Overview

IndiGo, a brand belonging to InterGlobe Aviation Limited (hereafter referred to as the Company) is India’s largest passenger airline with a 36.9% market share of domestic passenger volume for FY16. We primarily operate in India’s domestic air travel market as a low-cost carrier (LCC), with a focus on providing “low fares, on-time flights and a hassle-free experience” to our passengers. As of March 31, 2016, we operated scheduled services to 35 domestic destinations and 5 international destinations with a fleet of 107 aircraft, all of them Airbus A320 family, with a maximum of 731 daily flights.

India is a highly underpenetrated aviation market with minimal barriers to entry. In this market, we believe that we have been able to create structural cost advantages over other carriers that have enabled us to remain consistently profitable since FY09. We had placed an order for 100 Airbus A320 aircraft in FY15 that have all been delivered about two years ahead of the initially scheduled final delivery date. In addition, we have on order 430 Airbus A320Neo aircraft, 3 of which were delivered till March 31, 2016. These new generation A320Neo aircraft are up to 15% more fuel-efficient than the current A320 aircraft without sharklets. We believe that these aircraft will further strengthen our structural advantage by reducing our fuel expenses, which is the single largest cost for us, and will help us drive profitable growth in the future.

As of March 31, 2016, we also have 20 previously used aircraft on short-term lease.

Since our inception, we have achieved strong and sustained passenger growth. Over the past 5 years, our domestic passenger volumes grew at a CAGR of 27.1% between FY11 and FY16. During this period, our capacity also increased at a CAGR of 25.2%. In comparison, for the domestic aviation industry excluding IndiGo, the passenger volumes grew at a CAGR of 3.9% and capacity grew at a CAGR of 1.3% over these 5 years.

In November 2015, IndiGo got listed on domestic bourses, namely the National Stock Exchange of India Limited and BSE Limited.

Indian Economy

India economy continues to grow at a robust pace. As per Government of India data, India’s Gross Domestic Product (GDP) grew at 7.9% for January-March 2016 quarter and 7.6% for FY16 at constant prices (2011-12). India’s Gross Value Added (GVA) growth also accelerated, led by a pickup in industrial activities and a reliable contribution from service. Amongst other factors, this was also driven by manufacturing, transport, hotels, communication and real estate. The International Monetary Fund forecast released in July put the Indian GDP growth at 7.4% at FY16, to stay at the same level in FY17. This is far ahead of the projected global GDP growth of 3.1% and the emerging and developing economies’ collective growth of 4.1% in FY16. Several initiatives by the Government including Make in India programme, the Smart City programme, Digital India etc. offer sustainable growth prospects for India.

Year over Year
(Percent change unless noted otherwise) 2014 2015 2016(P)* 2017(P)*
World Output 3.4 3.1 3.1 3.4
Advanced Economies 1.9 1.9 1.8 1.8
Emerging Market and Developing 4.6 4.0 4.1 4.6
Economies
China 7.3 6.9 6.6 6.2
India# 7.2 7.6 7.4 7.4

* projected years

# Data and Forecast presented on fiscal year basis

Source: World Economic Outlook - July 2016

Industry Structure and Development

Internationally, the aviation market is growing one of the fastest in emerging economies. Asia and Latin America are gaining in terms of passenger volumes, and the relatively new Asian airlines are capturing some of the market share so far enjoyed by what might be called “legacy airlines”. Within the emerging economies with many first-time fliers, LCCs are experiencing above-average growth rates. (Source: PwC)

Even in India, while full service carrier (FSCs) have historically dominated the Indian aviation market, the country’s macroeconomic factors such as relatively low per capita income and price-sensitive consumers, have led LCCs to increasingly gain market share. LCCs’ share of the Indian air travel market has increased from 45.6% in FY11 to 64.2% in FY16, an increase of 18.6% over the past 5 years. In addition to macroeconomic and India consumer factors, the following factors have also contributed to the success of LCCs in India:

1. the LCC business model, characterised by features such as single aircraft type fleets, aircraft with greater fuel efficiency and lower maintenance costs, faster turnaround times to increase aircraft utilisation, and low debt positions;

2. access to capital, when required, through promoter funding and, in some cases, sale-and-leaseback transactions;

3. superior execution through sound management and strong delivery systems;

4. competitive aircraft pricing and favourable maintenance and support contracts;

5. structured systems, processes, and training; and

6. liberalisation of the Indian market.

With the Indian Government’s thrust on promoting regional connectivity and creating more low cost airports, LCCs are expected to continue playing an increasing role in the rapidly expanding Indian aviation market.

