The country's largest domestic carrier IndiGo reported its highest-ever quarterly loss of Rs 3,180.2 crore in the April-to-June period. The airline reported losses on the back of demand slump owing to the second wave of Covid-19. Its profits were hit by the sharp rise in ATF (aviation turbine fuel) prices in recent months, and the company reported negative net worth. What's more worrying is that IndiGo is losing its most-prized possession - cash - at a rapid pace.
For instance, as of June 30, 2021, IndiGo had free cash of Rs 5,602.7 crore, which is 7.5 per cent lower than the same period last year. "When it comes to competition, IndiGo's biggest advantage has been its free cash reserves. It seems that this arbitrage is also shrinking," says an analyst at a leading brokerage. At the same time, the airline has seen its debt levels shooting up substantially -- from Rs 23,551.6 crore in June 2020 to Rs 31,690.1 crore, a rise of 34.6 per cent.
"Weak demand due to Covid and elevated fuel prices led to higher-than-expected Q1FY22 loss. The aviation industry is facing multiple headwinds, including weak demand -- corporate travel is down to 7 per cent of sales (versus 20 per cent earlier), and rising fuel prices (which were higher by 12 per cent quarter-on-quarter). We await clarity on the timing of IndiGo's proposed QIP, which will strengthen its balance sheet as cash burn levels have risen," said HDFC Securities, in a recent note where it asked its clients to reduce their holdings of IndiGo.
But why has IndiGo's cash reserves fallen? That's because the LCC (low-cost carrier) is burning Rs 33.4 crore daily, which is 76 per cent higher than the same period last year, to run the airline.
The only way out for the airline, as some analysts suggest, is to raise funds. To be fair, IndiGo has been talking about raising Rs 3,000 crore through QIP (qualified institutional placement) for some quarters now, but the plans are yet to firm up. In fact, in a recent call with investors, IndiGo's CEO Ronojoy Dutta said that "given the current cash position of the company, we continue to evaluate timing and size of any QIP."
Investors say that it's a do-or-die situation for IndiGo, which has seen fast depletion of its cash reserves over the past year. The situation might go out of control if it continues to post losses in future, which are quite possible given the volatile business environment, and uncertainty around the recovery.
"There is an urgency to raise money at the earliest. It is a very challenging time for the airline and they will look to speak to potential investors. There is a reward to invest in a good company during uncertain times and this could be one such opportunity. More than the company registering a loss, the high level of uncertainty in the environment is extremely worrying. It is difficult for a business to factor that in," says Deven Choksey, MD of KR Choksey Securities.
Rajat Sharma, the founder of Sana Securities, says that IndiGo must raise funds over the next one or two months or it will be too late. "If IndiGo goes for QIP, the floor price will be calculated on the basis or average share price of either two or six months. But it would be difficult to find buyers at those prices. If I factor in correction in the markets, they might find a buyer by the end of this year, but IndiGo might not be willing to dilute stake at lower valuations then," he says.
For an airline known for its financial prowess and operational efficiency historically, IndiGo has come to a point where it is flying away on a wing and a prayer.
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