| InterGlobe Aviation Limited | ||||||
| 'CRISIL AA-/Stable/CRISIL A1+' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings to the bank facilities of InterGlobe Aviation Limited (IndiGo).
The ratings factor in the strong and established market position of the company in the Indian aviation sector with a market share of more than 60% in the domestic segment and around 18% in the country’s international passenger segment. Credit risk profile also benefits from the track record of maintaining operating profitability with demonstrated resilience during industry downturns and healthy financial flexibility with sufficient liquidity cushion.
During the nine months of fiscal 2024, revenue grew 27% to Rs 51,079 crore on y-o-y basis, supported by strong passenger and capacity growth seen across IndiGo’s domestic and international network. During the same period, earnings before finance income and cost, tax, depreciation, amortisation and aircraft/engine rental (EBITDAR) margin improved to 25.5% against 13.4% for full fiscal 2023, owing to moderation in fuel costs, high passenger load factors (PLFs) and firm yields. Holding up of yields owing to a tight demand-supply situation, along with planned fleet addition during fiscal 2025 and sustenance of passenger demand growth is expected to keep the operating performance healthy in the near term.
As of date, the number of aircraft that are grounded for the carrier are in the mid-70s due to an issue with powder metal contamination in the engines of these aircraft. However, the airline continues to engage with the original equipment manufacturer (OEM) and expects the number of groundings to remain range-bound and also expects steady deliveries of aircraft from its large orderbook, along with flexibility to extend expiring leases as well as take aircraft on new dry or damp operating leases from the secondary market. The mitigants being put in place by the company are expected to minimise the impact of groundings in the near term. Earlier, the company placed the largest ever single order of 500 aircraft during early fiscal 2024 and had a total order book of around 960 aircraft as of March 2024, to be delivered by 2035.
IndiGo’s financial risk profile, characterised by debt mainly consisting of capitalised lease obligations for its fleet, has seen improvement with the debt protection metrics strengthening during the second half of fiscal 2023 and first half of fiscal 2024, and are expected to improve further, on the back of strong cash accruals expected in the near to medium term. The financial risk profile is further boosted by the healthy unencumbered cash and equivalents maintained on the books (Rs 19,200 crore as on December 31, 2023), enabling it to maintain adequate liquidity to protect itself from adverse external events and yet continue with operations in a smooth manner, as well as additional financial flexibility from undrawn fund-based lines of Rs 4,700 crore as of December 2023. The airline has a demonstrated track record of maintaining healthy liquidity on the books and we expect it to maintain adequate liquidity equivalent to at least six months of fixed operating expenses.
These strengths are partially offset by the inherent volatility in operating profitability of the aviation business, as has been seen in the past, owing to fluctuations in the price of aviation turbine fuel (ATF) as well as in foreign exchange rates. The cashflows are also prone to risks such as grounding of aircraft owing to various reasons and sudden demand destruction (as seen during the pandemic). Further, competitive intensity may go up over the medium term as the other airlines step up their capacity. CRISIL Ratings expects IndiGo to be able to sail through the industry downturns with the help of its strong market position and financial flexibility, as has been demonstrated in the past. |
Analytical Approach CRISIL Ratings has followed a consolidation approach and has combined the business and financial risk profiles of IndiGo and its wholly owned subsidiary, Agile Airport Services Pvt Ltd, owing to the strong financial linkages amongst the entities.
The lease liabilities are considered as debt since these leases are for core assets (aircraft) of the business, have unconditional and non-negotiable obligation to pay lease rentals, and are of long tenure.
CRISIL Ratings has adjusted the total cash and equivalents to arrive at the freely available cash, which in turn is used to arrive at the net debt.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
IndiGo has kept its focus on growth and on building a wide network, which has enabled it to command a domestic market share of around 62% for fiscal 2024, with the share growing consistently since 2007. In the international segment of Indian aviation as well, it has a market share of around 18% (out of the 43% share in this segment held by Indian carriers) for the same period. Further, the company has consistently expanded its fleet with the help of large orders placed with the aircraft manufacturers and had a total fleet of 366 aircraft as of February 2024. Going forward, deliveries of aircraft against the current orderbook of 960 aircraft is expected to further strengthen the already robust market position of IndiGo.
The company also fares well with other airlines in terms of key parameters such as passenger load factors (PLFs), on-time performance, cancellation rate, etc. The company’s focus on cost leadership has given it a competitive edge, which has enabled it to be least impacted amongst others, during the downturns witnessed by the industry. The company has exhibited a track record of operating profitability with positive EBITDAR margins as well as profit after tax (PAT) over the decade until onset of the pandemic (i.e. fiscals 2009 to 2019). Company also became PAT positive again post pandemic starting the third quarter of fiscal 2023 and remained PAT positive during fiscal 2024. Operationally, the carrier has maintained strong PLFs of over 80% even as it has added capacity continuously.
The company maintains strong unencumbered liquidity on its books with cash and equivalents of Rs 19,200 crores as on December 31, 2023. The company intends to keep sufficient liquidity reserves to manage its costs and industry downturns. The company is also in midst of augmenting the number of owned aircraft which acts as ready liquidity. Liquid nature of narrowbody aircraft enabled the company to sell owned aircraft to generate liquidity during the pandemic, thus providing further cushion to IndiGo’s financial flexibility. The company also had undrawn working capital limits of Rs 4,700 crore as on December 31, 2023.