India comes to the top

In 2015, India was the world’s fastest growing aviation market, expanding by 18.8%, driven by economic growth in the Indian subcontinent. In comparison, Russia clocked 11.9% growth in a market of 47 million domestic passengers, China clocked 9.7% growth in a market of 394 million domestic passengers and the United States clocked 5.4% growth in a market of 708 million domestic passengers, according to International Air Transport Association (IATA). According to Airbus, domestic India revenue passenger kilometres (RPKs) is expected to grow at a CAGR of 9.2% and the domestic traffic in India will grow about 6-fold over the next 20 years.

In FY16, the Indian domestic aviation market grew at 21.6%. The growth is attributed to the large and growing middle-class population, rapid economic growth, increased spending and low aircraft penetration levels in the country.

The Indian middle class flier, with an increasing level of disposable income, now frequently chooses air travel over road and rail transport, because of the convenience, competitive pricing and shorter journey time. As per Airbus, the number of households in India with discretionary income greater than USD7,500 are expected to almost treble to 180 million households by 2030 and the number of households in India with discretionary income greater than USD20,000 are expected to grow 4.8 times by 2030.

The Government of India also plans to improve regional connectivity by reviving 160 non-functional airports and 10 of 25 defunct airstrips. Other government initiatives include 100% Foreign Direct Investment (FDI) in greenfield airports under automatic route and 74% FDI in brownfieldairports under automatic route.

The passenger volumes growth was also aided by a low fuel cost environment. Brent crude continued to decline significantly almost throughout FY16 and reached its low of USD27.88 per barrel in January 2016. Global Aviation Turbine Fuel (ATF) prices, which are closely correlated with Brent crude, also showed a similar trend. During the Indian Union Budget 2016, while the ATF duty for jet fuel was hiked from 8% to 14%, the overall reduction in global fuel prices enabled airlines to reduce fares and attract more fliers.

Regulatory Changes in the Sector

The Ministry of Civil Aviation (MoCA), Government of India, unveiled the National Civil Aviation Policy (NCAP) 2016 on June 15, 2016, with the aim of providing an ecosystem for the harmonised growth of various aviation sub-sectors, i.e.; Airlines, Airports, Cargo, Maintenance Repairs and Overhaul services (MRO), General Aviation, Aerospace Manufacturing, Skill Development, etc.

Highlights of the New Civil Aviation Policy are as follows:

• Airport Infrastructure: The Government aims to increase the number of airports having scheduled commercial flights from 77 currently to 127 by 2019.

• 5/20 Rule: 5/20 rule (minimum 5 years of domestic operations and fleet strength of minimum 20 aircraft required for Indian carriers to commence international operations) modified, enabling Indian airlines to commence international operations, provided that they deploy 20 aircraft or 20% of total capacity, whichever is higher, for domestic operations.

• Route Dispersal Guidelines: As per the proposed policy, the CAT-I routes would now be re-defined as routes with flying distance of more than 700 kms, average seat factor of more than 70% and annual traffic of 5 lakh passengers. Concurrently, the minimum capacity to be deployed on CAT-III routes would be reduced to 35% from 50% of CAT-I.

• Regional Connectivity Scheme (RCS): In order to promote regional connectivity to unserved and underserved airports, the Government has introduced Regional Connectivity Scheme under which the fare would be capped on these routes and the airlines would be provided a Viability Gap Funding (VGF) to make the operations commercially viable.

• Ground Handling: At least three Ground Handling Agencies (GHA) at all major airports (airports with annual passenger throughput in excess of 1.5 million). All domestic scheduled airline operators can either use these GHAs or carry out self-handling.

• Flexible and liberalised ‘open skies’ and ‘code share’ agreements.

The IndiGo advantage

The Indian air travel market has undergone considerable change during the last few years as several airlines entered and exited the market. However, IndiGo always differentiated itself from its peers by creating unique structural advantages which have enabled us to focus on providing customers with low fare, on-time performance and hassle-free customer service.

We had placed order of 100 A320 aircraft in June 2005, 180 A320Neo aircraft in June 2011 and 250 A320Neo aircraft in August 2015 – each of which was the largest single order placed with Airbus at those times. The size of these orders helped us to negotiate favourable terms with the aircraft manufacturer as well as aircraft-related suppliers and service providers. This has given us a structural cost advantage by reducing overall costs associated with fleet acquisition, maintenance and operation. We were also one of the first airlines globally to order the A320Neo. According to Airbus, A320Neo aircraft are expected to deliver up to 15% fuel savings initially and up to 20% fuel savings by 2020 compared to A320 aircraft without sharklet. This is expected to further reduce our fuel consumption per flight as these aircraft have started entering our fleet from FY16.

We also follow a disciplined execution of low cost model by employing single aircraft type, high aircraft utilisation, high operational reliability, no-frills product, low distribution costs and focus on ancillary revenues.

The clearly focussed strategy has helped IndiGo double its market share in the past five years from 17.6% in FY11 to 36.9% in FY16.

