InterGlobe Aviation
BSE SENSEX
25,022
S&P CNX
7,671
11 April 2016
Update | Sector: Aviation
CMP: INR986
TP: INR1,404 (+42%)
Buy
India passenger growth strong; Indigo well placed
Fleet addition back on track; superior profitability to sustain
Stock Info
Bloomberg
Equity Shares (m)
21-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INR m)
Free float (%)
INDIGO IN
360.4
1,396/702
19/-/-
355.4
5.4
2,538.2
13.9
Indian air passenger growth remains strong, with YTDFY16 domestic passenger/RPK
growth at 24%/22% (33%/29% for Indigo). Given its firm fleet addition plans, we
believe INDIGO will benefit the most.
Post initial delays, A320neo deliveries are on track and we estimate INDIGO’s fleet at
131/153 by the end of FY17/FY18 versus 107 in March 2016.
We expect INDIGO’s ASK market share at >40% and load factors to remain above
80%.
The stock trades at FY18 P/E of 11.9x and has an implied dividend yield of 3-4%.
Maintain Buy.
Financials Snapshot (INR b)
Y/E Mar
2016E 2017E 2018E
Sales
161.8 205.4 256.2
EBITDA
29.8
37.7
45.3
NP
19.2
24.9
29.8
EPS (INR)
53.4
69.0
82.6
EPS Gr. (%)
48.5
29.2
19.7
BV/Sh. (INR)
59.0
86.8 120.0
RoE (%)
150.7
94.6
79.9
RoCE (%)
36.0
39.8
43.2
P/E (x)
18.5
14.3
11.9
P/BV (x)
16.7
11.4
8.2
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Dec-15
86.1
1.2
6.0
6.7
Sep-15
0.0
0.0
0.0
0.0
A320neo deliveries start; fleet addition on track
INDIGO received three A320neo aircraft in March 2016 and expects its fleet to
increase from 107 to 131 by end-FY17.
Based on firm fleet announcements (164 new planes by FY18 to take India
fleet size to ~550), INDIGO’s fleet expansion is the highest (36% share) in India.
We expect A320neo share in its fleet at ~30% by end-FY18 (fuel efficiency will
give an edge in ticket pricing) and INDIGO’s market share at >40% in
FY17/FY18.
Industry-leading passenger/RPK growth continues
India passenger growth remains strong, with ~23% passenger/RPK growth, and
INDIGO has demonstrated impressive fundamentals, with 40% RPK share and
33%/29% passenger/RPK growth.
While the quarterly seasonality will continue (3Q is the strongest and 2Q is the
weakest), we expect INDIGO’s fleet addition to aptly support >20% passenger
growth over the near-medium term.
Expect superior profitability to continue; at par with global best
INDIGO’s unique fleet strategy and focus on cost control keeps ownership cost
lower, while on-time performance ensures higher load factors, in our view.
While any sharp revival in oil prices will put pressure on profitability, we
expect INDIGO’s profitability to be not only superior to domestic listed peers
but also at par with global LCCs.
Valuation and view
The benefit from marginally higher fleet assumption (131/153 v/s 130/153 in
F17/FY18) is negated by increase in ATF excise duty from 8% to 14% leading to
1-4% EPS reduction for FY16-18E.
Commensurate with marginal revision in our FY18E EPS due to external factors,
we revise our fair value at INR1,404/share (17x FY18E earnings).
On FY18E, the stock trades at 11.9x EPS and adj. EV/EBITDAR of 7.3x with an
implied dividend yield of 3-4%. Maintain
Buy.
FII Includes depository receipts
Stock Performance (1-year)
InterGlobe Aviation
Sensex - Rebased
1,400
1,200
1,000
800
600
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
Rajat Agarwal
(Rajat.Agarwal@MotilalOswal.com); +91 22 3982 5558
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

InterGlobe Aviation
Investors have been seeking answers to key questions on the dynamics of the
Aviation business in general and on INDIGO’s operations in particular. In this report,
we attempt to answer some of these questions.
1. Are INDIGO’s growth plans on track?
Excerpts from Indigo’s recent guidance on fleet addition
2. How is INDIGO more profitable than other airlines?
Key takeaways from our call with Airbus
3. Are current earnings the peak earnings for Indigo?
4. Will Indigo’s dividend policy change post IPO?
5. Dissecting growth drivers
6. Domestic aviation business dynamics
1
Are INDIGO’s growth plans on track?
Have the delays in deliveries of
A320neo
impacted INDIGO’s growth plans? How
does the management’s fleet addition guidance stack up with earlier plans?
The delays in deliveries of
A320neo
have not impacted INDIGO’s growth plans.
Its new fleet guidance is in line with that announced at the time of IPO.
While INDIGO had announced the possible delays in December 2015, the
induction of
A320neo
began in March 2016. It has already inducted three
A320neo
aircraft in March 2016 and expects to add 21
A320neo
aircraft in FY17
(in all 24 versus original schedule of 26 by March 2017). It will make up for the
shortfall through the induction of used
A320s
on operating lease.
Accordingly, we revise our fleet assumptions to 131 in FY17 (v/s 130 earlier) and
maintain 153 in FY18.
Exhibit 1: INDIGO’s updated fleet induction plans
Starting Fleet
Net Additions
Ending Fleet
131
77
11
66
FY14
94
17
77
FY15
107
13
24
153
22
39
2514
FY11
55
16
39
FY12
66
11
55
FY13
94
FY16E
107
FY17E
131
FY18E
Source: Bloomberg, MOSL
Key excerpts from INDIGO’s press release
On
A320neo
induction
A320neo
will have
Fuel
efficient
Engines
Short term
leases to
address this
strong
demand
Quarterly
increase in
fleet
4QFY16
guidance
11 April 2016
2

