9 October 2017
A
nnual
R
eport
T
hreadbare
INDIGO’s FY17 annual report highlights PBT declining 24% to
INR21.4b due to weak operating performance. PBT was, however,
supported by higher other income at INR7.9b, 37%of PBT). Further,
deferred incentive recognized increased to INR5.3b
(FY16:INR3.6b).Operating cash flow improved to INR37.7b (FY16:
INR30.0b) due to rise in supplementary rent payables by INR8.3b
and incentives on aircraft acquisition by INR7.1b. Sale (at INR6.1b)
and lease back of aircraft acquired from IPO proceeds helped FCF
to remain high at INR41.4b (FY16: INR28.5b). Dividend payout ratio
remained high at 89.2% (FY16: 99.7%). In FY18, INDIGO raised
INR25.3b by diluting 6% of the equity to pursue change in its
business strategy to owning more aircraft. This could impact
dividend payouts and return ratios. Net unhedged forex exposure
was high at INR57.0b (1.5x of NW). Non-core assets at INR93.4b
(2.4x of NW) led to RoCE of 21.4% despite high RoIC of 70.0%.
Declining yield, rising fuel costs impact EBITDA:
INDIGO’s yield
declined 10% to INR3.5 leading to fall in revenue per available seat
kilometer (RASK); while, the load factor increased 100bps to 85%.
Rising crude oil prices led to increase in aircraft fuel expenses to
INR63.4b,34% of revenue (FY16:INR47.8b,30% of revenue). EBITDA
declined 31% to INR21.4b. Profitability was, however, supported
by recognition higher other income at INR7.9b (FY16:INR5.2b).
Further, deferred incentives recognized increased to INR5.3b
(FY16:INR3.6b).
Rising supplementary rents and incentives boost cash flows:
Contribution of working capital changes to OCF increased to
INR21.1b (FY16: INR3.1b), boosting OCF to INR37.7b. Increased
deferred incentives, supplementary rent payables and forward
sales added INR18.6b to OCF. In the last five years, incentives and
net supplementary rent payables contributed INR12.7b and
INR29.3b, respectively to operating cash flows.
High dividend payout; equity dilution to acquire aircrafts:
INDIGO
has consistently maintained its dividend payout (at 80-100%). The
company has declared dividend of INR14.8b (FY16:INR19.8b)
including dividend tax. Also, it has raised INR12.1b through an IPO
in FY16 (5% dilution) and INR25.3b through a QIP in FY18 (6%
dilution) for the acquisition of aircrafts.
Low R&M and S&D cost a differentiator; may increase:
Short-term
lease of six years and single kind of aircraft in its fleet helped
INDIGO to gain an edge over peers in terms of repair and
maintenance (R&M) expenses. Though 200bp higher for FY17,
INDIGO’s R&M was INR6.9b – 4% of revenue, still the lowest
among peers. Also, its S&D cost at INR1.2b (1% of revenue) are
lowest amongst peers, due to low cost of global distribution
system. Owning of aircraft, introduction of ATR fleet, and foray
into long-haul international operations could increase these costs.
INTERGLOBE AVIATION FY17
The
ART
of annual report analysis
Other income stood high
at INR7.9b (37% of PBT)
Deferred incentives
recognized increased to
INR5.3b (25% of PBT)
Rising supplementary rents and incentives
boost cash flows by INR15.4b
Aircraft acquired via IPO proceeds, sold and
lease back at INR6.1b
Auditor’s name
B S R & Co LLP
Statutory
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
52-Week Range (INR)
M.Cap. (INR b)/(USD b)
1,6,12 Rel. Perf. (%)
INDIGO IN
1,107
383.9
1346/807
422.3/6.3
-12/0/5
Shareholding pattern (%)
As on
Promoter
DII
FII
Others
Sep-17
85.9
2.8
5.8
5.5
Jun-17
85.9
1.6
6.4
6.1
Sep-16
85.9
1.6
5.9
6.6
Stock Performance (1-year)
Sandeep Ashok Gupta
(S.Gupta@MotilalOswal.com); +91 22 3982 5544
Mohit Baheti
(Mohit.Baheti@MotilalOswal.com); +91 22 3010 2492
Somil Shah
(Somil.Shah@MotilalOswal.com); +91 22 3312 4975
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.