The Company has continuously received industry accolades since its inception in recognition of the quality of the airline service, including being awarded the “Best Low Cost Airline in Central Asia & India” at the SkyTrax World Airline Awards for seven consecutive years from 2010 to 2016.

Highlights and Results of Operations

Highlights

• Successfully completed its Initial Public Offering and got listed on domestic bourses, namely, BSE Limited and the National Stock Exchange of India Limited; raised Rs. 30.17 billion.

• Declared 8th consecutive year of profitability with highest ever yearly profit.

• Got delivery of 3 new generation fuel- efficient A320Neo.

• Added 3 new destinations, Dimapur, Udaipur and Dehradun, making it a total of 35 domestic destinations.

• Chosen as an AON Best Employer India 2016.

Operational Data

The following table sets forth key operational data for the periods indicated.

Particulars FY Ended March 31
2016 2015 Change
ASK (in million) 42,826 35,327 21.2%
International 4,412 3,910 12.8%
Domestic 38,414 31,417 22.3%
RPK (in million) 35,968 28,177 27.6%
International 3,652 3,220 13.4%
Domestic 32,316 24,957 29.5%
Number of Scheduled Passengers Carried (in thousands) 33,103 25,180 31.5%
International 1,650 1,453 13.6%
Domestic 31,453 23,727 32.6%
Passenger Load Factor (%) 84.0% 79.8% +4.2 ppts
International 82.8% 82.4% +0.4 ppts
Domestic 84.1% 79.4% +4.7 ppts
Block Hours 436,739 354,276 23.3%
International 37,931 29,401 29.0%
Domestic 398,808 324,875 22.8%
Number of Scheduled Destinations Served as of period end 40 37 8.1%
International 5 5 0.0%
Domestic 35 32 9.4%
Total Number of Flights 236,385 192,920 22.5%
International 11,044 9,771 13.0%
Domestic 225,341 183,149 23.0%
Number of aircraft at year/period end 107 94 13.8%
RASK (Rs.) 3.78 3.95 -4.3%
Average fare (Rs.) 4,248 4,882 -13.0%
CASK (Rs.) 3.12 3.42 -8.9%
CASK ex-fuel (Rs.) 2.01 1.80 11.5%

ASK – Available seat kilometre

RPK – Revenue passenger kilometre

Results of Operations

The following table shows a breakdown of our results of operations and each item as a percentage of total revenue (or total expense) for the periods indicated.

FY Ended March 31
(Rs. in million) 2016 % 2015 %
REVENUE
Revenue from operations 161,399.09 97.2% 139,253.36 97.2%
Other income 4,613.93 2.8% 3,945.83 2.8%
Total revenue 166,013.02 100.0% 143,199.19 100.0%
EXPENSES
Aircraft fuel expenses 47,793.24 34.7% 57,484.86 46.1%
Aircraft and engine rentals(1) 26,121.52 19.0% 19,522.38 15.7%
Purchase of stock in trade 1,147.82 0.8% 817.10 0.7%
Changes in inventories of stock in trade (11.32) 0.0% (31.72) 0.0%
Employee benefits expense 17,899.23 13.0% 11,886.91 9.5%
Finance costs 1,348.53 1.0% 1,155.32 0.9%
Depreciation and amortisation expense 5,030.79 3.7% 3,022.14 2.4%
Other expenses 38,393.71 27.8% 30,876.97 24.7%
Total expenses 137,723.52 100.0% 124,733.96 100.0%
EBITDAR(2) 56,730.63 38,425.42
Margin(3) 35.1% 27.6%
EBITDA(2) 30,609.10 18,903.04
Margin(4) 19.0% 13.6%
Profit before tax (charge)/benefit 28,289.50 18,465.23
Margin 17.5% 13.3%
Tax (charge)/benefit
Current Tax
- Current period (7,303.93) -
Minimum Alternative Tax (MAT)
- Current period - (3,889.77)
Less: MAT credit entitlement - 2,014.85
Deferred tax credit / (charge) (1,088.37) (3,548.59)
Profit for the year 19,897.20 13,041.72
Margin 12.3% 9.4%

Note:

(1) Aircraft and engine rentals are defined as aircraft and engine rentals net of cash and non-cash incentives.

(2) EBITDAR is earnings before finance income and cost, income taxes, depreciation and amortisation and aircraft and engine rentals. It is calculated as EBITDA plus aircraft and engine rentals. EBITDA is earnings before finance income and cost, income taxes, and depreciation and amortisation. It is calculated as total revenue subtracting total expenses but excluding finance cost, finance income and depreciation and amortisation.

(3) EBITDAR margin is calculated as EBITDAR / revenue from operations.

(4) EBITDA margin is calculated as EBITDA / revenue from operations.

