Wednesday, August 12, 2020

InterGlobe Aviation gains 10% as the airline allays concerns over raising funds

In an industry, which is not capital intensive in nature and also severely impacted due to the spread of the coronavirus, InterGlobe Aviation, which runs Indigo Airlines, is doing what it could do best to deal with these challenges. A few key developments have triggered the street’s interest in the airline’s stock as it gained 10% over its Tuesday’s closing price.

The airline announced that it will raise Rs 4000 crore through Qualified Institutional Placement (QIP). Secondly, according to media reports, it is in talks with lessors to sell and leaseback a few of its ATR aircraft and raise funds through this exercise. These developments have given confidence to the street as the country’s largest airline by market share (52%) allays concerns over its ability to raise funds to deal with its high fixed costs.

It is estimated that weak demand and restrictions on flying full capacity are resulting in Rs30 crore cash burn for the airline. In this context, when most airlines are struggling with high debt and low cash on books, the airline’s ability to raise funds has been acknowledged by the street. At the end of the June 2020 quarter, Indigo had a total cash balance of Rs18449.8 crore. This shows that the airline is placed better than its peers to weather the uncertainty in travel demand.

Lastly, investors need to bear in mind that the airline’s stock movement will be highly sensitive to any development to the discovery of vaccine which can cure or alleviate the impact of the Coronavirus. The recent development of Russia discovering vaccine for the virus also has a role to play in the high interest in the airline’s stock in the trading session so far. Analysts point out that if an effective vaccine is found and incremental cases of the Coronavirus come down, the airline’s stock may elicit high interest from the street.
12/08/20 Rajesh Naidu/Economic Times

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