ART
|
IndiGo FY17
ACCOUNTING / AUDITING MATTERS
Rising fuel prices dent EBITDA…
EBITDA declined 31% to
INR21.4b (FY16: INR 31.2b)
Operating performance remained subdued, with EBITDA dipping 31% to
INR21.4b. While revenue increased 15% to INR185.8b in FY17, EBITDA margin
declined 780bp to 11.5% on rising aircraft fuel expenses and higher operating
and administrative expenses.
Aircraft fuel expenses increased 33% to INR63.4b (FY16: INR47.8b), and aircraft
and engine rentals increased 25% to INR31.3b (FY16: INR25.1b).
Aircraft repair and maintenance expenses were INR6.9b (4% of revenue) v/s
INR3.9b (2% of revenue) in FY16. Landing and en-route charges also increased
100bp to 10% of revenue at INR18.7b (FY16: INR14.1b).
Finance cost adjusted for forex capitalized reduced to INR2.9b (11.3% average
borrowing cost) in FY17 from INR5.4b (14.9% average borrowing cost) in FY16
on account of reduction of exchange difference losses.
Exhibit 1:
Operating performance weakens (INR b)
Particulars
Net Revenue (Operations)
Aircraft fuel & lease rentals
Gross Margin
Operating & Administrative Expenses
Personnel Cost
EBITDA
Depreciation
EBIT
Financial Charges
EBT
Other Income
PBT
Tax
PAT
FY13
92.0
57.2
34.8
19.0
6.9
8.9
0.9
8.1
0.6
7.5
2.4
9.9
2.0
7.8
%
100.0
62.2
37.8
20.6
7.5
9.7
0.9
8.8
0.6
8.2
2.6
10.7
2.2
8.5
FY14
111.2
72.4
38.7
24.5
9.2
5.0
2.3
2.8
1.2
1.6
3.2
4.7
(0.0)
4.7
%
100.0
65.2
34.8
22.0
8.3
4.5
2.0
2.5
1.1
1.4
2.8
4.2
(0.0)
4.3
FY15
139.3
77.8
61.5
30.9
11.9
18.7
3.0
15.7
1.2
14.5
3.9
18.5
5.4
13.0
%
100.0
55.9
44.1
22.2
8.5
13.4
2.2
11.3
0.8
10.4
2.8
13.3
3.9
9.4
FY16
161.4
74.0
87.4
38.3
17.9
31.2
5.1
26.1
3.0
23.1
5.2
28.2
8.4
19.9
%
100.0
45.8
54.2
23.8
11.1
19.3
3.1
16.2
1.9
14.3
3.2
17.5
5.2
12.3
FY17
185.8
95.9
89.9
48.0
20.5
21.4
4.6
16.9
3.3
13.6
7.9
21.4
4.9
16.6
%
100.0
51.6
48.4
25.8
11.0
11.5
2.5
9.1
1.8
7.3
4.2
11.5
2.6
8.9
Source: Company Annual Report, MOSL
Exhibit 2:
Aircraft fuel expenses rise…
Aircraft fuel expenses (INR b)
47%
50%
41%
30%
43.1
55.1
57.5
47.8
34%
63.4
% of revenue
Exhibit 3:
…as do aircraft and engine rentals
Aircraft and engine rentals (INR b)
% of revenue
17%
15%
14%
13.6
16.7
19.5
16%
31.3
15%
25.1
FY13
FY14
FY15
FY16
FY17
FY13
FY14
FY15
FY16
FY17
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
9 October 2017
2

ART
|
IndiGo FY17
…high other income supports PBT
Other income grew 53% to
INR7.9b (36.9% of PBT).
Other income grew 53% from INR5.2b in FY16 (18.4% of PBT) to INR7.9b (36.9%
of PBT). Consequently, PAT decline was lower at 16.6% to INR16.6b (FY16:
INR19.9b).
It primarily comprised of increased financial income at INR6.2b due to increased
gain on sale of current investments at INR1.2b (FY16: INR0.3b) and net foreign
exchange gains of INR0.8b (FY16: loss of INR0.9b).