Balance Sheet

The following table shows a breakdown of our balance sheet for the periods indicated.

Particulars FY Ended March 31
(Rs. in million) 2016 2015 Change
Equity and Liabilities
Shareholder’s funds(1) 18,342.77 4,206.95 336.0%
Non-current liabilities(2) 71,989.60 73,985.23 -2.7%
Current liabilities(3) 39,858.74 29,490.27 35.2%
Total Liability 130,191.11 107,682.45 20.9%
Assets
Non-current assets(4) 74,183.25 76,002.32 -2.4%
Current assets(5) 56,007.86 31,680.13 76.8%
Total Asset 130,191.11 107,682.45 20.9%

Note:

(1) Shareholder’s funds comprise (a) Share capital and (b) Reserves and surplus.

(2) Non-current liabilities comprise (a) Deferred tax liabilities (net), (b) Long-term borrowings, (c) Other long-term liabilities, (d) Long-term provisions and (e) Deferred incentives.

(3) Current liabilities include (a) Short-term borrowings, (b) Trade payables, (c) Other current liabilities,

(d) Short-term provisions and (e) Deferred incentives.

(4) Non-current assets include (a) Fixed assets, (b) Non-current investments, (c) Deferred tax asset (net),

(d) Long-term loans and advances, and (e) Other non-current assets.

(5) Current assets comprise (a) Current investments, (b) Inventories, (c) Trade receivables, (d) Cash and bank balances, (e) Short-term loans and advances and (f) Other current assets.

Revenue

Of the total revenues of Rs. 166,013.02 million generated in FY16, 97.2% was on account of revenue from our operations. Our revenues from operations comprise primarily of passenger ticket revenue, which we recognise on flown basis i.e., when service is rendered. In addition, we also earn revenue from ancillary products and services. Our ancillary products and services are composed of:

(i) revenue from ancillary passenger related services, which mainly consists of charges for special service requests (including seat selection, charges for infants, and assistance for unaccompanied minors), ticket modification or cancellation including expiry of credit shell, excess baggage, lounge income and convenience fees; and

(ii) revenue derived from products and services that are ancillary to our airline passenger services, which mainly consists of cargo services, in-flight sales, advertisement, commission from insurance and our tours and packages business.

The breakup of revenue from operations and percentage share of total revenue from operations is given in the following table:

FY ended March 31
(Rs. in million) 2016 % 2015 %
Passenger ticket revenue 140,624.22 87.1% 122,938.97 88.3%
Revenue from ancillary products and services 20,019.97 12.4% 15,724.94 11.3%
Other operating revenue(1) 754.89 0.5% 589.45 0.4%
Revenue from operations 161,399.09 100.0% 139,253.36 100.0%

Note:

(1) Representing amortisation of credits received on finance lease aircraft

Our revenue from operations increased 15.9% from Rs. 139,253.36 million in FY15 to Rs. 161,399.09 million in FY16 on account of the following: Passenger ticket revenue: Our passenger ticket revenue in FY16 was Rs. 140,624.22 million compared to Rs. 122,938.97 million in FY15, an increase of 14.4%. This was primarily due to 21.2% increase in capacity, 4.2 percentage points increase in load factors partially offset by 13% reduction in average fares.

Revenue from ancillary products and services: Our ancillary revenue increased by 27.3%, from Rs. 15,724.94 million in FY15 to Rs. 20,019.97 million in FY16.

• Our revenue from ancillary passenger related services increased by 37.5%, from Rs. 7,608.24 million in FY15 to Rs. 10,464.65 million in FY16. While the passengers we carried in this period increased by 31.5%, our revenue from ancillary passenger related services per passenger increased from Rs. 302 in FY15 to Rs. 316 in FY16, an increase of 4.6%.

• Cargo and inflight sales contributed 97.4% of revenue derived from products and services ancillary to our passenger services, increasing from Rs. 8,116.70 million in FY15 to Rs. 9,555.32 million in FY16, an increase of 17.7%. Cargo increased by 15.9% whereas inflight sales increased by 33.8% in line with increase in passengers. were amortised on a pro rata basis in FY15, based on their delivery month.

While no new delivery of finance lease aircraft took place in FY16, incentives for all the aircraft on finance lease were amortised over the entire year.

Other Income: The primary components of our other income are:

1. Finance income consisting of interest on fixed deposits and gain on sale of current investments

2. Other non-operating income such as profit on sale of fixed assets, liabilities written back no longer required etc.

Our other income has increased from Rs. 3,945.83 million in FY15 to Rs. 4,613.93 million in FY16, an increase of 16.9%. This is primarily on account of increase in our finance income, which has risen from Rs. 3,739.65 million in FY15 to Rs. 4,059.72 million in FY16.

