India's Top Airline Starts IPO Bidding in Modi Sentiment Test

  • Sale could value IndiGo as Asia's third-largest budget carrier
  • IndiGo is earning profits while rivals have lost billions

IndiGo, the only Indian airline to have made a profit in each of the past seven years, is trying to tap a market where carriers have lost a combined $10 billion over the past six years.

Photographer: Dhiraj Singh/Bloomberg

The parent company of India’s leading airline, IndiGo, began taking orders for what could become the nation’s biggest initial public offering in almost three years.

InterGlobe Aviation Ltd. and existing stakeholders are selling shares at 700 rupees to 765 rupees each, seeking to raise as much as 30.01 billion rupees ($462 million), according to terms for the deal obtained Tuesday by Bloomberg News. As of 5 p.m. Mumbai time, 87 percent of the total shares on offer were subscribed, with bidding to continue until Thursday. Institutional investors had bid for 2.79 times the shares reserved for them.

The IPO, the first by an Indian airline since 2006, will allow IndiGo to build its fleet in one of the world’s fastest growing aviation markets. The sale comes as Indian stocks have gained almost 10 percent since early September. It will help gauge investor sentiment toward the world’s fastest growing major economy as Prime Minister Narendra Modi pitches India as a safe and lucrative destination for foreign money. 

"Indigo’s market leadership position, cost competitiveness and low-cost carrier business model, along with India’s aviation potential, make IndiGo one of the consistent performers” in the country’s airline industry, Anand Rathi Share & Stock Brokers Ltd. wrote in an Oct. 26 research note. The Mumbai-based brokerage recommended its clients subscribe for shares in the IPO.

Profitable Formula

If shares sell at the top end of the proposed range, IndiGo would trade at 21.3 times trailing earnings, compared with 33.72 times for Spring Airlines Co. and 68.94 times for Juneyao Airlines Co., low-cost carriers that listed in China earlier this year. Jet Airways India Ltd. and SpiceJet Ltd., the other two listed Indian carriers, are loss-making.

At the top of the range, the IPO would value IndiGo at about 275 billion rupees, making it the third-largest budget carrier in the Asia-Pacific region, data compiled by Bloomberg show. IndiGo is the only Indian airline to have made a profit in each of the past seven years.

Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley are leading the offering. Barclays Plc, Kotak Mahindra Bank Ltd. and UBS Group AG also are working on the IPO.

IndiGo flies to 34 cities in India and five overseas. It had a 37 percent share of domestic air traffic during the first nine months of the year, according to regulatory data, outpacing Jet Airways with 23 percent and state-run Air India Ltd., which had a 17 percent share.

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