference of 10 % investment cap, a major difference is of investment approach. FPI’s investment is in the stock markets & securities & its approach is always of short term whereas FDI’s investment is always of long term.

Because of investment in securities, FPI’s investment is easy to liquidate compare to FDI.

In comparison with FDI, FII’s have low exit barriers. However often it results in stock market crashes.

Capital requirement is much less to FII compare to FDI.

Cafe Coffee Day (CCD) IPO review

Coffee Day Enterprises Ltd own and operates coffee cafes in India since 1996.

Company is well known for its brand name ‘Cafe Coffee Day’ (CCD). Company owns a network of 1,472 Cafe outlets spread across 209 cities in India. As of Dec 2014, Cafe Coffee Day has market share of 46% in India in terms of the number of chained Cafe outlets.

In addition to having the largest chain of cafes in India, company operate a highly optimized and vertically integrated coffee business which ranges from procuring, processing and roasting of coffee beans to retailing of coffee products across various formats. Company is one of the largest exporters of Indian coffee beans, primarily to Europe, Japan and the Middle East

Company’s retail outlet includes:

1. Cafe Coffee Day CCD – 1,423 outlets across 209 cities in India
2. Cafe Coffee Day The Lounge – 42 outlets
3. Cafe Coffee Day The Square – 7 outlets
4. Vending Machines – 28,777 vending machines
5. Fresh & Ground outlet – 424 outlets
6. Coffee Day Xpress kiosks – 590 kiosks

In addition to coffee business, company operate select other businesses that are aimed at leveraging India’s growth potential, namely, development of IT- ITES technology parks, logistics, financial services, hospitality and ITITES.


Objects of the Issue:

Company proposes to utilise the net proceeds towards funding the following objects:

A. Financing our coffee businesses

1. Setting-up of new Cafe Network outlets and Coffee Day Xpress kiosks;
2. Manufacturing and assembling of vending machines;
3. Refurbishment of existing Cafe Network outlets and vending machines; and
4. Setting-up of a new coffee roasting plant facility, along with integrated coffee packing facility and tea packing facility.

B. Repayment or prepayment of loans of the Company and Subsidiaries; and

C. General corporate purposes

Issue Detail:

Issue Open: Oct 14, 2015 – Oct 16, 2015
Issue Type: 100% Book Built Issue IPO
Issue Size: Equity Shares of Rs. 10
Issue Size: Rs. 1,150.00 Crore
Face Value: Rs. 10 Per Equity Share
Issue Price: Rs. 316 – Rs. 328 Per Equity Share
Market Lot: 45 Shares
Minimum Order Quantity: 45 Shares
Listing At: BSE, NSE

Company Promoters

V.G. Siddhartha is the Promoter of the company. Promoter currently hold 63,945,904 Equity Shares, equivalent to 54.78% of the pre-Issue issued. Promoter will continue to hold a majority of the post-Issue paid-up share capital of the Company.

Share Allotment to anchor investors

In March, Coffee Day raised Rs 100 crore in a pre-IPO funding from Nandan Nilekani and Rare Enterprises (owned by Rakesh Jhunujunwala and Ramesh Damani), among others.

Coffee Day Enterprises Limited allots 1.038 cr equity shares @ Rs. 322 ps aggregating Rs. 334.27 cr to 17 anchor investors Anchors include Blackrock, Government Pension Fund Global, ICICI Prudential MF, Reliance Life Insurance, Merrill Lynch, Swiss Finance Corp., Axis MF, Faering Capital India Evolving Fund, Jupiter India Fund, Platinum Asia Fund & Tarra Fund.

Private equity

Private equity firms KKR India Advisors, New Silk Route PE Asia and Standard Chartered Private Equity invested $149.07 million in the holding company in February 2010

Subsidiaries and investments

Its Coffee day group includes Coffee Day Beverage, Coffee Day Fresh & Ground, Coffee Day Exports and Coffee Day Hotels &Resorts. In non-coffee business its subsidiaries are Tanglin Development Ltd. (technology parks), Sical Logistics Ltd (logistics), Way2Wealth Securities (financial services), Coffee Day Hotels & Resorts Private Limited (hospitality).

Coffee Day Enterprise owns 16% of MindTree and other IT-ITES companies such as Ittiam, Magnasoft and Global Edge.

Key Financials

ccd4 final

Positives :

1. Café Coffee Day dominated India in Chained Coffee Café Outlets with 46% market share. Its nearest competitor is Barista which has a market share of mere 5%.

2. Its nearest competitor Barista,has only 169 outletscompared to CCD’s 1472 outlets.

3. Café Coffee Day is the most renowned brand of Coffee Shops in India in Tier I cities. Company is expanding its operations Tier-II cities of India.