The breakup of revenue from ancillary products and services is given below:

FY ended March 31
(Rs. in million) 2016 % 2015 %
Revenue from ancillary passenger 10,464.65 52.3% 7,608.24 48.4%
related services
Cargo 7,576.65 37.8% 6,538.80 41.6%
Tours 33.04 0.2% 146.09 0.9%
Inflight 1,726.31 8.6% 1,290.28 8.2%
Advertisement 218.87 1.1% 138.60 0.9%
Commission 0.45 0.0% 2.93 0.0%
Total Ancillary Revenue 20,019.97 100.0% 15,724.94 100.0%

Other operating income: Our other operating income, comprising amortised incentives for aircraft on finance lease increased 28.1% from Rs. 589.45 million in FY15 to Rs. 754.89 million in FY16. We had got delivery of 4 aircraft on finance lease in FY15, incentives for which Expenses

We had total expenses of Rs. 137,723.52 million in FY16 compared to Rs. 124,733.96 million in FY15, an increase of 10.4%. While the fuel cost was favourable to us in FY16, we were impacted by higher employee cost and higher depreciation charge due to adoption of component accounting.

Aircraft fuel expenses: Aircraft fuel was 34.7% of our total expenses in FY16 compared to 46.1% of total expenses in FY15. In India, fuel price is announced every month for the various airports in the country, based on the prevailing exchange rate and global fuel prices.

Despite the 23.3% increase in block hours and 5.8% depreciation in the Indian Rupee against the US Dollar in FY16 compared to FY15, our fuel costs were lower by 16.9% during the year under review because of the softening of average Brent crude from USD 86.35 per barrel in FY15 to USD 48.73 per barrel in FY16.

Aircraft ownership cost: Our aircraft ownership cost for FY16 and FY15 is detailed below:

FY Ended March 31
(Rs. in million) 2016 2015 %
Aircraft and engine rentals 26,121.52 19,522.38 33.8%
Finance cost 1,348.53 1,155.32 16.7%
Less: Finance income (4,059.72) (3,739.65) 8.6%
Depreciation and amortisation 5,030.79 3,022.14 66.5%
Total 28,441.12 19,960.19 42.5%

Our aircraft ownership cost increased by 42.5% in FY16 compared to FY15. Aircraft and engine rentals, which is the largest component of aircraft ownership cost, increased by 33.8% in FY16 compared to FY15, as our capacity increased by 21.2% and the Indian Rupee depreciated by 5.8% against the US Dollar. Our aircraft and engine rentals also include supplementary rental payments to our lessors, based on actual utilisation of our aircraft.

In February 2016, we used part of the IPO proceeds to retire debt for 5 aircraft that were on finance lease. However, it did not have any material impact on our finance cost in FY16.

We adopted component accounting in FY16, which increased our depreciation cost compared to FY15. We booked an additional depreciation charge of Rs. 1,568.31 million because of adoption of component accounting in FY16.

Employee benefits expense consists primarily of salaries, bonuses and allowances, as well as statutory mandatory contributions pursuant to Provident Fund and other funds, recruitment costs and staff welfare costs. During FY16, employee benefits were Rs. 17,899.23 million, an increase of 50.6% over FY15. This increase is attributable to increase in capacity by 21.2%, issue of ESOPs pursuant to the IPO and hiring of operational staff for future growth. The excess staffing was mainly the result of not receiving the number of A320Neo that we were expecting from Airbus. However, now with the A320Neo deliveries back on track, we expect our surplus staffing to gradually get absorbed in the system.

Other expenses comprise landing fee and en route charges, aircraft insurance costs, aircraft maintenance cost, selling and distribution cost, in-flight purchases, rent, legal and professional fees and other operating costs and in-flight and passenger related costs. The table below details other expenses:

FY Ended March 31
(Rs. in million) 2016 2015
Landing fee and en route charges 14,099.71 10,901.32
Maintenance cost 5,666.27 4,174.85
Selling and distribution cost 9,016.10 8,729.76
Other operating expenses 9,611.63 7,071.04
Total 38,393.71 30,876.97

Landing fee and en route charges, maintenance cost and selling and distribution cost together represented 75% of our other expenses.

Landing fee and en route charges include landing charges, route navigation facility charges, terminal navigation landing charges, parking and housing charges, X-ray charges and CUTE charges (at CUTE-enabled airports). Landing fee and en route charges were Rs. 14,099.71 million in FY16, an increase of 29.3% over the same period last year, primarily driven by increase in departures and annual escalations in airport charges.

Maintenance cost: As an operator of aircraft, we are required to and are responsible for maintaining and repairing the aircraft. Our maintenance and repair expenses consist of scheduled and unscheduled maintenance of our aircraft, engines and other parts. We maintain our aircraft in accordance with standards that meet or exceed Indian regulatory standards and have entered into several fleet hour agreements for our engines, auxiliary power units and other components. We outsource most of the maintenance of our aircraft and engines.

