GoAir IPO filing - All you need to know

About GoAir

• GoAir is one of the popular low-cost airlines founded in November 2005.
• The company has recently announced that they are going to rebrand themselves as an ultra-low cost carrier.
• The company is owned by the Indian business conglomerate Wadia Group.
• As of March 2020, the company has a network of 38 destinations - 11 international and 27 domestic. The company has 325 daily flights and more than 2000 weekly flights.
• The total borrowing of the company is Rs 2,955 crore.

How does it plan to use the capital raised?

Through the Initial Public Offering, the company plans to raise Rs 3600 crore via a fresh issue of shares. The company plans to use the capital raised as follows:

• The major percentage of the proceeds will go to scheduled repayment of all or a portion of borrowing the airline has so far. It plans to use 56% or Rs 2,015 crore to pay towards its borrowing.
• It will use Rs 279 crore for the replacement of letters of credit issues to certain aircraft lessors.
• Rs 254 crore is earmarked and will go to the Indian Oil Corporation to clear the pending dues.
• The airline will have a little over Rs 1,000 crore to use for expansion or other business requirements.

Competition

The company has only two listed competitors - SpiceJet and IndiGo. If you compare GoAir with IndiGo, the total income of GoAir for FY20 was only 19% that of IndiGo. However, it is in line with the number of the fleet it has. GoAir's market share has been around 10% for years now, and the company has struggled to capture more market.

IndiGo has a market cap of around Rs 65,000 crore, while SpiceJet has a market cap of Rs 4,200 crore. GoAir in its last funding round, raised Rs 546 crore at an evaluation of Rs 2,600 crore. If the IPO comes at similar valuations, the promoters have to dilute a big percentage of their present 100% holding. As per reports, the company aims to set a higher evaluation than SpiceJet.

Growth opportunity

The reports and studies conducted by independent agencies have portrayed a bright future for the Indian aviation industry in the past. Is the picture close to reality? If you look at the numbers, they tell a different story. Only a fraction of the Indian population takes a flight each year. The number of total passengers in India that took flights in 2019 was 144.2 million. European low-cost airline Ryanair alone had better numbers.

The Indian airline industry has always eaten its investors' and promoters' money. But there is no denying there are growth opportunities. On one side, there are stories of Air India and Jet Airways, on the other side, there is a success story of IndiGo. It would be interesting to see how GoAir uses the money it plans to raise, how the ultra low-cost carrier game plays out and which side of the story the company ends up with.

It will be interesting to see if GoAir’s IPO changes the fortune of the airline in these challenging times.