FINANCIAL ANALYSIS

OF INDIGO AIRLINES
FROM LENDERS
PERSPECTIVE



COMMERCIAL
BANK
MANAGEMENT

END TERM PROJECT REPORT

Submitted to:
Prof DN Panigrahi



Submitted by,
Group 3, Sec ABC1,

Abhinav Kohale 2013004
Abirbira Samal 2013007
Anil Kumar Reddy 2013031
Anshul Rajora 2013046
BNV Karthik 2013072
Ganesh Kamath - 2013100

INSTITUTE OF MANAGEMENT TECHNOLOGY, NAGPUR PGDM 2013 - 2015
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Indigo Airlines
Company Profile:
IndiGo Air or IndiGo Airlines sports the deep colour of IndiGo as its signature colour. It is a
privately owned low-cost domestic airline based in Gurgaon with Indira Gandhi International
Airport as its main base. IndiGo Airlines started operations on 4th August 2006 and is owned
by InterGlobe Enterprises and Mr. Rakesh Gangwal. This airline is amongst the best, offering
professional services, economical prices with great deals and discounted airfares. It operates
to all the major cities of India. IndiGo air tickets can be booked online and the services
provided are user friendly while at the same time, extremely comprehensive. IndiGo Airline
provides what no other airline can. It is a low cost carrier and the largest airline in India with
a market share of 31.7% as of May 2014. IndiGo is one of the fastest growing low cost carriers
in the world. With its fleet of 79 new Airbus A320 aircraft, the airline offers 504 daily flights
connecting to 36 destinations (31 Indian and 5 International).
Market Scenario Analysis of Indigo:
Market share of the Airline industry in 2011:








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Market share of the Airline industry in 2012:

Market Share of the Airline Industry in 2013:

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Market Share of the Airline Industry in 2014:

Indigo Market share Trend line and projected trend line for the next two periods:
Actual (%) Projected (%)
Year 2011 2012 2013 2014 2015 2016
Market Share of
Indigo 19.2 24.7 27.4 31.7 35.8 39.82





Air India
18%
Jet Airways
17%
Jet Lite
4%
Spice Jet
18%
Go Air
10%
Indigo
32%
Air Costa
1%
Market Share by Carrier (May 2014)
Air India
Jet Airways
Jet Lite
Spice Jet
Go Air
Indigo
Air Costa
19.2
24.7
27.4
31.7
35.8
39.82
0
5
10
15
20
25
30
35
40
45
2011 2012 2013 2014 2015 2016
Market Share of Indigo in % Terms
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Financials of the Company:
(Rs. Million)
11-Mar 12-Mar 13-Mar
12 mths 12 mths 12 mths
Total income
39,765.50 58,173.80 95,825.40
Sales
38,254.10 55,744.70 92,030.80
Income from non-fin. services
38,254.10 55,646.70 92,030.80
Income from fin. services
1,098.10 2,204.70 3,249.00
Other income
159 129.7 210.8
Prior period income
254.3 94.7 334.8
Change in stock

Total expenses
33,657.00 56,895.00 87,951.90
Operating expenses
31,229.20 55,558.30 83,250.40
Raw material cons.
196.8 262.6 423.8
Financial charges
1,207.80 1,307.20 1,782.40
Total provisions
1.2 0.3
Non-cash charges
628.7 666.7 858.8
Provision for direct tax
591.3 -639.7 2,058.80
Prior period expenses
1.3 1.2
PBDITA
8,536.30 2,614.20 12,573.80
PBT
6,699.80 639.1 9,932.30
PAT
6,108.50 1,278.80 7,873.50
PBDITA (PE&OI&FI)
7,024.90 186.4 8,780.40
PAT (PE)
5,854.20 1,185.40 7,539.90


Networth
2,511.30 3,790.10 5,287.20
Borrowings
9,383.50 10,205.10 18,018.90
Current liabilities & prov.
20,990.10 26,384.90 40,323.90
Net fixed assets
8,311.60 8,860.10 17,644.70
Current assets
9,101.90 15,685.80 20,602.20


Growth (%)