InterGlobe Aviation
Key excerpts from INDIGO’s press release
On
A320neo
induction:
IndiGo is delighted to announce that Airbus has
confirmed that beginning with March 2016, it will deliver 24 fuel efficient
A320neo
aircraft by March of 2017 as compared to the original plan to deliver
26
A320neos.
A320neo will have Fuel efficient Engines:
“The new A320neo powered by Pratt
and Whitney’s fuel efficient geared turbo fan engines will enable us to
structurally reduce our costs as fuel continues to be the single largest element
of our cost structure.”
Short term leases to address this strong demand:
IndiGo has also entered into
attractive leases for 7 more used A320 aircraft, which will be inducted between
March and November of 2016.
Quarterly increase in fleet:
Overall, on a YoY basis, IndiGo expects to grow its
fleet by 13 aircraft in the fourth quarter of fiscal 2016, followed by YoY increases
of 11 aircraft in the first quarter, 21 aircraft in the second quarter, 27 aircraft in
the third quarter and 24 aircraft in the fourth quarter of fiscal year 2017.
4QFY16 guidance:
Also, in the fourth quarter of fiscal year 2016, while YoY
capacity is expected to grow by about 19%, EBITDAR margins are expected to be
strong at around 35% to 37% and at last year’s levels. However, for the fourth
quarter, YoY revenue is expected to increase by 6% to 8% and net profit will also
be impacted due to the exchange rate movement in the Indian Rupee versus the
US Dollar.
In FY17, total fleet strength is likely to grow 22.4% to 131, allowing INDIGO to
absorb the additional manpower hired in expectation of taking delivery of 9
A320neo
aircraft between December 2015 and March 2016.
How does INDIGO’s fleet addition compare with other industry players?
At the current announced plans, INDIGO is expected to have the largest increase
in fleet size. We expect its fleet size to increase by 24 aircraft in FY17 to 131.
Exhibit 2: Expect the total fleet of airlines in India to grow to ~550 aircraft by FY18
FY15
153
131
94
107
126
135
148
162
Airbus will deliver 24 A320neo
aircraft by March 2017 v/s 26
scheduled earlier
INDIGO has entered into
leases for 7 more used
A320
aircraft, which will be
inducted between March and
November 2016
EBITDAR margins in 4QFY16
expected at 35-37%; YoY
revenue growth at 6-8%
FY16
FY17
FY18
112
112
106 106
32
41
43
51
19 19
29
43
6
6
6
6
13
17
19
Source: Company, MOSL
11 April 2016
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InterGlobe Aviation
Jet Airways’ fleet induction:
While Jet Airways will not induct any new aircraft,
its capacity is likely to increase due to the return of six
Boeing 777s
and an
Airbus A330
it had sub-leased to Etihad Airways. Jet Airways’ management had
highlighted in the recent results concall that it is close to negotiating the sub-
lease of the returning
A330
with Air Serbia and we model the same.
SpiceJet:
Based on media reports, deliveries of SpiceJet’s order of 55
Boeing
737Max
are scheduled to begin in 2017. We assume that Boeing will deliver 10
aircraft in 2017, and we model two to be received before the end of FY17.
GoAir:
GoAir had earlier ordered 72
A320neos,
and media reports suggest that
the airline was expecting 26
A320neos
by the end of 2017. Given that Airbus has
resumed deliveries to IndiGo, we estimate that Airbus will deliver 24 (two short
of the original expectation as in the case of INDIGO) by the end of 2017 and
expect fleet size to expand to 43 by FY18.
Air Asia and Vistara:
We expect fleet size to increase in line with the companies’
media announcements.
Exhibit 4: Estimate Indigo market share to increase to 28%
in FY18E
FY18E
Fleet
share
(%)
Go Air
8%
Air Asia Vistara
1%
3%
IndiGo
28%
Exhibit 3: Indigo fleet market share was at 25% in FY15
FY15
Fleet
share
Spice Jet
8%
Go Air
5%
Air Asia
2%
IndiGo
25%
Spice Jet
9%
Jet Airways
21%
Jet Airways
28%
Air India
33%
Air India
30%
Source: Company, MOSL
Source: Company, MOSL
2
How is INDIGO more profitable than other airlines?
What are the key factors that make INDIGO the lowest cost airline in India?
Indigo is a low cost carrier and has all the typical LCC characteristics (Source:
Ready for Takeoff?)
in place like (a) simple service offerings, (b) short-haul,
point-to-point route structure, (c) high aircraft utilization, (d) common fleet and
newer, more fuel efficient planes, (e) single-class seat configuration, (f) low cost
distribution and (g) high employee productivity.
Along with the above key points, Indigo has benefitted from lower aircraft
acquisition costs helped by its bulk acquisition strategy. Its initial order size was
100 followed by follow-up orders of 150 and 180 aircraft to Airbus.
INDIGO’s maintenance cost per ASK is lower than its peers, even that of GoAir
which also employs single type aircraft strategy. INDIGO also has lower selling
expenses, which we believe is largely due to the comparatively higher
proportion of business travellers and efficient compensation strategy to travel
agents.
11 April 2016
4