Indigo’s financial risk profile was impacted during the pandemic, as losses during fiscals 2021 to first half of 2023 resulted in negative net worth and weak debt protection metrics. However, consistent PAT since the third quarter of fiscal 2023 have led to an improvement in the cash accrual and the net worth as on December 31, 2023 became positive once again. While the capital structure (measured in terms of total outside liabilities to tangible net worth [TOL/TNW]) is still levered owing to networth erosion during the pandemic, it is expected to improve steadily with healthy accretion to reserves.
Debt protection metrics, such as the ratio of net debt (considering free cash) to EBITDAR was at 4.4 times as of the end of fiscal 2023 and CRISIL Ratings expects it to have improved below 2 times by the end of fiscal 2024 and remain in the range of 2 to 2.5 times over the medium term. This is despite steady increase expected in lease liabilities owing to the growth in company’s fleet over the medium term.
Weaknesses:
ATF cost accounts for 35-40% of the total operating cost of players in the aviation industry. Furthermore, the ATF price is directly linked to global crude prices and, hence, is volatile. While the elevated ATF price and high fixed cost have impacted the operating margin of IndiGo in the past, fluctuations in the operating margin owing to fluctuations in ATF prices will be a key monitorable. Around 80% of company’s fleet comprises of the more fuel-efficient NEO aircraft, which along with its youngest fleet globally (among airlines having a fleet of more than 100 aircraft) with an average age of around 3.9 years as on December 31, 2023, helps in lowering its fuel and maintenance costs.
IndiGo’s financials are also vulnerable to foreign exchange (forex) fluctuations as lease rentals and maintenance cost, which account for 30-35% of the operating cost, are denominated in the US dollar. However, the company manages its forex exposure by creating a natural hedge with the help of international revenues and other forex-denominated inflows received on account of contractual arrangements with its suppliers. The company also holds sizeable deposits on its balance sheet which are denominated in forex. The company has furthermore started to partially hedge its forex exposure through derivatives on a rolling basis.
India’s airline industry is highly competitive, underpinned by presence of incumbent players as well as entry of new ones. Sizeable capacity additions planned by other players over the medium term would mean that players may have limited ability to pass on price increases to passengers because of intense competition to strike an adequate balance between the fares and PLFs. Furthermore, the price-sensitive nature of the market may limit IndiGo’s ability to command premium pricing to an extent.
Aviation industry worldwide primarily has two key airframe suppliers and two key aircraft engine suppliers leaving airlines with limited supplier options. Majority of Indigo’s fleet pertains to the family of A320 and A321 aircraft from Airbus, which exposes the company to concentration risk due to dependence on a single OEM. While operating an Airbus fleet benefits Indigo in terms of having an option to choose the engine supplier and operating a large fleet of the same aircraft family helps by providing better negotiation power for maintenance contracts, minimising its spares requirements and keeping its personnel training costs under check, any disruption to the supply chain of the OEM, resulting in delay in deliveries, may pose a challenge to IndiGo’s ability to expand its capacity. |
Liquidity: Strong As on December 31, 2023, the company had free cash and equivalents of Rs 19,200 crores, in addition to ~Rs 13,000 crore of restricted cash placed with lenders towards lease rental and maintenance obligations. The cash and equivalents on the balance sheet and steady cash accruals expected over the medium term would be sufficient to meet operational expenses as well as debt/lease obligations. The company also had undrawn fund-based limits of about Rs 4,700 crore as on December 31, 2023, which provide additional liquidity cushion. |
Outlook: Stable CRISIL Ratings believes IndiGo will continue to benefit from its strong business risk profile underpinned by its young fleet and domestic market leadership and maintain a strong financial risk profile, driven by strong liquidity and prudent risk management approach. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company IndiGo started commercial operations in 2006 as a private company and went public in 2015. It operates on a low-cost carrier (LCC) model primarily within the Indian air travel market. It is the largest airline carrier in India with more than 60% market share, a fleet size of 350+ and 2000+ daily departures as of December 2023. It is the youngest airline globally to serve 100 million customers, achieving this feat in calendar year 2023.
Its fleet comprised mainly of narrowbody aircraft, namely 94 A321 Neo, 191 A320 Neo, 31 A320 Ceo, 45 ATR, 3 A321 Freighter and 2 B777 as on February 29, 2024. As of March 2024, the airline has expanded its network connecting 88 destinations domestically and 33 destinations internationally, in addition to 49 destinations through codeshare arrangements with eight leading global airlines.
For the first nine months of fiscal 2024, net profit was Rs 6,278 crore on total income of Rs 52,726 crore, compared with net loss of Rs 1,224 crore on total income of Rs 41,281 crore in the corresponding period of the previous fiscal. The Company’s net worth turned positive again on December 31, 2023. |
Key Financial Indicators (CRISIL Ratings-adjusted figures)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Exchange rate Rs 84/USD #Sub-limit of Overdraft facilities to the extent of Rs 40 crore ^Fund-based facilities together with Daylight overdraft facility are fungible with non-fund based facilities to the extent of USD 10 million |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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#Sub-limit of Overdraft facilities to the extent of Rs 40 crore
^Fund-based facilities together with Daylight overdraft facility are fungible with non-fund based facilities to the extent of USD 10 million
Criteria Details
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