Total income
48.83 46.29 64.72
Net sales
47.04 45.69 65.13
Total expenses
58.52 69.04 54.59
PBDITA(PE&OI&FI)
66.41
PBT
37.6 -90.46 1,454.11
PAT
11.35 -79.07 515.69
PAT (PE)
11.83 -79.75 536.06



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0.00
20,000.00
40,000.00
60,000.00
80,000.00
1,00,000.00
1,20,000.00
1,40,000.00
1,60,000.00
2011 2012 2013 2014 2015
Sales ( in Million)
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
2010 2011 2012 2013
PBDITA ( in Million)
0.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
8,000.00
9,000.00
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Profit after tax ( in Million)
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Ratio Analysis:


11-Mar 12-Mar 13-Mar
Profitability (%)

PBDIT(PE&OI&FI)/sales
19.91 -0.81 11.78
PBDIT/total income
21.47 4.49 13.12
PBT/total income
16.85 1.1 10.36
PAT/total income
15.36 2.2 8.22
PAT(PE)/total income(PE)
14.82 2.04 7.9


Returns (%)

RONW
253.75 37.62 166.13
ROCE
37.67 9.13 40.35
ROA
20.17 3.23 14.41
Liquidity (times)

Debt equity ratio
3.75 2.7 3.41
Current ratio
0.21 0.27 0.24
Interest cover
8.69 4.79 54.62

For checking the company analysis the following ratios are to be analysed:
Profitability Ratios
Long term and Short term Liquidity
Solvency Ratios
Debt Coverage Ratios

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Profitability Ratios
Profit Margin
Profit margin measures the relationship between profit and sales. As the profit may be gross
or net, there are types of profit margin-
Net Profit Margin= (Net Profit /Sales)*100


NPM (in % terms) for 2011 is 15.36 and 2012 is 2.2 and 2013 is 8.22. In 2012, Tax savings on
interest paid and depreciation claims helped company have a profit margin of 2.2% at least.
The performance is very poor in 2012. But again in 2013 it reclaimed its aura by increasing
net profit margin to 8.22%. This is a positive sign for the company to claim good profits in
future, unless political and economic factors like- fuel rates will be decided market forces-
will make the company to incur huge expenses leading to less profit margin.
Operating Margin= EBIT/Net Sales

0
2
4
6
8
10
12
14
16
18
Mar-11 Mar-12 Mar-13
Net Profit Margin ( in percentage)
0
5
10
15
20
25
Mar-11 Mar-12 Mar-13
Operating Margin (in percentage)
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Here the Operating Margin (in % terms) is 21.47 in 2011 and 4.49 in 2012 and 13.12 in 2013.
We see a drastic change in the ratios year on year. This is mainly accounted to the expenses.
Airlines have fuel and employee salaries as the major expenses. In operating Margin only fuel
is to be considered as it is the only COGS for service industry like airlines, fuel expenses in
2012 almost doubled but the sales has not doubled. This lead to a big cut in the gross margin.
But in 2013, though the fuel price and consumption almost doubled compared to 2012, sales
has increased more than the increase in expenses. This is the reason for the company to have
a positive operating margin in 2013. Also Indigo came up with the strategy of on time airlines
which lead to the great revenue for the airlines in 2013. Increase in competition made to have
less margin compared to 2011. This ratio is a very positive symbol for the banker to lend to
the airlines.
Return on Capital Employed
ROCE is the type of Return on Investment (ROI) and measures the overall effectiveness of the
management in generating profit with its available Resources.
ROCE = (EBIT/Average Capital Employed)*100

ROCE in 2011 is 37.67, 2012 it is 9.13 and in 2013 it is 40.35. This is mainly accounted to less
profit that Indigo got in 2012. This accounted to low ROCE to the company. Yet it has boosted
in 2013 and got a ROCE of 40.35%.
Liquidity Ratios
Current Ratio= Current Assets/ Current Liabilities
Current Ratio of the company is very low. Generally banks accept the current ratio above 1.33.
But in this scenario the company is an airline company, which is more of a service oriented
company rather than production oriented.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
Mar-11 Mar-12 Mar-13
ROCE
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It will have more of fixed assets and less of current assets. And to run the company, they
definitely need money and that is being borrowed from banks and they have leased the
airplanes which they have to pay every year and that accounts to a lot of current liabilities.
That is why the current ratio is very low.
Debt-Equity Ratio = Debt/Equity
Debt-Equity ratio of Indigo is 3.75 in 2011, 2.7 in 2012 and 3.41 in 2013. This is a bit high value
in banks lending perspective. Because a debt equity ratio of nearly 1 is an ideal one that
bankers are looking for.

