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Friday, September 23, 2016

IGARASHI MOTORS INDIA LTD: ALL GEARED UP !!!

Scrip Code: 517380 IGARASHI
CMP:  Rs. 730.65; Market Cap: Rs. 2,236.40 Cr; 52 Week High/Low: Rs. 759.75/ Rs. 375.00.
Total Shares: 3,06,08,444 shares; Promoters : 2,62,76,684 shares – 85.85 %; Total Public holding : 43,31,760 shares – 14.15 %; Book Value: Rs. 96.19; Face Value: Rs. 10.00; EPS: Rs. 21.89; Dividend: 55.00 %; P/E: 33.35 times; Ind. P/E: 50.61; EV/EBITDA: 17.29 times.
Total Debt: Rs. 44.13 Cr; Enterprise Value: Rs. 2,170.61 Cr.

IGARASHI MOTORS INDIA LIMITED: Incorporated in 1946, and is based in Tamil Nadu, India. Igarashi Motors Ltd started by Eiji Igarashi who established a private company in Kawasaki, for the production and sales of D.C. motors for toys and model ships. It has been developing and manufacturing small D.C. motors, for more than fifty years. In India the company was established in the year 1993 in a joint venture with Crompton Greaves for development, production and sales of DC motors, DC motors with accessory, and assembly service like end cap-case-armature. The company has developing and manufacturing small DC motors for more than fifty years and has done pioneering work in product development, improvement and testing for the creation of new manufacturing technologies. The design-development-technical departments are in Japan, China and India dedicated to providing better technology and realizing the creation of highly efficient small DC motors. Igarashi Motors India Ltd came with a public issue of Rs. 2.77 Cr of Rs. 10 each at Rs. 10 each in 1994 to part finance its 100 % Export oriented Unit to manufacture permanent magnet DC micro motors, the total project cost was Rs. 10 Cr and was listed on 19 May 1995. Till date company has not given any bonus or splits in face value of its shares. Motors produced by Igarashi Motor Sales are designed in accordance with ISO 9002 regulations to ensure quality products with optimal functionality. Before, during, and after production, their motors are subject to intense quality controls and testing methods to ensure reliability & Design FMEA and Process FMEA are extensively used to secure efficiency and dependability. Igarashi products includes -DC Motors: Flat Type Motors, Round Type Motors, High Voltage Motors ; Gear Motors: Planetary Gear motors, Spur Gear motors, High Voltage Motors, Armatures. Igarashi Motors has developed an international presence as a means of providing quality product to companies throughout the world. With sales offices, manufacturing facilities and distribution centers worldwide. During 1997-98, the company has expanded capacity of Rotors by 1.5 million nos there by taking the capacity to 3.5 million nos and then to 6 million nos in 1998-99. The company was certified QS 9000 in November 1998 and the Quality System has been upgraded to conform to the latest edition of QS 9000 with effect from January 2000. During 2002-03 Crompton Greaves Limited have divested their holding in favour of Igarashi Electric Works. Since Igarashi Electric Works (HK) ltd have acquired 30,99,993 equity shares of CG Capital & Investments Ltd, the Board changed the name of the company to Igarashi Motors India Limited. Its subsidiaries worldwide includes: Heng Gang Yat Yue Industrial, Heng Gang Igarashi Electrical Works, Igarashi Motor Sales, LLC USA, Igarashi Motoren Germany, CG Igarashi Motors Ltd India, Zhubai Igarashi Electric Works China, Hanamaki Nippa Industrial Ltd, Igarashi Electric Works Ltd, Yat Yue Industrial Ltd, Igarashi Electric Works Ltd. IGARASHI MOTORS INDIA LTD is locally compared with Minda Corp Ltd, Majestic Auto Ltd, PPAP Automotive Ltd, Motherson Sumi Systems Ltd, REIL Electricals, Remsons Industries, Denso India Pvt Ltd, Talbros Automotive and Globally compared with NGK Spark Plug Corp of Tokyo, Sumitomo Electricals of Tokyo, Panasonic Corp, Nippon Seiki Corp, Riken Corp.

