Highlights of the Concall

• The Company posted net loss of Rs 1,061.99 crore (up 63% YoY) despite 31% jump in total income from operation to Rs 8,105.19 crore for the second quarter ended September 2019. The losses were accentuated by forex losses on operating lease liabilities created under IND AS 116, re-assessment of accrual estimates for future maintenance cost, and One-time adjustment owing to adoption of lower tax rates. Operating margin (OPM) stood at -0.2% from -16.2% corresponding previous quarter. Thus, operating loss (OL) was Rs 14.22 crore during the quarter as against OL of Rs 1,003.97 crore corresponding previous quarter.

• The Company lower profitability was mainly contributed by mark to market loss due to capitalization of operating lease liabilities, re-assessment of accrual estimates for future maintenance cost and one-time adjustment owing to adoption of lower tax rates. The Company has capitalized operating lease liabilities as per the new accounting standard IND AS 116. These liabilities are dollar denominated, and hence they are subject to mark to market every quarter. Since during the quarter, rupee depreciated from 68.90 rupees per US dollar to 70.71 rupees per US dollar, thus, it had a negative impact of Rs 430 crore on mark to market of our capitalized operating leases.

• The Company maintenance cost surged because of ceo engines. Company has extended the leases of most of existing ceos beginning 2016 and also got around 50 used aircraft from the secondary market. As a result of this, the engines of these older aircraft are undergoing second shop visits which are significantly more expensive than first shop visits. These second shop visits resulted in maintenance spikes in costs. During the quarter, Company has carried out the re-assessment of accrual estimates for heavy maintenance and overhaul cost of engines. Accordingly, Company provided 3.2 billion rupees under supplementary rentals and aircraft maintenance cost. This re-assessment is confined to our older ceo aircraft. The Company expects cost should continue to be in similar range for the next couple of quarters. This maintenance cost should eventually go away around 2022 as the neos become a larger portion of fleet and these older ceo planes are redelivered.

• For Q2FY20, passenger ticket revenues were Rs 7,100.80 crore, an increase of 34.44% and ancillary revenues were Rs 930.20 crore, an increase of 29.8% compared to the same period last year. Total expenses for the Q2FY20 were Rs 9,571.60 crore, an increase of 27.6% over the same quarter last year.

• The Company CASK for the Q2FY20 was Rs 3.85 compared to Rs 3.74 during the same period last year, an increase of 2.8%. CASK ex fuel was Rs 2.56 rupees, an increase of 17.2% from the same period last year. Excluding the impact of mark to market loss on capitalized operating leases and re-assessment of accrual estimates for future maintenance cost, CASK ex fuel increased by 3.1%. This CASK increase was primarily driven by higher employee cost and lower aircraft utilization. The lower aircraft utilization contributed to 2.7% in the increase of CASK ex fuel. The Company expects the aircraft utilization to increase and translate into better CASK ex fuel performance.

• The Company employee costs increased by 56% in Q2FY20 compared to same period last year. The higher employee cost was because of around 600 pilots being under training, insourcing of ground handling at most of the domestic airports through wholly owned subsidiary, Agile Airport Services Private Limited, and salary hikes. The Company impact of these pilots under training to be negative 2.3% on CASK ex fuel. The Company expects the employee cost per ASK to start going down from the second half of the year onwards as these pilots complete their trainings and start flying.

• The Company opened 7 new domestic stations and 6 new international markets. As of 30th September 2019, the Company has fleet of 245 aircraft including 129 A320ceos, 89 A320neos, 6 A321neo and 21 ATRs; a net increase of 10 aircraft during the quarter. The Company operated a peak of 1,476 daily flights including international operations during the quarter. The Company serviced to 77 destinations including 19 international cities.

• The Company Cargo business has maintained its rapid growth during the Q2FY20 in both domestic and international sectors. As per the DGCA reports, Company now have a 39% market share in the domestic cargo business, a significant increase from the 28% we had in the same period last year. Company international cargo capacity has grown by more than 80% on a year over year basis. The Company now focuses on inbound cargo business from South East Asia and Middle East.

• The Company decided to adopt the lower tax rates of 25.2%, as it will lower effective tax rate and no longer be required to pay MAT which will result in lower cash tax outflow.

• The Company expects third quarter fiscal 2020 year over year capacity increase in ASKs is likely to be 22%. Full year fiscal 2020 year over year capacity increase in ASKs is expected to be 25%.

• As of 30th September 2019, IndiGo had a total cash balance of Rs 18,736.20 crore comprising of Rs 8,706.30 crore of free cash and Rs 10,029.90 crore of restricted cash. Post servicing of debt and lease obligations, IndiGo generated Rs 3,334 crore through its operating activities for the half year ended September 2019. The capitalized lease liability as of 30th September, 2019 was Rs 17,464 crore. The total debt (including the capitalized lease liability) was Rs 19,841.80 crore.