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 amor