InterGlobe Aviation
Exhibit 5: INDIGO's RASK in-line with other players (INR)
RASK
4.5
3.5
3.6
3.7
4.5
2.5
2.8
Jet
SpiceJet
2.9
3.5
3.7
3.4
2.9
3.3
GoAir
4.0
2.8
3.1
3.1
3.7
3.7
FY10
FY11
FY12
FY13
FY14
3.4
IndiGo
Source: DGCA, MOSL
Exhibit 6: Indigo has lowest CASK in domestic airlines (INR)
CASK
5.3
3.4
4.0
2.4
3.5
4.6
2.7
Jet
3.7
3.3
3.9
3.0
3.5
3.6
2.3
2.9
3.9
2.6
3.4
3.6
FY10
FY11
FY12
FY13
FY14
3.1
SpiceJet
GoAir
IndiGo
Source: DGCA, MOSL
Exhibit 7: INDIGO’s maintenance cost per ASK lowest in its
peer group (INR)
Maintenance
costs per ASK*
0.5
FY10
FY11
0.5
0.4
0.20.20.2
0.3
0.1
0.2
-
Jet
SpiceJet
- -
0.10.1
0.0
IndiGo
Source: DGCA, MOSL
0.1
FY12
FY13
FY14
Exhibit 8: INDIGO’s employee cost relatively lower than
other airlines (INR)
Employee
costs per ASK
0.40
0.44
0.34
0.35
0.230.23
0.36 0.38
0.15
0.32
0.21
0.32
0.29 0.31
0.28
0.24
0.24 0.28
IndiGo
Source: DGCA, MOSl
FY10
FY11
FY12
FY13
FY14
0.30 0.29
GoAir
Jet
SpiceJet
GoAir
*’-' means data not available
Exhibit 9: Comparing RASK less CASK (ex-fuel) – Indigo has superior profitability track record even versus global LCCs (USc)
2010
2011
2012
2013
2014
Average
Southwest Jetblue
Spirit
Ryanair Easyjet Airasia CebuAir Wizz Air Westjet Norwegian
Allegiant AirArabia Indigo
Source: Industry, MOSL
11 April 2016
5

InterGlobe Aviation
Will Indigo be able to sustain its aircraft acquisition gains (on bulk buying)
in the current low oil price scenario?
We believe INDIGO will be able to sustain its aircraft acquisition gains even
when oil prices are low. While low oil prices impact the competitive advantage
of
A320neo
v/s existing aircraft, aircraft acquirers typically take a 10-15 year
view when investing in aircraft and recent low oil prices will not influence
aircraft prices meaningfully.
In our interactions, Airbus indicated that they do not anticipate any reductions
in the prices of A320neo aircraft due to the above factors.
Airbus and Boeing have committed production capacities for 7/9 years:
Further, Airbus and Boeing’s tied up production capacities mean that any new
orders by airlines will only be delivered post CY23.
Airbus has unfulfilled orders exceeding 4,400 for the
A320
family (includes
A320neo
and
A321neo)
and Boeing has unfulfilled orders for 5,568 the
B737
family. Based on their production rates, we estimate that Boeing/Airbus will be
able to deliver its current order book in 7/9 years. Hence, we believe that any
new orders by airlines will only be delivered post FY23.
Exhibit 11: Airbus can produce 44
single aisle liners per month
A320 production capacity
Exhibit 10: Airbus and Boeing have
huge backlogs
Backlog
5568
4417
Exhibit 12: Boeing can produce 42
Boeing 737 family jets per month
B737 production capacity
47
52
50
50
42
44
B737 family
A320 family
2016
2017
2018
2016
2017
2018
Source: Airbus, Boeing, MOSL
Source: Airbus, Boeing, MOSL
Source: Airbus, Boeing, MOSL
Key takeaways from our call with Airbus
We had a conference call with Airbus. Key takeaways:
1. Airbus delivery schedule – delayed, but hopes to make up in 2HCY16
Airbus expects to meet its earlier committed
A320neo
(new engine option)
deliveries to airlines. However, the deliveries would be back-loaded in 2016.
Management views the delay in
A320neo
deliveries as a minor adjustment in
delivery schedule and within the existing contractual timelines. Hence, it does
not expect to pay any compensation to customer airlines.
2. Neos to comprise 100% of single aisle production in 2019
A320neos
would comprise a little less than 20% of single aisle aircraft in 2016.
At the current monthly production of 46 single-aisle liners, the management
expects to deliver ~100
A320neos
during the year.
By 2019,
Neos
will comprise almost 100% of the entire production.
11 April 2016
6