Investment Rationale:
Igarashi Motors India Limited incorporated in 1946, is engaged in the business of auto components for automobiles. The Company offers electric micro motors and motor components. The Company is engaged in the production and export of permanent magnet direct current (DC) motors for automotive sector specifically for passenger cars. The Company's DC motors include SQ-2846, SQ3264, SQ3657, SQ3365, SQ-3655, SQ-2848, SQ-3458, 3657 and 3665. The Company's products' primary application is Electronic Throttle Control (ETC). The Company has produced over 500 million DC motors for usage in actuator application/systems in passenger cars. The Company's holding company is Agile Electric Sub Assembly Private Limited. The Company's ultimate holding company is Igarashi Electric Works Limited. The company specializes in the design and manufacture of small, permanent magnet DC motors and gear motors. The Indian auto industry is one of the largest in the world with an annual production of 23.37 million vehicles in FY 2014-15, following a growth of 8.68 % over the last year. The automobile industry accounts for 7.1 % of the country's gross domestic product (GDP). The Two Wheelers segment with 81 % market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 13 % market share. India is also a prominent auto exporter and has strong export growth expectations for the near future. In FY 2015-16, automobile exports grew by 15 % over the last year. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the Two Wheeler (2W) and Four Wheeler (4W) market in the world by 2020. The industry produced a total 14.25 million vehicles including PVs, commercial vehicles (CVs), three wheelers (3W) and 2W in April-October 2015 as against 13.83 in April-October 2014, registering a marginal growth of 3.07 % year-on-year. The sales of PVs grew by 8.51 per cent in April-October 2015 over the same period last year. The overall CVs segment registered a growth of 8.02 % in April-October 2015 as compared to same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered very strong growth of 32.3 % while sales of Light Commercial Vehicles (LCVs) reduced by 5.24 % during April-October 2015 year-on-year. In April-October 2015, overall automobile exports grew by 5.78 %. PVs, CVs, 3Ws and 2Ws registered growth of 6.34 %, 17.95 %, 18.59 % and 3.22 % respectively in April-October 2015 over April- October 2014. India’s automotive industry is one of the most competitive in the world. The Indian auto-components industry has experienced healthy growth over the last few years. Some of the factors attributable to this include: a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. The auto-components industry accounts for almost 7 % of India’s Gross Domestic Product (GDP) and employs as many as 19 million people, both directly and indirectly. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favorable destination for investment. The Indian automotive sector has the potential to generate up to US$ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to India’s Gross Domestic Product, as per the Automotive Mission Plan 2016-26 prepared jointly by the Society of Indian Automobile Manufacturers (SIAM) and government. It is expected that the global automotive industry vehicle volume to cross from the current 75mn vehicles per annum to cross 110 mn by 2022, the share of automotive production in Asia was 33 % in 2000 which went upto 50 % in 2012 and is likely to be upwards of 55 % by 2020. Vehicle sales in Europe are expected to remain stagnant between 15 to 18 million annually and the main growth is expected in Asia pacific and to an extent, in Americas. The fixed investments in automotive capacity in Asia pacific is estimated to be 60 % of the total global investment, out of the 110million vehicles estimated for 2022, approximately 90 % is expected to be pure Internal Combustion Engine (ICE) vehicles while the balance 10 % will be a combination of electric vehicles and hybrid electrical vehicles. The Government of India encourages foreign investment in the automobile sector and allows 100% FDI under the automatic route. Some of the major initiatives taken by the Government of India are: Government of India aims to make automobiles manufacturing the main driver of Make in India initiative, as it expects passenger vehicles market to triple to 9.4 million units by 2026, as highlighted in the Auto Mission Plan (AMP) 2016-26. In the Union budget of 2015-16, the Government has announced to provide credit of Rs. 8,54,000 Cr (US$ 127.5 billion) to farmers, which is expected to boost the tractors segment sales. The Government plans to promote eco-friendly cars in the country i.e. CNG based vehicle, hybrid vehicle, and electric vehicle and also made mandatory of 5 % ethanol blending in petrol. The government has formulated a Scheme for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020 to encourage the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the country. The Automobile Mission Plan (AMP) for the period 2006-2016, designed by the government is aimed at accelerating and sustaining growth in this sector. Also, the well-established Regulatory Framework under the Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to this sector. The government initiative and investments and the potential makes the auto mobile sector lucrative and makes the prospectus of the Igarashi Motors even brighter. It is expected that the growth to be driven by numerous factors like strong economic growth; continued population growth; expansion of the middle class; strong rainfall and an increasingly favourable regulatory environment makes Igarashi Motors best choice from this sector.

