IndiGo promoters justify pre-IPO dividend payout

For the past few weeks, there has been a lot of noise around "dividend stripping" by IndiGo, the country's largest airline. But promoters Rakesh Gangwal and Rahul Bhatia feel they have not done anything that is not in line with past payouts.

The promoters of InterGlobe Aviation, owner of India's most profitable airline IndiGo, will sell 22.82 million equity shares via the initial public offer (IPO) to raise around Rs3,000 crore.

Of this, the airline firm plans to raise around Rs1,000 crore via the anchor investor allocation, also known as the anchor book.

The bidding process by anchor investors for buying equity shares in InterGlobe Aviation Ltd will begin today on Monday. Bidding by global financial institutions and international private investors will close by the end of the day.

IndiGo now claims that the company has been paying dividend even during when most airlines have been running on a loss. The only exception was in 2012, when Kingfisher was going out of business and there was a general lack of direction.

IndiGo claims to have generated $1.5 billion in cash since 2011 and has paid a total dividend of $603 million. The airline says it believed that dividend is the rightful claim of investors and that companies belong to them.

IndiGo had a total debt of Rs3,912 crore as of 31 August, all of it aircraft-related. A portion of the IPO proceeds will be used to reduce this debt.

InterGlobe Aviation posted a record Rs640.43 crore in quarterly profit for the three months ended 30 June. The airline notched up the profit on revenue of Rs4,317.19 crore for the quarter, according to the company's share sale prospectus, which didn't disclose profit and revenue for the year-ago period.

The airline has reported earnings before interest, tax, depreciation, amortisation and rentals (EBIDTAR) of Rs1,577 crore, with an EBIDTAR margin of 37 per cent.

In September, IndiGo reported a record net profit of Rs1,304 crore for the year ended 31 March - a fourfold jump over the previous year - as it benefited from higher passenger traffic and lower jet fuel costs ahead of the initial share sale. The company saw a 25 per cent rise in revenue to Rs14,320 crore in 2014-15 from Rs11,447 crore in the previous year.

The latest dividend payout is only part of a long five-year process and there is no surprise element in it, say promoters, who, however, declined to commit to an annual minimum dividend payout.

Gangwal and Bhatia, who own close to 94 per cent of the airline, will see a marginal reduction in stake after the Rs3,000-crore issue, with shares priced in the Rs700-765 band.

The IPO is expected to result in the airline's market cap going up to around $4.2 billion.