InterGlobe Aviation
3. No impact of crude oil price on
A320
list price
Airlines typically take a 10-15 year view while investing in an aircraft. Hence,
while low ATF prices reduce the absolute fuel efficiency benefit of
A320neos
v/s
existing aircraft, the list price of
Neos
will not be impacted.
Further, other advantages of
Neos
like (a) reduction in aircraft noise, and (b)
reputational benefit due to induction of new aircraft also ensure that the
aircraft price is not impacted.
4. Airlines with stronger balance sheets have an advantage
Airbus has a “WatchTower” program in which it also scrutinizes the financial
health of airlines that seek to purchase its aircraft.
It looks at the (a) balance sheet, (b) credit ratings, (c) order book and other
criteria to judge whether a prospective customer has the ability to purchase.
Further, it also requires airlines to make pre-delivery payments (which is a
typical practice in the industry). INDIGO’s superior balance sheet helps it to
adequately meet these criteria.
5. Lessors account for 20% of Airbus Neo order book
Of the total order book of ~6,800 for
Neo,
Airbus indicated that ~20% of these
orders are from third-party lessors – there is a liquid market for the aircraft.
Notwithstanding occasional hiccups, Airbus expects healthy air passenger
growth (>5%) across the world, driven by emerging economies.
3
Are current earnings the peak earnings for Indigo?
Will fleet addition more than negate any impact of likely higher oil prices?
Indigo is operating in an hugely under penetrated Indian market where overall
country fleet is <400, implying huge growth opportunity backed by healthy
passenger growth.
While crude will play an important role in sustaining the passenger growth, we
note that at higher crude prices, INDIGO’s competitors will be under more
pressure versus Indigo who will have fuel efficient A320neos contributing to
>30% of its fleet.
We model Brent crude at USD45/50/bbl for FY17 and FY18, fleet capacity
additions at 24 in FY17 and 22 in FY18, leading to a fleet of 131/153 aircraft by
FY17/FY18.
Benign crude price will be supportive for the current high profitability; however
with expected doubling of its fleet by CY20, we expect earnings to further
improve.
What is the sensitivity of INDIGO’s earnings to ATF prices, ticket yields and load
factors?
IndiGo’s EPS is most sensitive to load factors:
A 1% change in load factors impacts FY17/FY18E EPS by 6.5%/7%.
A 1% change in yields impacts FY17/FY18E EPS by 5.5/5.8%.
11 April 2016
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InterGlobe Aviation
Exhibit 13:
Indigo earnings sensitivity to key drivers
Parameter
Yield (%)
Load factor (%)
Oil Price (USD/bbl)
Fx rate (INR/USD)
Passenger growth
Unit change
1 % change
1 % change
USD1/bbl change
INR 1/ USD change
1% change
FY17E
~5.5%
~6.5%
~2.0%
~3.0%
~4.4%
FY18E
~5.8%
~7.0%
~2.0%
~3.0%
~5.0%
Source: MOSL
4
Will INDIGO’s dividend policy change post IPO?
While dividend policy is the prerogative of board members, we believe that with
no change in the business model in pre and post IPO period, Indigo should be
able to continue its high payout dividend policy.
INDIGO’s focus on lowering fixed costs (through higher operating leases) and
negative working capital helps it to significantly increase distributable free cash
flow. For the last five years, its dividend has stood at 30% of operating cash flow
and 76% of profit.
Exhibit 14: INDIGO’s historical dividend payout significantly high; expect similar trend to
continue
Dividend as % of PAT
98%
81%
Dividend as a % of operating cashflow
93%
100%
65%
0%
FY10
FY11
0%
FY12
37%
54%
28%
FY13
FY14
FY15
Source: Company, MOSL
Exhibit 15:
Dividend payout (last three yea average) - Indio payout highest among
global LCCs (%)
69
50
78
42
11
20
0
0
77
38
0
0
0
Asian
North America
Eurasia & ME
Source: Bloomberg, Company, MOSL
11 April 2016
8

InterGlobe Aviation
5
Dissecting growth drivers
What is the growth witnessed by the Indian Aviation sector in the last decade and
in the recent 1-2 years?
In the last decade, domestic passenger volumes have grown at a sustained rate
of ~13.5%. The potentially higher volume growth was only arrested due to
decline in FY09 owing to recessionary pressures and in FY13 due to decline of
Kingfisher Airlines, which resulted in a sudden supply constraint.
Passenger volumes have consistently increased since January 2014 and showed
strong double-digit growth even in December 2014, when SpiceJet’s fleet was
grounded.
Exhibit 16: Domestic passenger volumes increased at ~13.5% CAGR in the last decade
Passenger (million)
55
45
36
20
26
40
46
62
59
62
70
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
Source: DGCA, MOSL
Exhibit 17: Passenger volumes have increased at ~13.5% in
the last decade (%)
60.0
40.0
20.0
0.0
-20.0
Exhibit 18: Domestic passenger volumes have consistently
increased since January 2014 and grew ~21% in YTDFY16
40
30
20
10
0
Domestic passenger growth (YoY %)
Source: DGCA, MOSL
Source: DGCA, MOSl
Driven by sustained passenger volume growth in the last 1-2 years, domestic
RPKs have continued to grow strongly, with 22% YTD growth in February 2016.
11 April 2016
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InterGlobe Aviation
Exhibit 19: Domestic ASKs (billion) grew 16% YTD in
February 2016
Total Domestic ASK
Exhibit 20: Domestic RPKs (billion) grew 22% YTD in
February 2016
Total Domestic RPKs
Source: DGCA, Company, MOSL
Source: DGCA, MOSL
How much of the double-digit growth can be attributed to lower oil prices?
While passenger growth in India is strongly correlated to GDP growth, there is
little correlation with Brent crude prices, assuming that it takes one year for the
changes in GDP and in crude prices to be reflected in passenger growth.
Passenger volumes increased by 18% in FY11 after Brent crude prices declined
by 13% in FY10; passenger volumes had also increased by 15% in FY10, when
Brent crude had increased by 21% in FY09. However, in both of these years, GDP
growth had remained healthy at above 8% levels.
While the current 21% passenger volume growth might be marginally supported
by lower crude prices, we believe it is largely supported by GDP growth.
Based on IMF’s projections of above 7% GDP growth in India, we estimate that
passenger volumes will continue to grow at ~13% (based on past correlation).
Exhibit 21:
Double digit passenger growth begin well ahead of crude price decline
Brent (USD/bbl)
120
30
90
20
60
14
6
9
10
10
16
23 23
18
20
25
20
17
18
14
19
30
25
20
23
24
Monthly YoY passenger growth (%) - RHS
40
30
20
30
0
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
0
Source: Bloomberg, Company, MOSL
11 April 2016
10

