Wadia Group has brought back it’s Rs3,000 crore (US$411m) IPO plans for GoAir and has appointed Citigroup, Morgan Stanley and ICICI. That is a reduction of 40% on the original asking price in 2019 prior to the pandemic. You may recall that in September 2019 RS5,000 crore was the asking price for a 25-30% stake. This time the Wadia Group is aiming to dilute around the same (up to 30%). The group is looking to raise funds to reduce debt. The question is – Is this enough of a price reduction given that the Indian middle classes have been hit very hard by the pandemic, and the resulting deep recession will inevitably lead to reduced passenger numbers and increased competition. We shall find out what potential investors think over the coming days and weeks. GoAir had debts of Rs 1,819 crore going into the pandemic, with net profit of Rs 123 crore on revenues of Rs 6,262 crore. Getting back to that position post pandemic will take a couple of years, but at the same time if the debt is reduced down substantially then there is no reason why the airline cannot perform well. GoAir operated more than 300 daily flights and had 8.6% share of domestic passenger traffic prior to the pandemic, flying to 36 destinations, including 27 domestic cities.
There is no question that this IPO undervalues the airline in normal times and that should help to send it off favourably. But make no mistake, investing in the Indian airline sector at this time of great change is a gamble on both consolidation taking place, and Air India being privatised. The latter more than anything else will bring the most change to the Indian market, if Air India is successfully sold-off and the government moves out of the airline sector for good, then all airlines within India will see an incredibly huge boost to their fortunes as the playing field levels-off and Air India contracts. I could spend another 5000 words explaining in great detail what could and could not happen within the Indian market over the next 12 months, but I will leave that for Airline Economics magazine – Suffice to say that Air India will be privatised at some point in the near term, GoAir is a good, well managed airline with prudence being the watchword of the past decade at GoAir. This IPO looks like a very good opportunity for investors and/or for another airline to gain a foothold within the Indian market with a good airline at a great price. The Indian airline market has been turning a corner for five or so years, if Air India privatises then you will see the corner fully turned at breakneck speed and a transformation for the better will be at the other side, and GoAir will be at the centre of that. For these reasons Indigo and SpiceJet shares have been flying high of late – a great deal depends on that Air India privatisation taking place successfully.