Our maintenance cost increased by 35.7% from FY15 to FY16, due to 23.3% increase in block hours, 5.8% depreciation in Indian Rupee against the US Dollar, in which our maintenance cost is denominated, an increase in number of C-checks in FY16 and annual escalations in maintenance contracts.

Selling and distribution cost includes costs towards our call centres, reservation system, commissions and other miscellaneous expenses towards selling and distribution. This cost component increased by 3.3%, despite a 31.5% increase in the number of passenger travelled. We continue to work on lowering our selling and distribution costs through various initiatives such as encouraging passengers to use our website and mobile app. We also continue to engage with our online and other travel agents to rationalize the commission paid for ticket bookings.

Profit before tax (charge)/ benefit

As a result of the above changes, our profit before tax increased 53.2% from Rs. 18,465.23 million in FY15 to Rs. 28,289.50 million in FY16.

Tax (charge) / benefit

Current Tax and Minimum Alternate Tax (MAT): We recorded a book profit before tax and taxable profit in each of FY15 and FY16 as determined in accordance with the provisions of the Indian Income Tax Act of 1961. As the MAT computed on book profit was higher than income tax computed on taxable profit, we were required to record MAT in FY15. In FY16, our income tax computed on taxable profits was higher than MAT and we paid tax under the normal provisions of the IT Act.

MAT credit entitlement: No MAT credit entitlement was recorded in FY16. However, we recorded a MAT credit entitlement of Rs. 2,014.85 million in FY15.

Deferred tax credit / (charge): We recorded a deferred tax charge of Rs. 1,088.37 million in FY16 compared to deferred tax charge of Rs. 3,548.59 million in FY15.

Our effective tax rate increased marginally from 29.4% in FY15 to 29.7% in FY16.

Profit after tax

Our profit after tax increased 52.6% from Rs. 13,041.72 million in FY15 to Rs. 19,897.20 million in FY16.

Equity and Liabilities As of March 31, 2016, our shareholders’ funds totalled Rs. 18,342.77 million compared to Rs. 4,206.95 million as of March 31, 2015. Our liabilities totalled Rs. 111,848.34 million as of March 31, 2016, compared to Rs. 103,475.50 million as of March 31, 2015.

Shareholders’ funds: We came out with an IPO in October 2015, pursuant to which 39,464,562 equity shares of Rs. 10 each were allotted, at an issue price of Rs. 765, consisting of fresh issue of 16,640,544 equity shares and an offer for sale of 22,824,018 equity shares by selling shareholders. Out of the fresh issue of 16,640,544 equity shares, 104,790 equity shares were issued to eligible employees at a discount of 10% of issue price and the remaining 16,535,754 equity shares were issued to the public. The proceeds from IPO amounted to Rs. 12,091.00 million (net of fresh issue related expenses including service tax). As of March 31, 2016, we have utilised Rs. 6,932.61 million towards the objectives of the IPO as given in the following table:

(Rs. in million)
Particulars Objects of the issue as per the Prospectus Utilised amount up to March 31, 2016 Unutilised amount as at March 31, 2016
Retirement of certain outstanding finance lease liabilities and consequent acquisition of aircraft 11,656.63 6,731.32 4,925.31
Purchase of ground support equipment for our airlines operations 342.58 109.50 233.08
General corporate purposes 91.79 91.79 0.00
Total 12,091.00 6,932.61 5,158.39

Our shareholders’ fund totalled Rs. 18,342.77 million as of March 31, 2016, compared to Rs. 4,206.95 million as of March 31, 2015. This was primarily the result of issuing fresh shares and increased profitability offset by gross dividend of Rs. 18,576.60 million for FY16.

Our non-current liabilities decreased from Rs. 73,985.23 million as of March 31, 2015, to Rs. 71,989.60 million as of March 31, 2016.

• Our long-term borrowings reduced from Rs. 35,884.02 million as of March 31, 2015, to Rs. 29,498.61 million as of March 31, 2016, as we utilised part of our IPO proceeds to repay debt for 5 aircraft on finance lease.

• Our other long-term liabilities increased from Rs. 20,169.51 million as of March 31, 2015, to Rs. 24,722.47 million as of March 31, 2016, primarily on account of increase in supplementary rentals which is in line with our business expansion.

• Deferred incentives dipped from Rs. 13,317.44 million as of March 31, 2015, to Rs. 11,778.16 million as of March 31, 2016, as we continue to amortise the incentives and on account of fewer deliveries from Airbus in FY16.

Our current liabilities increased from Rs. 29,490.27 million as of March 31, 2015, to Rs. 39,858.74 million as of March 31, 2016, mainly on account of proposed gross final dividend of Rs. 6,505.77 million.