InterGlobe Aviation
Exhibit 22: Passenger growth shows high correlation with
GDP growth*…
Annual Passenger growth (%)
60
40
20
0
-20
5
0
GDP growth (%), RHS
15
10
20
0
-20
20
0
-20
Exhibit 23: …but weak correlation with Brent price change*
(INR/bbl, %YoY)
60
40
Annual Passenger growth (%)
Brent Change (YoY%), RHS
60
40
*GDP growth with a 1-yr lag
Source: DGCA, MOSL
*Brent prices with a 1-yr lag
Source: Bloomberg, MOSL
In terms of ticket prices, how competitive is air travel compared with rail?
Fares offered by low cost carriers (LCCs) are comparable to rail AC II-tier ticket
prices. During the off-season travel months of July to September, fare
differentials between air and rail AC II-tier become very low and only widen
during the peak travel seasons of April to June and October to December.
Alternative modes of transport (road and rail) do not offer speed and comfort in
long distance journeys, which makes air travel attractive.
Capacity constraints in Indian rail (need to book tickets 2-3 months in advance
to get confirmed seat) further make air travel attractive, in our view.
Exhibit 24: LCCs’ ticket prices comparable to train tickets
New Delhi to Mumbai (Price in INR)
Normal train
Fastest train
4,745
3,870
2,255
1,560
1A
2A
3A
595
SL
1A
2A
3A
LCC
2,860
2,080
3,200
Exhibit 25: Air travel saves time significantly
New Delhi to Mumbai (Travel time in hours)
22
16
2
Normal Train
Fastest Train
LCC
Source: Industry, MOSL
Source: Industry, Railways, MOSL
*Prices are taken for one month advanced booking
6
Domestic aviation business dynamics
How severe is the seasonality in the domestic aviation market?
Seasonality in second quarter volumes impacts airlines’ profits for the quarter.
Past passenger volumes reveal that the second quarter is usually the weakest,
while the third quarter is the strongest due to greater incidence of holidays,
resulting in strong leisure travel. The first and fourth quarters are comparable
with the third quarter.
Due to the traditionally weak second quarter, airlines typically reduce their fares
to keep volumes high.
11
11 April 2016

InterGlobe Aviation
Lower than expected 2QFY16 results was a key investor concern on INDIGO. In
line with the standard practice followed by airlines, INDIGO too had reduced its
fares in 2Q, resulting in lower yields, which impacted 2Q results adversely.
Exhibit 26: Domestic load factors have been the weakest in the second quarter
traditionally (%)
85
80
75
70
65
Q1
Q2
Q3
Q4
Source: DGCA, MOSL
FY12
FY13
FY14
FY15
How has domestic utilization behaved over the years?
Load factors for Indian airlines have increased consistently since FY14 and
crossed the 80% mark in FY16, driven by strong passenger volumes.
We note that load factors declined marginally in FY13 and FY14.
FY13 load factors had declined due to exorbitant fare hikes by airlines in the
face of cancellation of Kingfisher’s flights.
FY14 load factors had marginally declined due to faster increase in domestic
ASKs as compared to RPKs – domestic ASKs grew 6%, while RPKs grew 5%.
Exhibit 27: Domestic total load factors have consistently increased since FY14 (%)
Domestic ASK (billions)
69
69
Domestic RPK (billions)
72
77
75
79
53
59
75
76
57
Passenger load factor (%)
73
81
59
79
84
67
83
97
80
65
68
64
61
49
28
35
18
24
FY06
34
42
59
38
61
44
68
FY05
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
Source: DGCA, MOSL
Have the new airlines dented the market share of incumbents?
While new airlines have been able to garner ~5% market share in one financial
year, we observe that INDIGO’s market share continued to increase in FY16.
We expect that market share of new airlines will increase marginally; however,
with limited increase in fleet size for new airlines, we do not expect much dent
in the market shares of existing airlines.
11 April 2016
12

InterGlobe Aviation
Exhibit 28: New airlines have gained marginal market share from existing airlines excluding
INDIGO and Jet Airways
Domestic ASK
market share (%)
23.0
5.9
17.1
8.5
24.2
21.2
FY12
IndiGo
2.3
7.3
19.9
19.2
23.3
28.1
FY13
Jet Airways
Air India
SpiceJet
0.8
9.4
14.8
18.3
19.3
37.4
FY15
GoAir
Others
5.4
8.4
10.2
16.4
20.4
39.2
YTDFY16
Source: DGCA, MOSL
8.4
19.3
18.8
21.4
32.0
FY14
Exhibit 29: New airlines have gained market share largely from other airlines excluding
INDIGO
Domestic RPK
market share (%)
23.5
6.1
17.0
5.8
24.4
23.2
FY12
IndiGo
2.0
7.4
19.8
17.7
22.8
30.4
FY13
Jet Airways
0.3
8.5
18.9
18.2
20.7
33.3
FY14
Air India
SpiceJet
0.7
9.4
15.4
17.8
19.2
37.6
FY15
GoAir
4.9
8.4
11.4
15.7
19.8
39.7
YTDFY16
Source: DGCA, MOSL
Others
Is increasing airport congestion going to be a significant challenge?
We believe that the high growth of Indian civil aviation can only be constrained
by impending saturation at the major Indian airports.
However, we note the government’s thrust on improving and expanding airport
infrastructure. In the FY17 budget, the government announced revival of ~160
under-served and un-served airstrips and airports. The government will invest
INR500m per airport in reviving these airports. Further, it has exempted flights
operating on these routes from the increase in excise duty on ATF.
Other measures:
A greenfield airport is being developed in Navi Mumbai to
support high passenger growth in Mumbai. The Changi Airport of Singapore is
being engaged to execute operations at the Ahmedabad and Jaipur airports.
Greenfield airports are being commissioned in various Tier-2 and Tier-3 cities to
augment aviation growth on domestic routes. Further PPP projects at Chennai,
Kolkata, Ahmedabad and Jaipur are being implemented.
What are some of the ways that airlines can overcome this challenge?
Airlines in India are increasingly deploying wide body aircraft on domestic routes
to ensure that they aren’t constrained by airport congestion.
INDIGO will convert some of its
A320neo
orders into
A321neos,
which we note
have higher seating capacity (234 seats v/s 186 seats in
A320neo).
11 April 2016
13