Exhibit 5:
Other income contributes 37% of PBT (INR b)
Financial income
Non Financial income
Total Other Income % of PBT
91.9
54.8
6.7%
37.1
FY17
24%
2.0 0.4
FY13
2.9 0.3
FY14
21%
3.7 0.2
FY15
18%
4.6 0.6
FY16
6.2 1.7
FY17
67%
Exhibit 4:
High proportion of investment in non-core assets
(INR b)
Bank Deposits
Investment in Mutual Funds
Yield %
16.1
12.5%
26.3
10.9%
38.2
9.8%
57.9
7.9%
48.0
9.9
FY16
37%
4.7
11.4
FY13
13.6
12.7
FY14
33.0
5.2
FY15
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Huge deferred incentives to keep operating lease rentals modest
Deferred incentives
amortized increased to
INR5.3b, 25% of PBT (FY16
INR3.6b, 13% of PBT)
INDIGO receives various incentives for the acquisition of aircraft and engines
and for achieving various milestones for taking delivery of the aircraft amongst
others. The accounting treatment for various incentives depends on the method
of acquisition of aircraft (operating lease / financing lease / owned aircraft).
For most of aircraft (since they are on operating lease), the incentives so
recognized are deferred and recognized over the period on an SLM basis.
During FY17, INDIGO received deferred incentives of INR11.3b, increasing the
deferred incentives before amortization to INR27.2b (FY16: INR19.4b).
Aircraft and engine rentals for FY17 stood at INR31.3b (FY16: INR25.1b), which
are net of deferred incentives amortized on SLM basis.
Deferred incentives amortized increased by 49.5% to INR5.3b (25% of PBT) as
compared to INR3.6b (13% of PBT) in FY16. Over the last five years, cumulative
incentives contributed INR19.6b, 24% of cumulative PBT.
Exhibit 7:
…set to provide deduction to operating lease
FY17
15.8
11.3
5.3
21.8
Gross Aircraft and engine rentals
Less: Deferred Incentive
FY13 FY14 FY15 FY16 FY17
17.1 20.3 23.1 28.6 36.6
3.6
3.6
3.6
3.6
5.3
Exhibit 6:
Deferred incentives rise (INR b)…
Deferred Incentive
Opening Balance
Additional received during the year
Less: Utilized during the year
Closing Balance
FY16
17.5
1.8
3.6
15.8
Net Aircraft and engine rentals
13.6 16.7 19.5 25.1 31.3
Deferred Incentive % of gross rentals 21% 18% 15% 12% 15%
Deferred Incentive % of PBT
36% 76% 19% 13% 25%
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
9 October 2017
3

ART
|
IndiGo FY17
Exhibit 8:
Deferred incentives increased in FY17
PBT
76.4%
21.4
24.9%
5.3
FY17
Deferred Incentive
Deferred Incentive % of PBT
36.3%
9.9
FY13
18.5
19.2%
28.2
12.6%
3.6
FY16
3.6
3.6
4.7
FY14
3.6
FY15
Source: Company Annual Report, MOSL
Exhibit 9:
Snapshot of different types of incentives and accounting treatment
Type of Incentive
Cash Incentive (Received in
connection with acquisition
of aircraft and engine)
Milestone incentive
(Received on achievement of
certain milestone relating to
delivery of aircraft
Non cash incentive as and
when due
Operating Lease
Incentive are deferred and
reduced from lease rentals on
SLM basis.
Incentive are deferred and
reduced from lease rentals on
SLM basis.
Incentive are deferred and
reduced from lease rentals on
SLM basis.
Finance Lease
Owned Aircraft
Reduction from cost of related
Reduction from cost of related
aircraft and engine
Incentive are deferred and
recognized under 'Other
operating revenue' on SLM
basis.
Reduction from cost of related
Reduction from cost of related
aircraft and engine
aircraft and engine.
Source: Company Annual Report, MOSL
Reduction from carrying value
of related aircraft and engine.
aircraft and engine.
Capacity and utilization continue to grow…
ASK and RPK grew at a
CAGR of 16.9% and 17.9%,
respectively over the last
five years
INDIGO has continuously increased capacity over the past five years. ASK
(available seat kilometers) grew at a CAGR of 16.9% from 25.0b in FY13 to 54.6b
in FY17; RPK (revenue passenger kilometers) increased from 20.3b in FY13 to
46.3b in FY17 – a CAGR of 17.9%.
Load factor, which represents utilization, increased by 100bp to 85% (FY16:
84%).
Fleet size has increased from 66 aircraft in FY13 to 131 aircraft in FY17. Of these,
114 are on operating lease (including sale and lease back), 14 aircraft are on
finance lease, and three are owned aircraft.