Assets

As of March 31, 2016, our total assets were Rs. 130,191.11 million compared to Rs. 107,682.45 million as of March 31, 2015.

Non-current assets decreased marginally by 2.4% from Rs. 76,002.32 million as of March 31, 2015, to Rs. 74,183.25 million as of March 31, 2016. This was primarily on account of reduction in our bank deposits due for maturity after 12 months from the reporting date as we liquidated these deposits to invest in highly rated mutual funds.

Current assets increased by 76.8% from Rs. 31,680.13 million as of March 31, 2015, to Rs. 56,007.86 million as of March 31, 2016, reflecting increased profitability in FY16.

• Our current investments increased 88.5% from Rs. 5,167.52 million as of March 31, 2015, to Rs. 9,741.20 million as of March 31, 2016, as we used our surplus cash to invest in highly rated mutual funds.

• Our cash and bank balances increased 86.0% from Rs. 19,993.80 million as of March 31, 2015, to Rs. 37,186.70 million as of March 31, 2016, reflecting cash generated from operating actitivies and the unutilised IPO proceeds that were temporarily deployed in fixed deposits with banks.

Opportunities, Threats, Risks and Concerns

Historically, Indian flight passengers were individuals in relatively high income brackets as well as corporate travellers. However, the Indian aviation market has witnessed rapid growth beginning in 2003, following liberalising actions by the Indian Government. Between FY11 and FY16, domestic carrier capacity, as measured in available seat kilometres (ASK), grew at a CAGR of 7.5%, while domestic passenger traffic, as measured by revenue passenger kilometres (RPK), grew at a higher CAGR of 9.0%. Among several initiatives, the government’s focus on developing greenfield airports is the key catalyst for the next level of accelerated growth. Expansion of the middle class population, rail travel substitution, and strong economic growth fuelled by improved regional connectivity are also growth drivers.

While we believe that our structural advantages give us the ability to withstand different business cycles, our profitability is dependent on certain external factors:

Depreciation of the Indian Rupee against the US Dollar: Substantially all of our revenues are denominated in Rupees, but we are exposed to foreign exchange rate risk as a large portion of our expenses is denominated in US Dollars, including our aircraft orders with Airbus, all of our aircraft and engine leases and financing payments, our aircraft fuel and a significant portion of our aircraft maintenance expenses.

Price and availability of aircraft fuel:

Aircraft turbine fuel expenses represent the single largest item of our total expenses and hence our operating results are significantly impacted by changes in the availability and the cost of aircraft fuel.

Competition in the airline industry: The airline industry is highly competitive. We face intense competition from other LCCs as well as FSCs that operate on our routes. We may also face competition from airlines that could be established in the future.

Lack of airport infrastructure and facilities and increased airport costs i n India: We are dependent on the quality of airport infrastructure in India and any other market where we operate for future expansion. The availability and cost of terminal space, slots and aircraft parking are critical to our operations.

Changes in government regulations: The civil aviation industry in India is regulated by the MoCA, the DGCA and the Airports Authority of India (AAI).

The regulations are extensive and complex and cover all major aspects of operations, including basic licenses, aircraft acquisitions, and routing. Any changes in the regulations, or the imposition of additional restrictions and conditions that affect our business and operations could impact our revenues, profitability and ability to grow our business.

Internal control system and its adequacies

Our internal control procedures are adequate to ensure compliance with various policies, practices and statutes in keeping with the organisation’s pace of growth and increasing complexity of operations.

We have in place system and process commensurate with our size and nature of business and we maintain a system of internal controls designed to provide reasonable assurance regarding the following:

Effectiveness and efficiency of operations Adequacy of safeguards for assets

• Prevention and detection of frauds and errors

• Accuracy and completeness of the accounting records

• Timely preparation of reliable financial information

Independent internal audit is carried out to ensure adequacy of internal control system and adherence to policies and practices. The scope of internal audit activity is guided by the internal annual audit plan which is approved by the Audit Committee of the Board. The Audit Committee reviews reports submitted by the independent internal auditor and monitors follow up and corrective action taken.

Outlook

In 2015, India had 1.311 billion people, according to the UN’s new estimates, against China’s 1.376 billion, a difference of 65 million. India is expected to overtake China as the world’s most populous nation by 2022, as the new UN report revises its previous estimates, which had earlier put the date around 2028. This increased population coupled with strong growth in tourism are catalysts in the domestic aviation market. Rising disposable income in the hands of the Indian middle class will lead to more frequent air travel.