InterGlobe Aviation
Exhibit 30: Current airport infrastructure will saturate in the next 5- 10 years; no concrete plans for another greenfield airport
except in Navi Mumbai
Airport
Delhi
Current annual
pax capacity (m)
45
2025 annual pax
capacity (m)
85
Notes
Expected to saturate in the next 5-7 years.
One of the Delhi runway falls under the VIP zone, any runway expansions
pose a security risk, thereby limiting any expansion.
Mumbai
48
48
Expected to saturate in next 2-3 years.
Airport running close to full capacity not on landside, but on airside; slot
availability limited.
Navi Mumbai
Chennai
23
25
23
As of now no clarity on timelines of this new planned airport.
Airside constraints limit capacity to 18m.
No confirmed plans for expansion, though land has been earmarked.
Bangalore
Hyderabad
Kolkata
Other Airports
20
12 - 15
24
40
40
24
Fastest growing airport in India (~25% growth YoY); saturation expected in
next 10 years, will require another airport.
Witnessing double digit passenger growth
Will require another airport in 10 years
Expect saturation in 10 years
AAI manages 43 airports; expect saturation in 3-5 years.
AAI airports in Pune and Goa in military airfields, hence limits expansion
and operating hours.
E.g. Operations prohibited between 8.30 am and 1.00pm on weekdays in
the Goa Airport.
Source: CAPA, MOSL
11 April 2016
14

InterGlobe Aviation
Valuation and view
INDIGO warrants a premium:
We believe that INDIGO warrants a valuation
premium compared with international LCCs, given that (a) it is positioned at the
forefront of Indian aviation, and (b) it has consistently posted comparable and
higher EBITDAR margins despite operating in a country that has comparatively
high ATF prices (fuel expenses are the biggest cost component for an airline).
Further, it should command a premium over Indian peers, given that (a) it is the
only airline to post profits consistently in the last seven years, and (b) it is
rapidly expanding its fleet in the next 3-4 years.
Upside to payout assumptions:
There is upside risk to our dividend payout
assumption of 60% – in the last three years, average payout was 78%. Despite
our reduced payout ratio assumption, the dividend yield is attractive at 3-4%.
We marginally reduce our FY16-18 estimates by 1-3% to factor in fleet addition
guidance and higher ATF excise duties. While the update on aircraft induction is
a key positive for the stock, the earnings upgrade is subdued by increase in
excise on ATF from 8% to 14%. Our revised fleet assumption stands at 134
aircraft in FY17 (v/s 130 earlier) and maintain 153 aircraft in FY18.
Commensurate with marginal decline in our FY18E EPS due to external factors,
we revise our fair value to INR1,404/share (17x FY18E EPS). Our TP implies an
adjusted FY18E EV/EBITDAR of 9x. The stock trades at 11.9x FY18E EPS of
INR82.6 and at 7.3x adjusted FY18E EV/EBITDAR. Maintain
Buy.
Exhibit 31: Key assumptions
Y/E March
Fleet and capacity
Fleet size (No)
ASK (millions)
Load Factor
RPK (millions)
Revenue Calculation
Ticket Revenue (INRm)
Yield (INR/RPK)
Ancillary revenues
Total Revenue (INR m)
YoY (%)
Fuel Cost
Exchange rate (INR/USD)
Brent Price (USD/bbl)
ATF Prices (INR/ltr)
YoY (%)
Avg. aircraft utiliz. (block hours / day)
Fuel (litres / block hour)
Aircraft fuel expenses (INRm)
45.6
86.7
47.8
10.70
2,535
15,213
FY11
39
12,491
85%
10,634
2.6
33,910
3.19
4,424
38,334
49,873
3.36
5,774
55,647
45%
47.9
114.5
63.8
33%
10.4
2,513
28,736
82,667
4.08
9,365
92,031
65%
54.4
110.5
70.8
11%
11.1
2,475
43,126
99,240
4.29
11,926
111,166
21%
60.5
107.6
75.7
7%
11.4
2,445
55,134
122,939
4.36
16,314
139,253
25%
61.2
85.5
68.4
-10%
11.4
2,373
57,485
141,697
3.95
20,110
161,807
16%
65.4
47.3
47.8
-30%
12.1
2,321
48,577
181,836
4.05
23,548
205,383
27%
68.0
45.0
50.6
6%
12.2
225,843
4.13
30,376
256,219
25%
70.0
50.0
55.2
9%
12.3
FY12
55
18,006
82%
14,826
FY13
66
24,977
81%
20,260
FY14
77
29,967
77%
23,136
FY15
94
35,327
80%
28,177
FY16E
107
42,825
84%
35,904
FY17E
131
53,679
84%
44,911
FY18E
153
65,326
84%
54,646
2,289
2,273
62,829
81,144
Source: Company, MOSL
11 April 2016
15

