GO AIR IPO- Let’s take a peek into the company and the industry most affected by the pandemic

The low cost, economy airlines, GoAir, now re-branded as Go First has filed an addendum to its DRHP, on November 10. The DRHP was filed with SEBI on May 14, 2021 and it received a green signal from SEBI on August 31, 2021.

Let us take a look at the workings of the company and the management of the upcoming Rs.3600 crore GoAirlines IPO. GoAir, founded in 2004 and owned by the Wadia group, started its operations in 2005 and has since then carried 80 million passengers. The company has flights flying to 28 domestic destinations as well as 9 international ones as of January 31, 2020. Around 300 flights are operated daily.

Air travel in general has picked up since the lock- down was eased but still remains focused on the weekend and festivals. The weekday demand for the industry still stands at 30%-35% below the pre-Covid levels, however November and December seems to be shaping up pretty well for the industry as more and more people are taking long holidays as well as traveling back home for the festive season, after more than a year. International flights still hang in the balance.

Another negative factor for the aviation industry is that the government has currently initiated a cap on the fares(both upper and lower range) which does not allow the companies to either increase or decrease the airline fares beyond a certain fixed point. By early 2022, fare cap is expected to be removed. According to analysts, the fare prices could fall substantially after the cap is removed as the airlines focus more on addition of passengers than earning more from one passenger. The airlines will surely lower the fares to attract more and more customers.

According to the FY20 report, the company had a debt of Rs.1,780 crore. Revenue from operation stands at Rs.70,560 million for the year ended March 31, 2020.This is a 21.8% increase over the revenue of Rs.57,887 million for the year ended March 31, 2019. The company has been making continuous losses from 2016-2020.

Also, the Managing director and promoter of GoAir, Jeh Wadia, resigned last week and the former CEO of Spirit Airlines, Ben Baldanza has been appointed as GoAir’s Vice Chairman. They have been thinking about going public for a few years but various tiffs in the upper management has kept delaying the process. The Wadia group has 73.3% stake in the company and Baymanco Investment Ltd owns 21.50% stake.

Lets take a look at all the details we have about the upcoming IPO. The book running lead managers, according to the addendum filed with SEBI are, ICICI Securities Ltd, Morgan Stanley India Private Ltd and Citigroup Global Markets India Pvt Ltd. The objectives of the issue are stated as:

1. Prepayment and repayment of all the debt accumulated by the company

2. Repayment of the dues to Indian Oil Corporation for the fuel that has been supplied to GoAir

3. Paying for the upkeep and maintenance of the aircrafts (Rs.254.93 crore)

As on November 2, 2021, Rs.1,346.7 million is the amount of money owed by the company to vendors. The company plans on utilizing Rs.96.3 crore from the proceeds of the issue, to pay back the vendors.

Strengths of investing in the IPO:

1. It has one of the youngest fleets of aircraft in India and globally with the average age being 3.7 years, as of February 2021

2. The market share of the country rose from 8.8% in FY17-18 to 10.8% in FY19-20

3. Even the passenger volume increased by 22.4% to 16.2 million in FY20 and the passenger revenue has also risen by 24.8%

4. The company is set to receive its order of 99 A320 NEO Aircrafts over the next few years

Risks of investing in the IPO:

1. The number of departures in December 2020 decreased to 63% of the total in December 2019, due to which the fixed costs increased along with a rise in the amount of debt due to the pandemic

2. A net loss of Rs.470.69 crores between April 2020 and December 2020

3. The entire fleet they possess comprises of Airbus A320. If there are any problems in the engine of the A320, the whole fleet will face the problem and this will be catastrophic for the company

4. Low profit margins experienced