India is a vast country with airports covering different geographies and IndiGo is flying to only 35 of such airports as of March 31, 2016. The substantial gap between the aircraft penetration rates in India and larger aviation markets in India suggest large elbow room for carriers. As we get more aircraft, we will not only have a denser network by increasing routes and frequencies on the existing destinations but will also enter newer regions. According to Airbus, in the 20 years from 2015 to 2034, India will require over 1,600 new passenger and freighter aircraft to help meet growth in demand. Valued at USD 224 billion, these will include 1,230 new single aisle aircraft and 380 wide-body passenger and freighter aircraft. By 2035, the number of Indian cities with over one million monthly air passengers will more than triple. In terms of origin and destination (O-D) traffic, passenger growth is expected to grow nearly six times in next twenty years from 2015.

As per a report published by FICCI and KPMG, increasing disposable incomes, fall in prices of Aircraft Turbine Fuel (ATF), increase in tourism, visa reforms, etc. have placed India in a unique position. The Indian civil aviation industry has exhibited tremendous resilience to the global economic slowdown and ranks ninth in the global civil aviation market. This is attributed largely to the growing economy, increased competition among airlines, especially among low cost carriers, modern airports, greater use of technology, Foreign Direct Investment (FDI) and increased emphasis on regional connectivity. These factors have placed India to be the third largest aviation market by 2020 and the largest by 2030.

IndiGo has been consistently profitablefor the past eight years. We will continue to focus on driving costs down and creating a stronger brand through operational efficiencies.

Human Resources

IndiGo has a foundation that emphasises on people. We not only offer a best-in-class experience to our customers but also extend the same to our employees.

IndiGo participated in the prestigious AON Best Employer Survey and was chosen as an AON Best Employer India 2016. Such moments are made possible only by the dedication of our employees who work hard every day to provide the best operation and service in the industry. We are committed to remaining among the world’s leading employers.

Recruitment and Training: We have a dedicated 75,000 sq. feet state-of-art learning academy, named iFly, for our training requirements. We have also tied up with various facilities for pilot training.

As of March 31, 2016, IndiGo employed 12,362 employees, of which 1,747 were pilots and 3,218 were cabin crew. We added a net of 1,826 people during FY16. We have continuously been able to hire sufficient pilots and cabin crew to keep pace with the expansion of our operations and fleet.

Pilots

We require our Indian national captains to have a minimum of 2,500 hours of flying experience and 300 hours of command experience, and our expatriate captains to have a minimum of 4,000 hours of flying experience and 500 hours of command experience on A320 aircraft. Additionally, we require our pilots to undergo simulator assessment checks. While we recruit experienced pilots who are qualified on the A320, we also hire non-type rated pilots who complete a comprehensive training programme to become type-rated. Type rating is a certification that a pilot has additional training to fly aircraft type, e.g. A320, in addition to the usual pilot training.

We have contracts with various DGCA-approved training facilities with full flight simulator training devices, including CAE in Noida, Bengaluru, Dubai, Madrid and Brussels, CTC Aviation Group Limited in the UK, and the Flight Simulation Technique Centre in Gurgaon. Our pilots also undergo regular training in accordance with our requirements and relevant regulations, together with cockpit resource management and other safety equipment and emergency procedure training.

Cabin Crew

We have formulated and implemented a recruitment policy for our cabin crew. We assess the educational qualifications, communication skills and personality traits of every candidate, and recruit those who have clear speech, a positive attitude and mindset, and exhibit courteous behaviour.

All our cabin crew undergo a programme called “Ab initio” training (a Latin term meaning “from the beginning”), irrespective of their previous experience. Courses include safety equipment and emergency procedure training, first aid, cabin familiarisation, in-flight announcements, grooming, customer service and in-flight selling skills. Certain safety and regulatory components of this programme have been approved by the DGCA.

Employees

As of March 31, 2016, the Company had 12,362 employees and we are adequately staffed not only for our current operations but also our anticipated growth. We have incorporated the best hardware, software, interface design and personnel from around the world to give our employees a platform to provide world-class solutions to customers. Our employees are encouraged to develop their acumen further as IndiGo has tied up with UGC-recognized universities such as IMT Ghaziabad, Narsee Monjee Institute of Management Studies, Bharti Vidyapeeth, Embry-Riddle Aeronautical University and others under our program “IndiGo Beyond”. In order to further sharpen the competency framework of our employees, we continuously try to meet their learning needs through tech-enabled and classroom trainings.

Our remuneration policy focuses on maximising efficiency and productivity while keeping the staff motivated and committed at the same time. We offer our management and administrative employees a range of incentives and loyalty bonuses. In addition to industry competitive base compensation, we also provide sector pay in relation to hours flown for all flight crew. Flight crew may also qualify for other loyalty and profit-related bonus schemes. Additionally, our cabin crew receives commissions for in-flight sales.

Employees of our airline are not members of any labour union. We have not experienced any labour strikes or work stoppages since our inception.

   

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