InterGlobe Aviation
Exhibit 32:
Despite higher margins, INDIGO is trading at a discount to RyanAir
10.0
Norwegian Air
8.0
Jet Airways
easyJet
Ryanair
AirArabia
Allegiant
Southwest
WizzAir
WestJet
2.0
10%
15%
20%
25%
30%
35%
40%
45%
FY17 EBITDAR margins
Source: Bloomberg, MOSL
JetBlue
Spirit
IndiGo
Air Asia
6.0
4.0
Key risks
Economic risks:
Airline industry passenger growth is closely linked to GDP
growth. Any slowdown in domestic GDP growth will impact overall passenger
growth.
Infrastructural constraints:
Many large airports in India have capacity
constraints to handle flights in the prime time slots. Any delay in
debottlenecking the capacity will limit growth in those cities.
Increased competition:
Any move by competitors like high cash burn to gain
market share will impact INDIGO’s market share during that period. We believe
INDIGO will not sacrifice profitability for the sake of market share.
Sharp increase in oil prices:
Oil price is an airline’s biggest cost component (40-
50% of total costs). While LCCs are in a better position versus FSCs during a high
oil price scenario, high short-term volatility and inability to commensurately
change ticket price will impact margins.
Currency risk:
While almost all the revenue is in INR terms, ~70% of the
expenses are USD-denominated. Inability to pass on the forex impact could
reduce margins.
Regulatory risks:
While the proposed aviation policy is intended to benefit
airlines, any delay in policy implementation or any adverse impact could have
implications for the sector’s growth.
Key terms used throughout the report
ASK: Available Seat Kilometer - The Basic Measure of Capacity:
One seat (empty or
filled) flying one kilometer is an ASK. A 180-seat A320 flying 100 kilometers creates
18,000 ASKs.
Passenger Kilometer -Basic Measure of Revenue:
A passenger flying one kilometer
creates an RPK. 150 passengers flying 100 kilometers generate 15,000 RPKs.
Load Factor:
To calculate the load factor, divide RPKs by ASKs. An individual flight
generating 15,000 RPKs and 18,000 ASKs will have a load factor of 83%. Higher load
factors are desirable but how much each passenger pays is also important.
11 April 2016
16

InterGlobe Aviation
Operating metrics
Exhibit 33: Indian aviation underpenetrated despite 12%
CAGR in domestic passengers in the last decade
Annual domestic seats per capita (2014)
4.79
2.59
0.08
0.65
0.48
0.35
1.12
48
36
24
12
0
-12
FY99 FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15
Source: CAPA, Company, MOSL
Source: DGCA, MOSL
Exhibit 34: Domestic aviation: Demand follows supply; RPK
growth at 2.3x real GDP growth
Domestic ASK (YoY %)
Domestic RPK (YoY %)
Exhibit 35: India to be the 3rd largest aviation market by
FY25
218
129
70
82
51
Exhibit 36: Value migration to LCCs even in India
Low cost carriers
Full service carriers
120
60%
54%
50%
39%
37%
38%
41%
FY15
FY20
FY25
FY15
FY20
FY25
FY10
Domestic passengers (m)
Share on basis of future fleet
International passengers (m)
Source: Industry, Company, MOSL
46%
FY11
50%
FY12
61%
63%
62%
FY13
FY14
FY15
Source: DGCA, CAPA, Company MOSL
Exhibit 37: INDIGO, the market leader, to benefit the most
from this trend
IndiGo
GoAir
2-
8
17
20
17
35
2015
Air India
AirAsia
2 2
7
18
19
16
36
2016
Jet Airways
Vistara
32
9
19
17
14
37
2017
SpiceJet
42
11
20
15
13
36
2018
Exhibit 38: INDIGO has >50% market share in non-metro
destinations
IndiGo
Jet Airways
-
9
17
18
16
40
Top 10 Metro to
Metro routes
Air India
1
19
17
13
10
39
SpiceJet
Go Air
-
14
20
11
3
53
Others
Top 10 Metro to Top 10 Non-metro to
Non-metro routes Non-metro routes
Source: DGCA, CAPA, Company, MOSL
Share on basis of future fleet
Source: Industry, Company, MOSL
11 April 2016
17

InterGlobe Aviation
Exhibit 39: Continued profitability indicates focus on cost
control
FY09
IndiGo
SpiceJet
Jet
Airways
GoAir
Air India
Kingfisher
Yes
No
No
No
No
No
FY10
Yes
Yes
No
No
No
No
FY11
Yes
Yes
No
Yes
No
No
FY12
Yes
No
No
No
No
No
FY13
Yes
No
No
Yes
No
FY14
Yes
No
No
Yes
No
FY15
Yes
No
No
Yes
No
2.62
3.47
0.34
Air India
Exhibit 40: Lowest-cost proposition makes INDIGO the most
profitable Indian airline
Maintenance
Fuel
Rentals
Operations
Total Cost
9.82
3.39
9.05
2.86
2.01
3.23
0.95
Jet Airways
6.68
1.64
1.2
2.94
0.9
SpiceJet
6.37
1.42
1.23
3.37
0.35
Go Air
5.95
1.73
0.97
3.07
0.18
IndiGo
Ceased Operations
Source: SAP, Company, MOSL
Source: SAP, Company, MOSL
Exhibit 41: Strong fleet order book to ensure higher market
share
430
Exhibit 42: 15% more fuel efficient A320neo aircraft to form
~30% of FY18 fleet, giving significant competitive advantage
A320
A320neo
% Increase in fuel efficiency
153
131
46
24
2.7%
0.4%
FY16
107
FY17
107
FY18
4.3%
192
140
*
72
50
29
94
-
107
3
104
IndiGo
SpiceJet
Jet
Airways
Go Air
Air Costa Air India
94 0.0%
FY15
*Based on media reports
Source: Industry, CAPA, DGCA, Company
Source: Company, MOSL
11 April 2016
18