Exhibit 11:
…due to increase in fleet size
Fleet Size
Available seat kilometer (ASK) growth
Revenue passenger kilometer (RPK) growth
85%
66
39%
42.8
54.6
36.0
46.3
37%
20%
14%
FY16
FY17
FY13
FY14
22%
18%
FY15
28%
21%
FY16
77
94
107
131
29%
27%
FY17
Exhibit 10:
Increased ASK and RPK…
Available seat kilometer (ASK) b
Revenue passenger kilometer (RPK) b
Passenger Load Factor (%)
84%
81%
77%
25.0 20.3
FY13
30.0
23.1
35.3
28.2
80%
FY14
FY15
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
9 October 2017
4

ART
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IndiGo FY17
Exhibit 12:
Increase in aircraft utilization
ASK per aircraft (m)
7.8%
419
1.5%
-1.4%
FY13
FY14
FY15
FY16
FY17
413
Growth %
466
7.4%
ASK per aircraft increased
7.4% to 466m (FY16: 434m)
434
5.0%
413
Source: Company Annual Report, MOSL
…but weak prices minimize ticket revenue growth
Ticketing revenue growth subdued to 7.2% despite increased RPK of 27%,
primarily due to drop in average passenger fare. This has led to decline in RASK
for the second consecutive year by 9.0% to INR3.44 (FY16: INR3.78). Average
passenger fare declined to INR3,721 from INR4,248 in FY16.
The management has highlighted that the addition of new flights at such high
growth rate tends to depress RASK of steady-state maturity flights that were
added during last year.
Exhibit 13:
Declining passenger fare hits RASK
Average passenger fare (INR)
4,895
% movement
4,248
Declining average
passenger fare (down 12%
in FY17) led to subdued
ticket revenue growth at
7.2%
5,071
4,882
25%
3,721
4%
-4%
FY13
FY14
FY15
-13%
-12%
FY16
FY17
Source: Company Annual Report, MOSL
Exhibit 14:
De-growth in RASK leads to…
RASK (Rs.)
22.0%
3.68
3.71
3.94
3.78
RASK (%) movement
Exhibit 15:
…subdued revenue growth
Ticket Revenue
66.0%
130.5
3.44
151.1
162.0
Ticket Revenue growth (%)
6.3%
0.7%
-4.1%
FY15
FY16
-9.0%
FY17
82.7
99.2
31.5%
15.7%
7.2%
FY17
20.0%
FY13
FY14
FY15
FY16
FY13
FY14
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
9 October 2017
5

ART
|
IndiGo FY17
Intensifying competition impacting yield
Yields continue to decline
by 10.5% in FY17 to INR3.5 ;
lowest among peers
INDIGO’s yield declined by 10.5% in each of the last two years to a 5-year low of
INR3.5, impacting profitability. The trend of declining yield is observed across
the industry, however; INDIGO’s yield was the lowest among peers. Yield has
declined primarily due to:
Intensifying competition and aggressive pricing by peers in the last few
years in light of declining fuel prices. Also, there has been a time lag
between international jet fuel prices and Indian prices set by oil companies.
The yields for November and December were down 20% and 17%,
respectively, following demonetization. There has been a short-term impact
on consumer spending and behavior post demonetization.
Exhibit 17:
Yields lowest among peers
Yield (Rs.)
91%
3.5
84%
3.91
85%
3.50
FY17
4.35
FY16
SJET
4.11
FY17
92%
83%
6.41
FY16
JETIN
Load Factor
Exhibit 16:
Continuing fall in yields
Yield (Rs.)
21.3%
4.1
5.1%
4.3
4.4
Yield (%) movement
3.9
81%
6.25
FY17
1.7%
-10.4%
FY16
-10.5%
FY16
FY17
INDIGO
FY13
FY14
FY15
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Operating cash flow robust, despite declining profitability
Operating cash flow (OCF) post interest increased to INR37.6b (FY16: INR31.0b)
despite decline in PBT from INR28.2b in FY16 to INR21.4b in FY17. This is
primarily on account of negative cash conversion cycle of the company.
Changes in working capital led to a release of INR21.1b (56% of OCF), primarily
supported by increased supplementary rent payables (INR8.3b), receipt of
deferred incentives (INR7.1b), and forward sales (INR3.2b).
Capex remained low for the second consecutive year at INR2.4b (FY16: INR2.5b).
Disposal of owned aircraft pursuant to arrangement of sale and leaseback
contributed INR6.1b, driving a 45% increase in FCF post interest to INR41.4b.
