IndiGo clarifies on co-founder stake sale report, stock extends decline; what should be your strategy?

InterGlobe Aviation (IndiGo), an aviation company with the largest market share, clarified in a regulatory filing that the co-founder's intention to sell the stake is not known to the company.

The budget airline company was replying to the exchange's query on a news report that ‘IndiGo co-founder's family likely to sell stake worth up to $909.6 mln.’

"We would like to state that the company has not received any such information, nor has the company been made aware by the co-founder of their intention to sell their stake," IndiGo said in its exchange filing on Tuesday.

The family of IndiGo's co-founder Rakesh Gangwal was likely to sell a 5 per cent and 8 per cent stake in the Indian airline's parent, InterGlobe Aviation, worth up to 75 billion rupees ($909.58 million), a Reuters report said on Monday.

Rakesh Gangwal and his wife, Shobha Gangwal, hold 13.23 per cent and 2.99 per cent, respectively, in InterGlobe as of March 31, while their Chinkerpoo Family Trust holds a 13.5 per cent stake, according to exchange data.

Rakesh Gangwal and Rahul Bhatia, who co-founded IndiGo in 2006, fell out in early 2020 when the former sought to modify certain rules in the company's articles of association.

Shares of IndiGo, which are up nearly 33 per cent in a year, fell as much as 3.3 per cent to hit the day’s low of Rs 2331.20 per share on Tuesday in a reaction to the stake sale report.

IndiGo reported a suppressed performance in Q4FY23, with the EBITDAR margin coming in at 20.4 per cent due to high ATF prices, despite strong growth on the revenue front, Reliance Securities said.

The domestic brokerage expects healthy air passenger traffic over the next two years and sees an improvement in the EBITDAR margin by 1.300 basis points over FY23–25. It also believes that IndiGo’s strong cash position will help sustain market share and pricing power going forward.

Rising yield, pricing discipline, and falling crude prices would support a turnaround despite other cost inflation, Reliance Securities said, reiterating a ‘buy’ rating on IndiGo with a target price of Rs 2,750 per share, which implies an upside of over 55 per cent.