Outlook and Valuation:
Igarashi Electric Works, Ltd. since its establishment in 1952 has dedicated itself to the development, manufacture and sale of products specially designed to meet the needs of its customers. To maintain full satisfaction, the company has grown and established new manufacturing and sales organizations in USA, Germany, China, India, and Hong Kong, as well as maintaining its continued presence in Japan. The company has developing and manufacturing small DC motors for more than fifty years and has done pioneering work in product development, improvement and testing for the creation of new manufacturing technologies. Motors produced by Igarashi Motor Sales are designed in accordance with ISO 9002 regulations to ensure quality products with optimal functionality. Before, during, and after production, the motors are subject to intense quality controls and testing methods to ensure reliability. Design FMEA and Process FMEA are extensively used to secure efficiency and dependability. Igarashi offers a wide variety of motors in different sizes and shapes. One can select their small and high performance motor from flat type, round type or geared motors. Custom designs and value added components often lead to complete sub-assemblies and assemblies. Igarashi work with their network of suppliers to further facilitate the incorporation of their motor into their product by creating a complete assembly that can readily be adapted to production requirements. Discussions with Key customers indicate that the average number of electric motors per global vehicle will move up from 20 to 25 Electric motors per car to 35 to 40 Electric Motors per car in the next three to four years. Dynamics in development of electric motors for these actuators continue to remain strong. Electric motor performance parameters, specifically related to new technologies resulting in lower weight, smaller volume, lesser current fuel consumption and favourable overall cost. Due to stringency of fuel efficiency and emission norms, electric motors for aforementioned actuators is likely to go up steadily over the next years from the present level of 1 to 2 motors average per global vehicle to 3 to 4 motors average per global vehicle. The key applications, in this space continues to be Electronic Throttle Control valves in engines including air control valves, Exhaust gas recirculation valves, Waste gate actuators and Bypass valves in Turbo chargers & fluid control valves for thermal management applications. The market for these motors is estimated to grow at more than twice the rate of the vehicle growth. On financial side, Igarashi Motors Ltd achieved a turnover of Rs. 125.40 Cr for the 1st quarter of the FY 2016-17 as against Rs. 108.65 Cr in the corresponding quarter of the previous year, an increase of 15.41 %. During the quarter, net profit increased by 21.60 % to Rs. 18.99 Cr from Rs. 15.61 Cr in the corresponding quarter ending of previous year. During the quarter, EBIDTA stood at Rs. 34.47 Cr as against Rs. 30.26 Cr in the corresponding period of the previous year, up by 13.93 %. Profit before tax (PBT) stood at Rs. 28.84 Cr in Q1 FY17 against Rs. 23.98 Cr in the corresponding quarter of the previous year, up by 20.24 %. EPS of the company stood at Rs. 6.20 in Q1 FY17 against Rs. 5.10 in the corresponding quarter of the previous year. Net Sales and PAT of the company are expected to grow at a CAGR of 12 % and 17 % over 2015 to 2018E; respectively. Highest market capitalization among its peers, Igarashi has huge market capitalization of 2094 Crs. Domestic institution are gradually attracting towards the company. Igarashi has very less debt to equity ratio of 0.17 and good interest coverage ratio of 16.75. Continuous increasing positive cash flow from operating activities. Company has very less interest outgo which has further lowered down in last year. Company dividend pay-out has increased by 23.87%.  Igarashi has Operating profit margin of 19.78% for FY15-16. Igarashi has Net profit margin of 14.33% for FY15-16. Company has developed an international presence to provide its quality product and services worldwide. At the current market price of Rs. 730.65, the stock is trading at a PE of 29.81 x FY17E and 26.16 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 24.51 in FY17E and Rs. 27.92 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALSFY15FY16FY17EFY18E
SALES ( Crs) 385.07444.98507.28573.22
NET PROFIT (₹ Cr)48.9563.6475.0385.47
EPS () 15.9920.7924.5127.92
PE (x)45.0934.6929.4225.83
P/BV (x)8.807.506.135.22
EV/EBITDA (x)22.4417.3414.9213.17
ROE (%) 19.51 21.6220.8220.21
ROCE (%)39.2944.2942.0340.22

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 


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Tuesday, September 13, 2016

INTERGLOBE AVIATION LTD (INDIGO AIRLINES) : FLYING HIGHER !!!

