GoAir appoints Goldman Sachs, BofA-ML and Kotak Mahindra Bank to manage its $150 million IPO

MUMBAI: Go Air is appointing Goldman Sachs, Bank of America Merrill Lynch and Kotak Mahindra bank for managing its planned $150 million (Rs 1,026 crore) IPO, three people in the know said.

“Just the final agreement remains to be signed,” said one of them, insisting anonymity.

Once they are on board, the bankers will work with the Go Air management in preparing the draft red herring prospectus, the pre-IPO document which will subsequently be submitted to the capital markets regulator SEBI.

If Go Air plans to offload 24% of its stake for that amount, its total valuation would come to over Rs 4,000 crore.

A fall in fuel prices, growing demand for air travel and a blockbuster market debut by low fare airline IndiGo have encouraged investors to look positively at the aviation sector, making it a better situation than before for airlines to become public. The conditions have helped most airlines claw their way back to profitability. India’s three listed airlines IndiGo, SpiceJet and Jet Airways posted profits in the third quarter, with the latter two clocking record numbers.

Late last year, IndiGo listed on the bourses with a massive valuation of more than Rs 30,000 crore.

Its market cap as on end Thursday was Rs 26,026 crore. Rivals Jet Airways and SpiceJet had capitalisation figures of Rs 5,955 crore and Rs 4,127 crore respectively.

A total of 21 companies listed in 2015 raising a total of Rs 13,614 crore, according to Prime Database a tracker of primary markets. “The listing helped all of us. It has brought the focus back on an industry which till recently was awash with red ink and ignored by investors,” Go Air CEO Wolfgang Prock-Schauer told ET recently.

He couldn’t be contacted for this story. A Go Air spokesperson declined comment.

While Go Air has stuck to being one of the smallest carriers in the industry, it has managed to be profitable throughout inception, although its numbers are a small fraction of its rivals and its balance sheet is weak. Go Air’s profit after tax in the financial year ended March 2015 rose five times to Rs 27.73 crore from Rs 5.44 crore a year earlier, according to documents filed with the Registrar of Companies. But its cash and cash equivalents in the year fell to about Rs 6 crore from close to Rs 20 crore as of the end of FY14. Also its short term borrowings as of end FY15 were a massive Rs 950.64 crore, up 31% on year while long term borrowings, was up 50% to Rs 859.75 crore.

Also, Go Air’s implementation of its IPO plans, have slowed down because of a delay in deliveries of its ordered Airbus planes.

In June 2011, Go Air ordered 72 Airbus A320 neo planes. Late last year, Airbus announced a delay in deliveries of the planes due to technical reasons.

The aircraft deliveries are key as Go Air’s entire future expansion plans hinges on them. It currently has a fleet of 19 Airbus 320 planes, one of the smallest in the industry.

“The business plan and timeline of its execution will entirely be dependent on when the airline starts getting its planes. That will be the most important part of the IPO proposal as well the prime factor on which the airline gets a valuation.

IndiGo, which has ordered 430 of the planes has taken a beating in the stock market also as a result of these delays. From its peak since its listing, the airline's market capitalisation has eroded by 45 per cent.

In a post-earnings conference call last month, Aditya Ghosh, chief of the airline said the revised schedule of these planes is still uncertain. That, among other reasons, led to IndiGo’s stock tanking the next day despite a 24% increase in net profit.

Go Air, which was scheduled to start getting deliveries of the planes from early this year, will naturally face cascading delays.