InterGlobe Aviation
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDAR
EBITDAR Margin (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
2011
38,334
0.0
11,217
29.3
7,119
18.6
629
6,490
450
1,107
0
7,148
1,353
18.9
5,795
5,795
0.0
2011
344
684
1,027
9,314
-8
10,333
10,057
1,745
8,311
0
8,022
12,852
447
167
7,757
4,482
18,853
12,911
5,942
-6,001
10,333
2012
55,647
45.2
8,496
15.3
489
0.9
665
-176
514
1,440
0
749
-657
-87.7
1,406
1,406
-75.7
2012
344
2,090
2,433
10,156
-665
11,924
10,737
1,877
8,860
0
5,234
21,711
374
389
13,088
7,860
23,882
23,537
345
-2,170
11,924
2013
92,031
65.4
22,498
24.4
8,936
9.7
856
8,080
578
2,371
0
9,873
2,040
20.7
7,834
7,834
457.2
2013
344
3,547
3,890
18,004
537
22,432
20,362
2,718
17,645
69
11,383
29,428
523
685
13,406
14,814
36,093
35,554
539
-6,665
22,432
2014
111,166
20.8
21,769
19.6
5,066
4.6
2,260
2,806
1,226
3,155
0
4,736
-9
-0.2
4,744
4,744
-39.4
2014
344
3,874
4,217
33,462
529
38,208
44,505
4,945
39,560
0
12,715
38,759
673
891
11,015
26,180
52,826
47,813
5,013
-14,067
38,208
2015
139,253
25.3
38,219
27.4
18,697
13.4
3,022
15,675
1,155
3,838
0
18,357
5,402
29.4
12,956
12,956
173.1
2015
344
3,918
4,262
39,262
4,091
47,615
56,727
7,967
48,760
5
5,168
53,805
1,306
1,046
19,994
31,460
60,123
58,071
2,051
-6,318
47,615
2016E
161,807
16.2
56,166
34.7
29,768
18.4
5,101
24,667
1,413
4,266
0
27,519
8,278
30.1
19,241
19,241
48.5
2016E
3,604
17,666
21,269
39,262
4,091
64,622
67,531
13,068
54,463
1,201
5,168
67,032
1,365
1,215
27,897
36,555
63,241
60,092
3,150
3,791
64,622
2017E
205,383
26.9
72,407
35.3
37,730
18.4
5,946
31,784
1,233
4,960
0
35,510
10,653
30.0
24,857
24,857
29.2
2017E
3,604
27,661
31,264
29,262
4,091
64,617
79,292
19,014
60,278
1,440
5,168
78,983
1,718
1,542
29,323
46,400
81,251
73,820
7,431
-2,268
64,617
(INR Million)
2018E
256,219
24.8
89,182
34.8
45,306
17.7
6,907
38,399
1,053
5,174
0
42,520
12,756
30.0
29,764
29,764
19.7
2018E
3,604
39,629
43,232
29,262
4,091
76,585
91,244
25,921
65,323
1,488
5,168
103,498
2,158
1,924
41,531
57,885
98,892
89,994
8,898
4,606
76,585
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
E: MOSL Estimates
(INR Million)
11 April 2016
19

InterGlobe Aviation
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
P/BV
EV/Sales
Adj. EV/EBITDAR
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
2011
16.1
186.9
29.9
142.7
98.4
2012
3.9
5.7
6.8
0.0
0.0
2013
21.7
24.1
10.8
15.2
81.4
2014
13.2
19.4
11.7
10.5
93.1
74.8
50.7
84.2
3.4
22.7
74.5
1.1
117.0
19.7
2.9
5.9
2.2
12.6
5.3
2014
5,066
2,991
11,309
-1,076
-2,341
15,950
-23,237
-7,287
0
-7,952
-31,189
0
13,637
-186
-603
12,848
-2,390
13,406
11,015
2015
36.0
44.3
11.8
30.0
99.7
27.4
22.2
83.3
2.7
13.4
20.0
3.0
305.6
32.1
2.9
6.6
3.4
12.5
4.5
2015
18,697
1,016
7,765
-3,951
312
23,839
-10,170
13,669
8,583
-193
-1,779
0
3,817
-100
-16,798
-13,081
8,979
11,015
19,994
2016E
53.4
67.5
59.0
34.7
77.7
18.4
14.6
16.7
2.3
9.8
12.3
3.5
150.7
36.0
2.5
9.1
3.1
11.2
0.5
2016E
29,768
0
1,789
-8,278
0
23,278
-15,995
7,284
0
4,266
-11,729
12,722
0
-1,413
-14,955
-3,647
7,903
19,994
27,897
2017E
69.0
85.5
86.8
34.5
59.8
14.2
11.5
11.3
1.7
8.3
9.4
3.5
94.6
39.8
3.2
9.0
3.1
11.1
0.0
2017E
37,730
0
6,245
-10,653
0
33,322
-10,760
22,562
0
4,960
-5,801
0
-10,000
-1,233
-14,862
-26,095
1,426
27,897
29,323
2018E
82.6
101.8
120.0
41.3
59.8
11.6
9.5
8.1
1.3
7.2
7.4
4.3
79.9
43.2
3.3
8.7
3.1
11.2
-0.3
2018E
45,306
0
3,832
-12,756
0
36,383
-10,499
25,884
0
5,174
-5,325
0
0
-1,053
-17,796
-18,849
12,208
29,323
41,531
14.5
564.0
119.1
3.7
4.0
4.3
10.2
1.5
2011
7,119
768
2,600
-1,322
-445
8,720
1,657
10,377
-1,448
1,009
1,218
-2,012
-262
-143
-302
-2,721
7,217
540
7,757
0.0
81.3
20.7
4.4
4.9
2.5
10.4
-1.2
2012
489
1,272
8,740
-371
-1,169
8,961
-331
8,630
0
3,078
2,747
0
-219
-144
-6,013
-6,376
5,332
7,757
13,089
1.5
247.7
47.4
4.1
5.8
2.1
10.5
1.2
2013
8,936
2,395
9,819
-1,852
-1,892
17,407
-9,153
8,254
0
-8,298
-17,451
0
7,270
-169
-6,740
361
317
13,089
13,406
Cash Flow Statement
(INR Million)
11 April 2016
20

OIL & GAS / LOGISTICS GALLERY
COMPANIES
SECTOR UPDATES
SECTOR UPDATES

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