Scrip Code: 539448 INDIGO
CMP:  Rs. 864.95; Market Cap: Rs. 441.68 Cr; 52 Week High/Low: Rs. 1,394.85/ Rs. 698.35.
Total Shares: 36,12,03,806 shares; Promoters : 31,04,38,237 shares – 85.95 %; Total Public holding : 5,07,65,569 shares – 14.05 %; Book Value: Rs. 75.93; Face Value: Rs. 10.00; EPS: Rs. 53.74; Dividend: 3516.90 %; P/E: 16.12 times; Ind. P/E: 11.33; EV/EBITDA: 9.85 times.
Total Debt: Rs. 3,200.79 Cr; Enterprise Value: Rs. 33,637.74 Cr.

INTERGLOBE AVIATION LIMITED: Incorporated in 2004, and is based in New Delhi. InterGlobe Aviation Limited, formerly known as InterGlobe Aviation Private Limited, is an India-based company engaged in operating passenger airline. InterGlobe Enterprises Ltd is the holding company of Interglobe aviation Ltd. The Company offers aviation, hospitality and travel related services. It operates through two geographic segments: Domestic, which includes air transportation within India, and International, which includes air transportation outside India. Interglobe aviation came with an public issue of 26,112,000 equity shares of Rs. 10 each at Rs. 765 each 0n October 27, 2015 and got listed on November 10, 2015 at Rs. 855.80 and made day high of 899.50 with low of 849. The object of the issue was to utilize the funds for the retirement of certain outstanding lease liabilities and consequent acquisition of aircraft and for the purchase of ground support equipment for airline operations and general corporate purposes also to receive the benefits of listing of the Equity Shares on the Stock Exchanges. The company has not given any splits in face value of its shares and has not declared any bonus shares. Its business lines include InterGlobe Air Transport, InterGlobe Aviation, InterGlobe Hotels, InterGlobe Technologies, InterGlobe Technology Quotient and InterGlobe Education. InterGlobe Technologies provides integrated information technology and business process outsourcing services. InterGlobe Technology Quotient distributes Travelport in India and Sri Lanka. It has four trademarks, namely, IndiGo Airways, IndiGo Airlines, IndiGo and IndiGo Air. It has around 96 aircrafts, and operates scheduled services to approximately 33 airports in India, with a maximum of around 593 domestic flights per day. INTERGLOBLE AVIATION LTD is locally compared with Jet Airways ltd, SpiceJet Ltd, Kingfisher Airlines, Jagson Airlines Ltd, Bluedart Express, MFL India Ltd, Global Vectra Helicopters Ltd, Patel Integrated Logistics ltd and Globally compared with Southwest Airlines Co of USA, Virgin America Inc ofUSA, JetBlue Airways Corporation of USA, Spirit Airlines Inc ofUSA, American Airlines Group of USA, Delta Airlines Inc, United Continental Holding of USA, Alaska Air Group of USA, Skywest Inc of USA, Etihad Airways of UAE, Iran Air, British Airways Plc of UK, AIR CHINA of China, Cathay Pacific Airways Ltd of Hongkong, Qantas Airways of Australia, Alliance Aviation of Australia, Eva Airways corporation of Taiwan,Transasia Airways of Taiwan, Thai Airways International of Thailand, Bangkok Aviation of Thailand, Asia Aviation Pcl of Thailand, Tiger Airways Holding Of Singapore, Singapore Airlines of Singapore, A-Sonic Aerospace of Singapore, AirAsia of Malaysia.

