Rakesh, Shobha Gangwal may pare up to 8% stake in IndiGo; shares dip 3%

Shares of InterGlobe Aviation-owned IndiGo airlines fell 3.4 per cent to Rs 2,377.9 apiece on the BSE in Monday’ intra-day trade amid reports that promoters Rakesh Gangwal and Shobha Gangwal may further trim their stake in the low cost airline. At 3:00 PM, shares of the airline were down 2.33 per cent on the BSE as against 0.2 per cent gain in the benchmark S&P BSE Sensex.

According to multiple reports, Rakesh and his wife Shobha Gangwal may sell 5-8 per cent stake in the airline next month for up to Rs 7,000 crore. Business Standard couldn’t independently verify the report.

At the end of the March quarter, Rakesh gangwal held 13.23 per cent stake in the airline, while Shobha Gangwal held 2.99 per cent stake. If the deal goes through, it would be the third stake sale by Gangwal family. 

Earlier, in February this year, the duo had sold 4.17 per cent stake in IndiGo worth 2,900 crore. Prior to that, in September 2022, Rakesh Gangwal and his wife had sold 2.74 per cent in InterGlobe Aviation, mopping up Rs 2,005 crore.

Stake sale by Gangwals is part of their exit strategy from the company after Rakesh Gangwal resigned from the company’s board of directors in February last year. He had said that he would gradually reduce his equity stake over the next five years.

Over the past three moths, shares of IndiGo have jumped 32 per cent as against 4.7 per cent rally in the benchmark S&P BSE Sensex.

In the January to March quarter of FY23, IndiGo’s revenue increased by 77 per cent YoY (down 5 per cent QoQ) to Rs 14,160 crore due to better yield and healthy aviation traffic. It reported an Ebitdar of Rs 2890 crore (up 27x YoY/down 9 per cent QoQ), while Ebitdar margin stood at 20.4 per cent (up 1,913 bps YoY and down 91bps QoQ).

Further, it recorded a ner profit of Rs 920 crore as against net loss of Rs 1,680 crore in Q4FY22 and Rs 1420 crore PAT in Q3FY23.

Analysts believe IndiGo’s strong cash position would help in sustaining its market share along with pricing power, going forward, which would drive its overall profitability

“We expect a healthy air passenger traffic over the next 2 years and factor 22 per cent CAGR in ASK over FY23-FY25E (vs. 5 per cent CAGR over FY18-22), and an improvement in Ebitdar margin by 1.300bps over FY23-FY25E. Rising Yield, pricing discipline and falling crude prices would support turnaround despite other cost inflation. It is the best play to capitalize in the fastest-growing Indian aviation sector,” said Reliance Securities in a post result report.

The brokerage has a ‘BUY’ rating on IndiGo with a target price of Rs 2,750.

Those at Emkay Global, too, have a ‘BUY’ rating with a target price of Rs 2,700 as IndiGo is capitalising well on international routes. At the end of Q4FY23, the airline was connected to 33 European destinations through codeshare. International routes are slightly more profitable as compared with domestic routes.