As for as industry is considered, there is a huge competition that is increasing every year. So
with a simple policy change by government or because of some hazard happened and
perception of customers change, the companys market share will tumble down. Then the
only source to pay debt is through the equity of the company. So this debt equity ratio is not
justifiable. But there is another angle to this one. Because of high debt-equity, the investors
will get more returns and so they will invest more in near future.
0
0.05
0.1
0.15
0.2
0.25
0.3
Mar-11 Mar-12 Mar-13
Current ratio
0
0.5
1
1.5
2
2.5
3
3.5
4
Mar-11 Mar-12 Mar-13
Debt Equity Ratio
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Debt Coverage Ratios:
Interest cover = EBIT/Interest
Interest coverage has increased drastically from 4.79 to 54.6 from 2012 to 2013. This is
because of Gross profit increasing compared to previous year. As the company is doing good
and expected and project financials are very good, there is a good sign of this ratio going to
increase yet more. So in a lending bankers perspective, we are good to lend seeing this ratio.
Credit Rating:
We have to give an Internal rating based on questionnaires asked on the parameters
like business risk, industry risk, financial risk, and management risk and if the rating is
matching their minimum rating required then the probability of the company repaying
loan is good and we can lend them loan.
The four risk parameters are as follows:
o Business risk is analyzed in four categories: country risk, industry risk, competitive
position, and profitability. Analysis of business risk factors is supported by factual
data, including statistics, but ultimately involves a fair amount of subjective
judgment. Understanding business risk provides a context in which to judge
financial risk, which covers analysis of cash flow generation, capitalization, and
liquidity. The business risk includes geographically availability of customers and
availability of resources and manpower are very essential for the smooth
conduction of airline services. Also environmental risks pertain to the effect of
government policies and other country risk factors on the obligor's business and
financial environments, and an entity's ability to insulate itself from these risks.
The factor such as customer count (spread of customers), bargaining power of
suppliers, price of raw material, position of entity in target market, marketing and
selling arrangement, market position and capacity utilization also belongs to
business risk as it can increase the overall costs and can contribute to lower
bottom-line. Finally but more importantly, factors such as flexibility in
manufacturing, factory inspection, contract with buyers, frequent change in
norms, audits and banks credit policy are also important to be counted in business
risks as they are important to be managed properly in order to maintain good
working relationship with people and organizations working for the betterment
of service and also to maintain a good reputation of the airline in the market.
o Financial risk is based on the ability to raise debt and equity in the capital structure
in order to perform smooth working of the business. Financial risks also covers
future financing options, accounting, financial governance and policies/ risk
tolerance, cash flow adequacy, capital structure/ asset structuring and also
managing liquidity/ short-term factors.
o Industry risk is automatically taken from the system rating which is calculated and
provided by CRISIL (Credit Rating Information Services of India).
o Management risks includes the risk followed from constitution of the borrower,
competence/ technical skills of management, management succession plans, past
payment record and track record, ability to meet achievement of profit
projections, management experience in the business field and also on financial
interaction with group components.
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These questionnaires are rated internally and the rating is taken as internal rating.
We can get the External Rating given by companies like CRISIL, CIBIL etc. for assessing
the credit worthiness of the company and based on this we have to give to compare
with the banks general acceptable rating.
Conclusion:
After going through the market share analysis, projected market growth and financial analysis
of Indigo, it is highly recommended that bank can give loan to the Indigo. All the factors of
the analysis is suggesting positively. Thus from the lender bankers perspective, we can
analyse a company for the lending purpose.