Investment Rationale:

Interglobe Aviation Limited was incorporated in 2006, Interglobe Aviation Ltd is India based aviation, hospitality and travel related service provider. Company own and operate 'IndiGo', India's largest airline with over 33 % of domestic passenger market share. IndiGo Airline, the low-cost airline carries the brand message of providing "low fares, on-time flights and a hassle-free experience" to air travellers in India. IndiGo has scheduled services to 33 cities within India and 5 cities like Bangkok, Dubai, Kathmandu, Muscat and Singapore internationally with 623 daily flights. Company also has a joint venture with Accor Asia Pacific since 2004 to develop a network of 'ibis' hotels throughout India, Nepal, Sri Lanka and Bangladesh. With 10 ibis hotels open and 9 under development, the company shall have a portfolio of 19 operational hotels with room inventory of about 3500 rooms by 2017. The company have maintained its discipline in execution of the low-cost carrier business model with single aircraft type, high aircraft utilization, high operational reliability, no-frills product and low distribution costs. Company enjoys a structural cost advantage. Large Airbus aircraft orders enable favorable terms on aircraft, engines and components. Company has Young, modern and fuel-efficient fleet, Strong brand recognition, maintained consistent profitability and strong cash flow generation, balance sheet and liquidity position. Interglobe Aviation Ltd (IAL) has an ordered 430 aircrafts and expects delivery of 14 aircrafts before this fiscal end. IAL’s domestic passenger volume increased at a CAGR of 25.8 % during fiscal 2011-2015 from 95 lakhs to 2.37 Cr. India is one of the world’s largest and fastest-growing air travel markets, according to the report by Centre for Asia Pacific Aviation India Private Limited (CAPA) Report. Historically, the Indian air travel market was comprised of individuals in relatively high income brackets as well as corporate travellers. Additionally, many members of the Indian middle class did not have a viable option to meet their long distance travel requirements as surface transportation infrastructure was relatively poor and air travel was relatively expensive. Starting in 2003, the Indian government introduced several measures to further liberalize the air travel market, including a reduction in fuel excise taxes, elimination of the 15 % Inland Travel Tax and the awarding of new airline licenses to private operators, which is reflected in the growth of domestic passenger volume at a CAGR of 19.4 %. Since then a large number of Low Cost Carriers (LCCs) have entered the Indian air travel market and stimulated prices through their low-cost business models. By using price stimulation as a core business strategy, LCCs were able to cater to India’s middle class segment. In the decade that followed, Indian air travel entered a period of considerable growth. By 2014, India’s air travel market had become the sixth largest in the world as measured by total domestic seats of approx. 9.73 Cr and ninth largest in the world by total domestic and international seats of approx. 15.59 Cr. Going forward, the domestic Indian aviation market is forecast to be the world’s fastest growing aviation market with Revenue Passenger Kilometers (RPKs) growing at a CAGR of 9.5 % between 2013 and 2033. Going forward, the Indian air travel market is expected to enter a period of accelerated growth. Between FY2015 and FY2020, domestic ASKs are forecast to grow at a CAGR of 12.7 %, while domestic passenger volume is forecast to grow at a CAGR of 12.8 %, according to the CAPA Report. India is expected to be one of the fastest growing major economies in the world over the next four years, with Real GDP expected to grow at a CAGR of 7.1 % between CY2014 and CY2019. This rate of Real GDP growth exceeds that of China, APAC, and the world over the same period, which is forecast to grow at a CAGR of 6.4 %, 4.5 %, and 3.0 %, respectively. The IMF expects India to surpass China’s Real GDP growth rate in CY2015 and CY2016, with respective growth rates of 7.5 % compared to 6.8 % and 7.5 % as compared to 6.3 %. India is the second most populous country in the world with 1.26 billion people through CY2014, according to the IMF. The IMF projects that