Exhibit 18:
Earnings to cash flow remains robust
Negative cash conversion
cycle helps to maintain
healthy earnings to cash
conversion
337%
216%
149%
118%
196%
FY13
FY14
FY15
FY16
FY17
Source: Annual Company Report, MOSL
9 October 2017
6

ART
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IndiGo FY17
Exhibit 19:
Cash conversion cycle remains negative (days)
Particulars
Inventory
Trade Receivables
Trade Payables
Other Financial liabilities & other liabilities
excluding supplementary rent
Supplementary rent
Deferred Incentive
Cash conversion cycle
FY13
3
2
13
44
45
86
-183
FY14
3
3
16
44
FY15
5
2
20
44
FY16
5
3
30
39
FY17
5
3
29
37
51
71
101
106
83
82
82
72
-188
-210
-244
-236
Source: Company Annual Report, MOSL
FY13
9.9
1.0
(1.3)
(1.9)
7.7
(0.3)
(0.2)
(1.3)
3.9
4.3
3.4
17.4
(0.2)
17.2
(9.2)
-
8.1
FY14
4.7
2.4
(1.3)
(1.1)
4.7
(0.2)
(0.2)
0.4
2.9
6.1
2.2
16.0
(0.2)
15.8
(23.2)
-
(7.5)
FY15
18.5
3.1
(1.5)
(4.0)
16.1
(0.2)
(0.7)
0.0
4.5
4.1
0.0
23.8
(0.1)
23.7
(10.2)
-
13.6
FY16
28.2
5.8
(0.2)
(5.8)
28.1
(0.5)
0.2
(3.9)
2.7
6.5
(1.8)
31.2
(0.1)
31.0
(2.5)
-
28.5
FY17
21.4
2.8
(3.4)
(4.2)
16.7
(0.0)
(0.9)
(2.4)
9.0
8.3
7.1
37.8
(0.2)
37.6
(2.4)
6.1
41.3
Exhibit 20:
Incentives, supplementary rent aid OCF(INRb)
Particulars
PBT
Add/Less: Non-cash
Non-Operating adjustments
Less: Direct Taxes Paid
Operating Profit Before Working Capital Changes
Trade & Other Receivable
Inventories
Loans Advances and Other current assets
Trade Payable, Other liabilities and Provisions
Supplementary rent
Deferred incentives
Cash Generated from Operations after Tax
Less: Financial Cost paid
Cash Flow from Operations post Interest
Less: Capital Expenditure
Add: Disposal of owned aircraft under sale and leaseback
Free Cash flow post interest
Source: Company Annual Report, MOSL
CFO remains primary source of funds
Operating activity continued to be a major source of cash generation at 80%,
supported by deferred incentives and supplementary rentals.
45% of the cash generated has been utilized in investments in mutual funds and
bank deposits. Dividend payout remained high, utilizing 27% of the cash flow.
Exhibit 22:
Non-core assets eat most of the pie
Dividend,
27%
Other
income, 7%
ESOPs and
IPO, 8%
Capex, 26%
Exhibit 21:
CFO contributes majority of the funds
Operating
Cash Flow,
80%
Finance
Lease &
Interest, 2%
Borrowings,
5%
Source: Annual Company Report, MOSL
Investments,
45%
Source: Annual Company Report, MOSL
Investment in non-core assets at 2.5x networth
In FY17, INDIGO’s cash, cash equivalent and investments increased 41.7% to
INR93.4b, 2.5x net worth (FY16: INR65.9b, 2.4x net worth). The increase was
primarily driven by increased investment in mutual funds.
7
9 October 2017

ART
|
IndiGo FY17
Yield on investments has decreased to 6.7% (FY16: 7.9%). The management has
highlighted that this is primarily due to softening of interest rates.
INDIGO has been consistently paying high dividend to shareholders. During
FY17, the company declared a dividend of INR34/share, amounting to INR14.8b
(89.2% of earnings) including corporate dividend tax.
For FY16, INDIGO paid dividend amounting to INR19.8b (interim dividend:
INR13.3b; final dividend: INR6.6b), 99.7% of earnings.
In FY16, INDIGO raised INR12.1b through IPO, diluting 5% of the equity. The IPO
was raised to retire certain outstanding finance lease liabilities (8 aircraft) and
consequently own the aircraft.