4. Holding company CDEL has diversified business but the coffee business account more than 50% of the total revenue followed by 36.9 per cent of logistics, 7.5 per cent of financial services and 3.3 per cent of technology parks.

Negatives :

1. Instead of having market share of 43%, company is not able to generate profit. Company has reported losses in three consecutive years but at the operating level company is profitable. Huge finance costs eats out total profits.

2. Because of its affordable price,the profit margin is very thin.

3. CCD has largest PAN India but it’s per day per café sale is Rs.15,000 to Rs.20,000 which is only one third of its competitor Starbucks sale of Rs.50,000 to Rs.60,000.



Financial performance of the company in last 5 years, in which it has made profit of Rs. 36 crore in 2 years and loss of Rs. 200 crores in remaining 3 years. Since there is no EPS in the previous years, PE ratio cannot be calculated.

The company has posted consecutive losses from last few years which doesn’t instill confidence for investment in short term, however in long term investment is advisable only when company will start posting profits.

Broker’s view

Hem security : Avoid
Angel broking : Neutral
Ajcon Global : Avoid
Sharekhan : Long term
Anand Rathi : Long term
ICICI Direct : Subscribe
K.R.Choksy : Long term
Aditya Birla Money : Subscribe

Please consult your financial adviser before taking any position.

What is Foreign Direct Investment ?

Foreign Direct Investment (FDI).

Every body of us is well known with this word, reads & listen several times in day but rarely know details & technicalities of it. It is our just an effort to explain it in detail.

Investor based in one country invest in the company based in another country is called as Foreign direct investment. The company that makes foreign direct investment is known as Multinational Company (MNC) or Multinational Entrepreneur (MNE).

The organization of economic cooperation & development defines control as owing 10% or more of the business.

Foreign investor has to consider several factors such as government policies of both the governments (i.e. there own govt & target company’s govt policies), taxations, risk factors, political stability, consistencies in policies geo political stability, economic stability, etc. Very recently India has witnessed importance of all these aspects pertaining to the flow of FDI when got adversely affected to the retrospective tax proposal announced by the then Finance Mr. Pranab Mukharjee UPA government , & importance of geo-political stability when its ambitious India-Iran gas pipeline project got stalled due to United States pressure.


There are advantages & disadvantages to both the countries & MNC/MNE as well. For companies it is easy way to access the natural resources, precious metals, opportunities to tap new markets, cheap labour, whereas to the host country it offers source capital new technology, increased revenue, job opportunities, import reductions which also helps to maintain country’s Balance Of Payment & Balance Of Trade which ultimately these leads to overall economic growth.

Many times by way of collaboration technology transfer/technology up gradation,is more important than just flow of capital which not only opens new avenues but also offers opportunities to the domestic companies to the international market.

For the same to attract more FDI government offers various incentives to MNC/MNE’s such as free or subsidies land , infrastructural facilities, R&D support, tax holiday ,low taxation i.e. low corporate & individual income taxes ,special economic zones(SEZ), export promotion zones(EPZ) or information technology parks (IT).

But while welcoming the FDI the host nations are equally cautious about its effect on the domestic industry, labour market, foreign policy, defense policy. Due to which country puts some restrictions or maximum caps the on some sectors, while opening other selectors for 100% FDI. Every country decides the priorities & accordingly decides the percentage of investment in that particular sector.

Now a days governments of all the countries are vigilant about the un authorized source of money or black money. So investors are required to disclose the source of there funds while investing in the company.

List of the sectors with there percentages of FDI allowed in India.

• Petroleum Refining by PSU (49%).
• Cable Networks (49%).
• Broadcasting content services- FM Radio (26%), up linking of news and current affairs TV channels (26%).
• Print Media dealing with news and current affairs (26%).
• Air transport services- scheduled air transport (49%), non-scheduled air transport (74%).
• Ground handling services – Civil Aviation (74%).
• Satellites- establishment and operation (74%).
• Private security agencies (49%).
• Private Sector Banking- Except branches or wholly owned subsidiaries (74%).
• Public Sector Banking (20%).
• Commodity exchanges (49%).
• Credit information companies (74%).
• Infrastructure companies in securities market (49%).
• Insurance and sub-activities (49%).
• Power exchanges (49%).
• Defence (49% above 49% to CCS).

Some of the largest foreign companies investing in India are :-

1. TMZ Mauritius Ltd.
2. Crain UK Holding.
3. Oracal Global Maurities Ltd.
4. Maurities Debt Ltd.
5. Vodafone Maurities Ltd.