The owner of IndiGo, India's biggest airline by market share, surged as much as 17.6 percent in its market debut on Tuesday despite a premium valuation, as investors bet on future profits in one of the world's fastest-growing aviation markets. InterGlobe Aviation Ltd raised 30.1 billion rupees ($453.52 million) last month, valuing the carrier at around $4 billion. It was India's biggest initial public offering (IPO) since telecom tower firm Bharti Infratel Ltd raised $750 million in December 2012.
IndiGo has outperformed rivals by keeping its cost base and debts low, while building a reputation for punctuality. The issue was subscribed over six times, driven by demand from foreign investors. IndiGo is also expected to outperform peers in an industry benefiting from cheaper fuel.
"Clearly the whole sector is benefiting from the crude oil slump. It is the best-run company, so it should get a significant premium to peers," Pankaj Murarka, head of equities at Axis Mutual Fund, said of IndiGo. InterGlobe shares were trading at 893.10 rupees at 0850 GMT, up 16.7 percent from the IPO price of 765 rupees. The benchmark NSE index was down 0.9 percent, while rival Jet Airways (India) Ltd fell as much as 4.3 percent and Spicejet Ltd as much as 6 percent.
IndiGo's EBITDAR margin, a measure of profitability that excludes the impact of depreciation and aircraft and engine rentals, was 27.5 percent in the year ended March, according to brokerage India Infoline. That compared with an EBITDAR margin of 11.3 percent for Jet and 4 percent for SpiceJet. Bankers used the differential to justify higher premiums, pricing IndiGo at 1.9 to 2.1 times enterprise value over sales, compared with around 0.7 times for Jet and Spicejet, India Infoline estimated. Analysts said IndiGo was likely to benefit more than rival budget carriers as more Indians become wealthy enough to fly. Brokerage Edwelweiss estimated IndiGo had an over 35 percent domestic market share and was consistently profitable over the previous seven years.
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