Also, pursuant to change in strategy of owning aircraft, INDIGO raised INR37.9b
through a QIP in FY17. Of this, INR25.3b was raised by fresh issue of shares,
diluting 6% of the equity.
Dividend payout remains healthy
Frequent dilution for acquiring aircrafts
Change in strategy in FY18
to own the aircrafts…
Exhibit 23:
High dividend payout together with fund infusion
Earnings
Dividend Payout
93.3%
99.0%
Equity fund raised
99.7%
19.9 19.8
13.0 12.9
7.8 6.4
4.7 4.4
Dividend Payout %
89.2%
16.6 14.8
25.3
….QIP of INR25.3b raised in
FY18 diluting 6% of the
equity
81.4%
12.1
FY13
FY14
FY15
FY16
FY17
FY18
Source: Company Annual Report, MOSL
Aircraft acquired via IPO funds, sold and leased back
In FY17, INDIGO sold five aircraft that it had acquired by retirement of finance
lease under a sale-and-lease-back transaction. It has disposed gross block of
INR7.7b (net block: INR6.1b) and leased back on operating lease. Profit on the
transaction was INR26m.
FY16
Owned
aircraft and
spare
engines
-
8.7
-
(1.2)
-
-
Leased
aircraft
46.5
-
(8.7)
(4.0)
1.1
-
FY17
Owned
aircraft and
spare
engines
6.9
5.7
-
(1.5)
1.6
(7.7)
Leased
aircraft
37.2
-
(5.7)
(2.5)
0.5
-
Exhibit 24:
Sale and lease-back of own aircraft
Cash inflow of INR6.1b
realized from sale and
lease-back of aircraft
acquired via IPO proceeds
Particulars
Balance at the beginning of the year
Acquisition of aircraft
Retirement of finance lease
Depreciation
Reversal of Accumulated
depreciation of aircraft
Disposal of aircraft
Exchange difference on long term
foreign currency monetary item -
(Gain)/Loss
Other Adjustment
Balance at the end of the year
-
(0.5)
6.9
2.3
-
(0.4)
(0.1)
0.6
(0.7)
37.2
5.6
28.5
Source: Company Annual Report, MOSL
9 October 2017
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IndiGo FY17
Exhibit 25:
Utilization of IPO proceeds (INR b)
Retirement of certain outstanding finance lease liabilities and consequent acquisition of
aircraft
11.7
Purchase of ground support equipment for airline operations
0.3
General corporate purposes
0.1
Total
12.1
Source: Company Annual Report, MOSL
Lower R&M and S&D costs differentiator…
Lower selling and distribution (S&D), and aircraft repair and maintenance (R&M)
costs are the some of the differentiating factor for IndiGo v/s its peers. Single type
of aircraft together with young fleet of aircrafts helps to keep R&M costs low.
Repair and maintenance (R&M) costs
In FY17, INDIGO’s R&M cost was INR6.9b (4% of revenue) as compared to
Spice Jet’s at INR8.6b (14% of revenue) and Jet Airways’ at INR20b (9% of
revenue). This is despite its R&M costs growing 73% YoY to INR6.9b (FY16:
INR3.9b).
INDIGO’s lower R&M costs is facilitated by (a) single type of aircraft fleet,
and (b) lower average aircraft age as it has been using short six-year leases
for leasing aircraft.
Selling and distribution (S&D) costs
Cost of GDS (Global distribution systems), which enables booking of tickets
by travel agents across the globe (especially for international operations),
constitutes a major part of S&D costs for the aviation industry.
INDIGO’s reservation cost (including cost of GDS) is INR1.2b as compared to
Jet Airways’ INR11.4b. Jet Airways’ higher reservation cost could be because
it flies to 20 foreign destinations while INDIGO flies to 6 foreign destinations.