India’s population will grow at a CAGR of 1.3 % to reach 1.34 billion by the end of CY2019. The expected growth in India’s population between CY2014 and CY2019 is higher than the average growth in population of the top 20 domestic air travel markets in the world. The increase in the Indian population is expected to be a continuing driver of growth in the Indian air travel market. India’s annual per capita income has grown at a CAGR of 12.6 %, from Rs. 46,249 in FY2010 to Rs. 74,380 in FY2015. India’s growth in per capita income and overall population has caused the rapid expansion in the size of India’s middle class, defined as households with a disposable income of more than USD 5,000 per year (more than approximately Rs. 3,35,000 per year). The number of Indian middle class households is expected to increase from 5.36 Cr in CY2014 and reach 10.79 Cr households by 2019 implying a CAGR of 15.0 %. In addition, Mumbai and New Delhi are expected to have the 25th and 30th highest increase in household disposable income globally between 2013 and 2030. The tourism industry in India is fast-growing and an increasingly significant contributor to India’s economy, according to the CAPA Report. The total contribution of travel and tourism to India’s GDP was Rs. 7,642.5 billion in CY2014 which was 6.7 % of GDP and is forecast to rise by 7.3 % per annum to Rs. 16,587.2 billion which is 7.6 % of GDP by CY2025, according to the World Travel and Tourism Council. According to the Ministry of Tourism of India, India witnessed 7.7 million foreign tourist arrivals in CY2014, which had grown at a CAGR of 8.3 % during the period from CY2009 to CY2014. According to the EIU, the number of foreign tourist arrivals is expected to increase at a CAGR of 9.2 % during the period from CY2015 to CY2019 to reach 12.0 million in CY2019. This is due to, among other factors, government initiatives to promote India as a tourist destination, such as successful implementation of the e-Tourist Visa program for passport holders of 113 countries, as well as the government’s plan to make electronic visas available eventually to visitors from over 150 countries. India has a very large rail travel market in terms of passengers carried, and India’s domestic air travel market of 70 million passengers carried in FY2015 represents a very small percentage of the total rail passengers carried, according to the CAPA Report. While the size of the rail travel market is not indicative of the potential addressable market for air travel, and while only a portion of rail travel can reasonably be expected to be substituted by air travel in the near future, the substitution of rail travel by air travel presents a significant growth opportunity, according to the CAPA Report. Rising income levels are expected to cause the Indian middle class to increasingly prefer air travel to rail and road travel because of its convenience, shorter duration and competitive pricing, according to the CAPA Report. The Indian air travel market is serviced by domestic and international LCCs and full-service carriers (FSCs). Domestic carriers in India include LCCs such as IndiGo, SpiceJet, GoAir, Air India Express, and AirAsia India, as well as FSCs such as Jet Airways, Air India, Air Costa, Alliance Air and Vistara, according to the CAPA Report. These domestic carriers also compete with international and regional carriers, new entrants in the airline industry, Indian Railways, the state-owned railway company of India, and with different forms of road transportation, according to the CAPA Report. The competitive landscape of the Indian air travel market has undergone meaningful change as carriers have entered and exited the market and current carriers have undergone considerable changes, such as in their composition, market share, load factors, and cities served, according to the CAPA Report. It is expected that the growth to be driven by numerous factors like strong economic growth; continued population growth; expansion of the middle class; strong growth in tourism; rail travel substitution; increasing aircraft penetration from currently low penetration levels; expansion in aviation infrastructure; and an increasingly favourable regulatory environment. Looking at these InterGlobe Aviation Ltd is best placed to be benefited.

