Bipin Shah   Self Employed
MUMBAI: Operational efficiencies and constant stream of earnings from sale and lease back of aircraft will help Gurgaon-based budget airline IndiGo to post 650-700 crore of gross profit for the financial year ending March 31, said people familiar with the financials of the airline. IndiGo, promoted by InterGlobe Enterprises owned by Rahul Bhatia, is an unlisted company.

This will be the second successive good results posted by the airline as IndiGo earned 550 crore of gross profit in the financial year 2010 with a 25% profit margin. Profit margin refers to a measure of profitability which is calculated by finding the net profit as a percentage of the revenue.

Its margins for the financial year 2011 are expected to be around 18.6% to 20% on revenues of 3,500 crore, the person said.

Driven by robust demand, IndiGo has expanded its market share by nearly 4% compared to its market share in the financial year last year. With the growing demand, the airline has also expanded fleet by adding 10 aircraft, taking its total fleet size to 36.

"They have expanded fleet capacity by about 25% and since the demand has been good this year, IndiGo is likely to increase its profits by 25% as compared to the last financial year," said the person.

But industry insiders feel that the profits reflected in IndiGo's balance sheet are not operational profits alone. Most aviation analysts and industry experts say IndiGo's rising profits are due to its sale and lease back income. Sale and lease back is a process where airlines sell aircraft to a leasing firm which then leases aircraft back to the original owner, helping the airlines to save on capital expenditure and improve balance sheet.

"The benchmark is SpiceJet and we can compare IndiGo to them. SpiceJet has 13% of passenger traffic share and it is likely to post a profit of 175-180 crore this year. These profits will be operational profits alone without the sale and lease back income. IndiGo has a 20% market share if we give it a premium of 1.5% for operational efficiency, it is most likely that their operational profits will be in the range of 370-400 crore for 2011, realistically speaking," said IDFC Securities MD Nikhil Vora.

Aviation experts say airlines will take a hit in revenues because of the spike in fuel costs, resulting from the Egypt and Libya crisis. The brent crude is hovering way above the $100 mark for a month now.

The Centre for Asia Pacific Aviation says that IndiGo will be down by $20-30 million of profits because of the February and March unrest in Middle East. CAPA has adjusted IndiGo's profits at 550 crore, the same as last year in a report to be released shortly.

"A gross profit of 650-700 crore might be a bit exaggerated as the last two months of the Q4 of 2011 airlines will definitely take a hit as the demand was low and also the crude prices have been high. We expect the airline to take a hit of $25-30 million on this basis and this is the reason why we have adjusted the profit for IndiGo to be at 550 crore," said Kapil Kaul, CEO, CAPA, South Asia.
Mar 27th 2011 23:59