Lower average age and
single type of aircraft in its
fleet lead to lower R&M
costs
Limited international
operations facilitate lower
S&D costs than peers
Exhibit 26:
Lower S&D and R&M costs a differentiator…
Particulars
Revenue from Operations
Aircraft fuel expenses
Employee Benefits Expense
Selling & Distribution
Aircraft Maintenance
Other Expenses
EBITDAR
Aircraft and engine rentals (net)
EBITDA
Less: Depreciation
Less: Finance cost
Add: Other income
PBT
Particulars (INR)
Yield
RASK
CASK
CASK ex-fuel
RASK-CASK
Fuel cost per ASK
INDIGO
INR b
%
185.8
63.4
34%
20.5
11%
9.1
5%
6.9
4%
33.3
18%
52.7
28%
31.3
17%
21.4
12%
4.6
2%
3.3
2%
7.9
4%
21.4
12%
FY16
3.9
3.8
3.2
2.1
0.6
1.1
FY17
3.5
3.4
3.0
1.9
0.4
1.1
SPICE JET
INR b
%
61.9
18.6
30%
6.7
11%
1.9
3%
8.6
14%
11.1
18%
15.0
24%
9.6
16%
5.4
9%
2.0
3%
0.7
1%
1.1
2%
3.9
6%
FY16
4.3
4.2
3.9
3.0
0.3
0.9
FY17
4.1
3.8
3.7
2.4
0.1
1.2
JET AIRWAYS
INR b
%
226.9
59.4
26%
31.4
14%
25.3
11%
20.0
9%
45.2
20%
45.6
20%
34.1
15%
11.5
5%
8.9
4%
8.5
4%
9.8
4%
3.9
2%
FY16
6.4
4.5
4.3
3.3
0.2
1.0
RYAN AIR
EUR m
%
6,648
1,913
29%
633
10%
322
5%
141
2%
1,521
23%
2,118
32%
86.1
1%
2,032
31%
498
7%
68
1%
4
0%
1,470
22%
FY17
FY16
FY17
6.3
4.3
4.3
Data not available
3.2
0.0
1.1
Source: Company Annual Report, MOSL
9 October 2017
9

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IndiGo FY17
Exhibit 27:
Low average age of aircraft fleet leads to…
Go Air
Indigo
Spicejet
7.4
5.2
5.8
8%
3%
Go Air
Indigo
Spicejet
Jet Airways
Air India
FY13
FY14
FY15
FY16
FY17
Jet Airways
8.1
Air India
8.3
12%
13%
3%
Exhibit 28:
…lower aircraft maintenance cost
Spicejet
16%
13%
11%
3%
3%
Jet airways
15%
10%
14%
9%
4%
Indigo
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
…but these costs could rise with the new business model
INDIGO now intends to (a) slowly move towards owning aircraft via internal
accruals or debt, (b) add ATRs to its existing fleet of A320s, and (c) operate long-
haul international flights. The change in business model could mean:
Lower lease rentals:
Owning aircraft will lead to saving in lease rentals;
However, it would lead to higher depreciation costs and interest expenses
(if acquired through debt)
Higher repair and maintenance costs:
Owning aircraft for more than six
years and introducing a second category of aircraft to the fleet may lead to
higher R&M costs. If it is successful in its bid to acquire Air India’s airlines
business, the headwinds of R&M costs might impact profitability.
Increase in selling and distribution costs:
Foraying into international long-
haul flights would entail additional costs, including cost of displaying
inventory across global agents (GDS).
Asset-heavy balance sheet:
Owning aircraft and higher borrowings could
lead to a negative impact on INDIGO’s return ratios.
Cash outflow:
As INDIGO turns to owning aircraft; its free cash flow could
turn negative over the interim period with rising capital intensity.
Lower dividend payout:
With internal accruals being deployed for owning
aircraft, there might only be minimal cash available for dividend payouts.
Ownership
of Aircraft
Reduced from cost of related aircraft
and engine. Depreciation lowered by
amount of incentive
NA
Sale and leaseback on operating
lease
Deferred and reduced from lease
rentals on SLM basis
High Rent expenses.
Cash Outflow immediate
High Rent.
Cash outflow deferred till end of lease
term. Thus, contributing to CFO by
deferment of payments.
Minimal
Minimal
Minimal
High
Minimal
Minimal
Minimal
High
High
Source: Company Annual Report, MOSL
Exhibit 29:
Change in fleet financing strategy – impact over the medium term
Particulars
Incentives
Base Rent
Supplementary Rent
NA
High
High
High
Minimal
High
High
High
Minimal
Minimal
Capex
Debt
Finance Cost
Dividend payout
Depreciation
Maintenance cost
Tangible Assets
Current Investments
Cash and Cash Equivalent
9 October 2017
10

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IndiGo FY17
Unhedged forex exposure stands at 1.5x net worth
INDIGO does not hedge its outstanding position for foreign currency payables
and receivables. It has net financial liabilities of INR57b (1.5x net worth), up
from INR52.9b (1.9x net worth) in FY16.