Outlook and Valuation: 
Incorporated in 2004, Indigo commenced operations in Aug’06 with a single aircraft, and has grown its fleet to 97 aircraft, all Airbus A320. It placed an order for 180 A320 neo aircraft with Airbus in Jun’11. The purchase agreement determined a series of scheduled deliveries from Nov’15 to Nov’23. Indigo improved its fleet from 25 aircraft in FY10 to 97 in FY16. This has resulted in an increase in market share to almost one-third that of the industry, placing it as the market leader. It operates on a low-cost-carrier (LCC) business model and focuses on the domestic Indian air travel market. It caters to 35 airports in India and five international destinations. The increase in the number of LCCs combined with macroeconomic factors such as India’s relatively low per capita income and price-sensitive consumers have led LCCs to dominate India’s air travel market. LCCs’ share of the Indian air travel market has increased from 40.5 % in FY2010 to 62.2 % in FY2015, according to DGCA data. This represents an approximate 55 % increase in LCCs’ market share over FSCs’ market share between FY2010 and FY2015. In addition to macroeconomic and India consumer factors, the following factors have also contributed to the success of LCCs in India, the LCC business model, characterized by such features as single aircraft type fleets, aircraft with greater fuel efficiency and lower maintenance costs, faster turnaround times to increase aircraft utilization, and low debt positions; access to capital, when required, through promoter funding and, in some cases, sale-and-leaseback transactions; superior execution through sound management and strong delivery systems; competitive aircraft pricing and favourable maintenance and support contracts; structured systems, processes, and training; and liberalization of the Indian market. LCCs are expected to maintain a domestic market share of 65 % to 70 % of passenger volume, and LCC ticket price is expected to remain a key driver of demand as India is an extremely price sensitive market. In addition to leisure travelers, LCCs have also gained acceptance among corporate travelers in India by meeting corporate market expectations for network density, frequency (particularly at peak hours), schedules offering same-day returns, on-time performance, reliability, new aircraft and quality service. LCCs have also been able to gain traction in the corporate market through the strategic decision to focus on increasing flight frequencies on metro routes, rather than seeking to stimulate untested, virgin markets. Indigo has improving Operating metrics, which includes on-time departures and arrivals, flight cancellations, and number of complaints, are often used in the air travel industry to evaluate operating performance of carriers. In aviation maintenance costs are one of the main cost components for any carrier. The maintenance costs of a carrier are impacted by its business model, fleet composition and overall fleet management. The maintenance cost per Available Seat Kilometre (ASK) of the various Indian carriers for FY2015 was US¢0.18 for IndiGo, US¢0.34 for Air India, US¢0.35 for GoAir, US¢0.90 for SpiceJet and US¢0.95 for Jet Airways. IndiGo’s maintenance costs are the lowest among Indian carriers. The fuel cost per ASK for FY2015 was US¢2.94 for SpiceJet, US¢3.07 for IndiGo, US¢3.23 for Jet Airways, US¢3.37 for GoAir and US¢3.47 for Air India. The ownership cost per ASK of the Indian carriers for FY2015 was US¢0.97 for IndiGo, US¢1.20 for SpiceJet, US¢1.23 for GoAir, US¢2.01 for Jet Airways and US¢2.62 for Air India. IndiGo’s ownership costs are lowest and fuel costs are second lowest, on per ASK basis, among Indian carriers. The Cost Available Seat Kilometer (CASK) measures the unit costs of a carrier and is calculated as total costs divided by ASK. The CASK of the Indian carriers for FY2015 was US¢5.95 for IndiGo, US¢6.37 for GoAir, US¢6.68 for SpiceJet, US¢9.05 for Jet Airways and US¢9.82 for Air India, according to the SAP Report. IndiGo’s CASK is lowest among Indian carriers. Air India has the largest fleet of aircraft of an Indian carrier followed by Jet Airways and IndiGo. IndiGo maintains the largest orderbook of any Indian carrier with 430 aircraft on order and is seventh largest LCC in the world by total seats for FY2015. IndiGo was the fastest growing carrier in India in terms of ASK growth between FY2011 and FY2015, followed by GoAir and SpiceJet. The average age of a carrier’s fleet is impacted by its business model, fleet composition and overall fleet management. The Fleet age can impact the operating costs of a carrier, including fuel costs and maintenance costs, among Indian carriers with at least six months of operating history as of March 31, 2015, AirAsia India had the youngest fleet age of 2.7 years and IndiGo had the second youngest average fleet age of 3.2 years, followed by GoAir at 3.9 years, Air Costa at 3.9 years, SpiceJet at 4.1 years, Jet Airways at 5.9 years, and Air India at 8.9 years, as of March 31, 2015, respectively. The Revenue Availability Seat kilometers (RASK), is a measurement of unit revenue, minus CASK, is a measure of a carrier’s unit profitability. Excluding fuel cost from the analysis provides an indicator of a carrier’s unit profitability before taking in to account fuel costs, which can vary significantly from region to region. IndiGo had the highest RASK minus CASK of any carrier in India and a level in line with LCCs operating in Asia during FY2015. IndiGo’s RASK minus CASK excluding fuel was the highest in India and higher than all of the LCCs operating in Asia. Indigo follows the pure low-cost principle which is intended to provide it with an advantage over some of other LCC competitors in India who operate hybrid business models between low-cost and full-service airlines, such as the inclusion of meals and beverages in the ticket prices for non-corporate passengers, offering business class seats and operating multiple aircraft types. They have employed a single type of airframe and engine within their current fleet, which helps them to reduce their expenses related to maintenance, spare parts, operation, crew training and labor, as well as helping them to more efficiently manage crew rosters. Indigo’s aircraft utilization in block hours was 11.4 hours per day per aircraft in fiscal 2015, which, was among the highest of any airline in India.  They have maintained high aircraft utilization rates by keeping a low turnaround time between their flights. Additionally, they operate a point-to-point route network with no code-sharing with other airlines for passenger traffic, which further helps to reduce turnaround time. Indigo has reduce their distribution costs by increasing direct sales via their website, airport, call center and mobile app and scaling down commissions paid to online and traditional travel agents. Approximately 20.6 % and 22.0 % of their ticket sales were made through these direct channels. IndiGo management has highlighted that earlier they were largely passive towards low competitive fares on key routes. However, the management hinted that they are might become more aggressive in responding to competitive pressures going ahead. Management highlighted that yields were lower YoY due to competitive headwinds. IndiGo continues to look at India as a highly attractive market and is confident that the market can profitably absorb additional capacity. IndiGo management highlighted that they are maintaining their FY17 fleet guidance. Last quarter it had guided for 34 % YoY ASK addition. And expects to get in all 24 neo planes by March 2017 they currently have five neo planes. However, the deliveries will be slowed down to give Pratt & Whitney time to catch up with the delivery schedule. Management indicated that they are facing operational issues in neo which include some software hiccups. For 1QFY17, management guides ASK growth of 25 % and updated that A320Neos have proven to be 14.5 % fuel efficient vs. A320Ceos. The Rentals on neos are 15 % higher than ceo planes. On financial side of Q1 FY17 they have added 2 aircraft in 1Q including 1 A320Neo and now the fleet size is 109. Its Interest expenses for the quarter included a one-off of Rs. 4.40 Cr due to redelivery of airplane which resulted in renegotiation of ECB financing. Their employee costs included Rs. 2.10 Cr related to issue of ESOPs. Management highlighted that the excess bench strength earlier is being absorbed now with the delivery of planes. Employee to aircraft has declined from 121 in 3QFY16 to 112 in 1QFY17. Management guided that tax rate was lower during the quarter due to a writeback of tax credit which had been written off earlier. Going ahead management guided normalized tax rates. Indigo’s superior economics versus peers should lead to premium valuation. However, management’s recent admission that it has/intends to respond to competitor’s fares, indicates change in its pricing stance. This coupled with its planned capacity addition will put pressure on load factors as well as yields in the near term. Sustained low oil price is strengthening airlines’ balance sheets and emboldening competition to announce fleet expansion. IndiGo is the most profitable carrier in India, & as measured by EBITDAR margins, with a margin of 19.8 %, while GoAir with 16.9 %, Jet Airways with 5.9 %, SpiceJet with 2.3 % and Air India with (9.0 %) during the same period. Going forwards the stock can trade at 14 times the EV/EBITDAR which could be around 20 % premium to its global LCC’s. At the current market price of Rs. 864.95, the stock is trading at a PE of 13.72 x FY17E and 11.45 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 63 in FY17E and Rs. 75.50 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also .

KEY FINANCIALSFY15FY16 FY17EFY18E
SALES ( Crs) 13,925.30 16,140.0020,800.00 27,340.00
NET PROFIT (₹ Cr)1,304.20 2,000.002,270.002,720.00
EPS () 42.50 55.5063.0075.50
PE (x)19.10 17.6015.5012.90
P/BV (x)83.40 19.1016.0013.40
EV/EBITDA (x)13.00 11.4010.308.50
ROE (%) 309.60  177.20112.70113.10
ROCE (%)33.60 43.0049.8056.90

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 


As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
 

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