FY16
0.3
0.2
3.9
0.9
5.3
32.4
23.8
1.9
58.1
52.9
194.1%
FY17
0.2
0.1
5.0
1.2
6.6
26.0
35.0
2.6
63.6
57.0
150.9%
Exhibit 30:
High unhedged forex exposure at 1.5x net worth (INR b)
Particulars
Financial assets
Trade receivables
Cash and cash equivalents
Loans
Other financial assets
Total financial assets
Financial liabilities
Borrowings
Other financial liabilities
Trade payables
Total financial liabilities
Net Financial Liabilities
% of Net worth
Net worth
27.2
37.8
Source: Company Annual Report, MOSL
Contingent liabilities rise on treatment of incentives
Contingent liabilities increased steeply from INR1.0b (4% of net worth) in FY16
to INR4.2b (11% of net worth) in FY17 on account of income tax disputes (tax
treatment of incentives received).
FY16
1.0
0.0
1.0
4%
27.2
FY17
4.2
0.0
4.2
11%
37.8
Tax treatment of deferred
incentives led to increased
contingent liabilities to
INR4.2b (FY16: INR1.0b)
Exhibit 31:
Income tax demand significantly increases contingent liabilities (INR b)
Particulars
Income tax disputed liabilities
Other matters
% of net worth
Net worth
Source: Company Annual Report, MOSL
Adjusted debt stands high
Debt adjusted for capitalized cost of operating lease stands at INR126.4b (FY16:
INR121.5b). Adjusted D/E stood at 3.3x in FY17 as against 4.5x in FY16.
Particulars
FY16
4.0
17.9
5.8
26.0
3.7
64.1
121.5
4.5
FY17
4.6
22.7
9.2
19.4
3.0
67.5
126.4
3.3
Exhibit 32:
Capitalized operating lease stood at INR67.5b (INRb)
Term Loan
Supplementary Rent - Non Current
Supplementary Rent - Current
Finance lease - Long term – PV
Finance lease - Short term – PV
Operating lease – PV
Adjusted Debt (x)
Adjusted D/E (x)
#
Source: Company Annual Report, MOSL
#For capitalization of operating lease, we have considered PVAF of finance lease owed. (PVAF@0.80). Also, we have
considered lease term structure to be same for finance and operating lease.
9 October 2017
11

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IndiGo FY17
Declining RoE and RoCE
Return ratios has declined over the period. RoE declined to 52.1% (FY16:
127.0%) primarily owing to declining debt/equity (4.7 in FY17 v/s 8.0 in FY16)
and net profit margin (8.9% in FY17 v/s 12.3% in FY16). RoCE declined to 21%
(FY16: 30%).
Also, with 13% (FY16: 43%) of capital employed invested in non-core assets,
RoCE remained muted at 21.4% (FY16: 30.0%), despite high RoIC of 70.0% (FY16:
70.0%).
Exhibit 34:
Non-core assets drag RoCE
RoIC
76%
21%
28%
ROCE
30%
70%
70%
21%
Exhibit 33:
RoE declines on reduced financial leverage and
net margin
Particulars
(A) Net profit margin
(B) Assets turnover
(C) Equity multiplier
RoE (A)*(B)*(C)
FY13
8.5%
1.6
FY14
4.3%
1.4
FY15
9.4%
1.3
FY16
12.3%
1.3
FY17
8.9%
1.2
18.5
22.5
25.6
8.0
4.7
244.9% 130.1% 302.1% 127.0% 52.1%
Source: Company Annual Report, MOSL
63%
FY14
FY15
FY16
FY17
Source: Company Annual Report, MOSL
Exhibit 35:
Key terms used throughout report
Terms
ASK
Explanation
Available Seat Kilometer(/s) – 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
RPK
Revenue Passenger Kilometer – the basic measure of production
A paying passenger flying one kilometer creates an RPK
150 passengers flying 100 kilometers generate 15,000 RPKs
Load Factor
Load Factor – production compared to capacity
To calculate the load factor, divide RPKs by ASKs
For an individual flight, 15,000 RPKs divided by 18,000 ASKs, or 83%
Higher load factors are desirable, but how much each passenger pays is also important
RASK
Revenue per
Available
Seat Kilometer
Source: Company Annual Report, MOSL
9 October 2017
12

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IndiGo FY17
NOTES
9 October 2017
13

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Disclosure of Interest Statement
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No
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