U.S. Markets closed

Edited Transcript of INDIGO.NSE earnings conference call or presentation 19-Jul-19 11:30am GMT

Q1 2020 Interglobe Aviation Ltd Earnings Call

GURGAON Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Interglobe Aviation Ltd earnings conference call or presentation Friday, July 19, 2019 at 11:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ankur Goel

InterGlobe Aviation Limited - Associate VP of Treasury & IR

* Rohit Philip

InterGlobe Aviation Limited - CFO

* Ronojoy Dutta

InterGlobe Aviation Limited - CEO

* William Boulter

InterGlobe Aviation Limited - Chief Commercial Officer

* Wolfgang Prock-Schauer

InterGlobe Aviation Limited - President & COO

================================================================================

Conference Call Participants

================================================================================

* Achal Kumar

HSBC, Research Division - Analyst

* Aimee Truesdale; Jupiter Asset Management Limited; Analyst

* Ansuman Deb

ICICI Securities Limited, Research Division - Aviation Analyst

* Arvind Sharma

Citigroup Inc, Research Division - Associate

* Ashish Shah

Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines

* Avinash Vazirani

Jupiter Asset Management Limited - Head of South Asia Equities Team and Fund Manager of Indian Equities

* Binay Singh

Morgan Stanley, Research Division - Executive Director

* Deepika Mundra

JP Morgan Chase & Co, Research Division - Research Analyst

* Kunal Lakhan

Axis Capital Limited, Research Division - VP of Realty and Aviation

* Mayur Milak

IndiaNivesh Securities Limited, Research Division - Senior Research Analyst

* Santosh R. Hiredesai

SBICAP Securities Ltd., Research Division - Research Analyst

* Vijayant Gupta

Edelweiss Securities Ltd., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good evening, ladies and gentlemen, and welcome to IndiGo's conference call to discuss the first quarter and fiscal year 2020 financial results. My name is Aman, and I'll be your coordinator. (Operator Instructions) As a reminder, today's conference call is being recorded. I now hand the conference to your moderator, Mr. Ankur Goel, Head of Investor Relations for IndiGo. Thank you, and over to you, sir.

--------------------------------------------------------------------------------

Ankur Goel, InterGlobe Aviation Limited - Associate VP of Treasury & IR [2]

--------------------------------------------------------------------------------

Good evening, everyone, and thank you for joining us for the first quarter and fiscal year 2020 earnings call. We have with us our Chief Executive Officer, Rono Dutta; and our Chief Financial Officer, Rohit Philip, to take you through our performance for the quarter. Wolfgang Prock-Schauer, our Chief Operating Officer; and William Boulter, our Chief Commercial Officer, are also with us and are available for the Q&A session.

Before we begin, please note that today's discussion may contain certain statements on our business or financials, which may be construed as forward-looking, and actual results may be materially different from these forward-looking statements. The information provided on this call is as of today's date, and we undertake no obligation to update the information subsequently. A transcript of today's call will also be archived on our website. We will upload the transcript of today's prepared remarks within an hour. The transcript of the Q&A session will be uploaded subsequently.

With this, let me hand over the call to Rono Dutta.

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [3]

--------------------------------------------------------------------------------

Good evening, everyone, and thank you for joining us on this call. We announced our first quarter fiscal year 2020 financial results today, and I'm pleased to inform you that we reported a highest ever quarterly profit, with a profit after tax of INR 12 billion. Our after-tax profit margin was 12.8%. This improvement in profitability was primarily driven by strong revenue performance.

In our previous earnings call, we gave you some indication on how the revenue performance was shaping up for the quarter. We continue to see a base increase of 5% in our unit revenue due to our various initiatives. Cessation of services of Jet Airways positively impacted the profits this quarter, helping our unit revenues to grow by 2% to 3% to the best of our estimates. This quarter also saw high percentage of bookings in the 0- to 15-day window with close-in fares also holding up and helping our revenue performance. In addition, we continued to optimize our network to drive our overall revenues. As you know, we are growing rapidly into new markets, including international, and we find that our growth has been accretive to the bottom line.

Cargo played an important role in our revenue performance. We have worked on improving our systems and processes and have increased the range of products that we now carry in our aircraft belly. As a result, our cargo revenue increased by 35% for the quarter helped, of course, partially by cessation of services of Jet Airways. I would like to acknowledge the efforts of our cargo team in implementing a significant improvement in performance.

Our capacity for the quarter increased by 30% compared to the same period last year. As we add more capacity, we see significant opportunities for profitable growth by increasing our connections to tourist destinations in India. We're developing the Buddhist circuit, providing interconnecting service between Varanasi, Gaya and Gorakhpur. The traffic flow into the Buddhist circuit will be enhanced as we add Vietnam and Myanmar to our network next quarter. Adding capacity in these markets not only makes a strong business case, but also provides an economic boost to regions such as the Eastern Uttar Pradesh and Bihar.

During the quarter, we placed an order with CFM International for the LEAP-1A engines to power 280 Airbus A320neo and A321neo aircraft. With this order, we expect to maintain our strong focus on lowering operating costs and delivering fuel efficiency. This order also includes spare engines and an overall support agreement. We expect delivery of our first LEAP-1A-powered A320neo in the coming year.

Now looking ahead at this quarter. We expect the continuation of the base increase of 5% in our unit revenue due to our previously discussed initiatives. However, we do not expect any meaningful impact of Jet Airways to continue as all airlines have now replaced the capacity vacated by Jet. Unfortunately, we are witnessing some lower fares in the 0- to 15-day booking window and expect this to add some pressure to our unit revenues in the second quarter. I want to remind our shareholders that in the second quarter last year, we registered a negative 16% PBT margin. We will, of course, do better than that this year, but how much better is still an open question. On our capacity guidance, we expect a year-over-year capacity increase in terms of ASKs of 28% for the second quarter of this fiscal year. For the full year, we expect capacity increase of 30%.

I feel proud to tell you that we received an award for the best low-cost airline in Central Asia and India by Skytrax for the 10th year in a row, and I wish to thank all our employees for the high levels of performance that we are witnessing across the company.

And with that, I'd like to hand over the call to Rohit.

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [4]

--------------------------------------------------------------------------------

Thank you, Rono, and good evening, everyone. For the quarter ended June 2019, we reported a profit after tax of INR 12 billion with an after-tax profit margin of 12.8% compared to a profit after tax of INR 0.3 billion with an after-tax profit margin of 0.4% during the same period last year. We reported an EBITDAR of INR 27.8 billion with an EBITDAR margin of 29.5% compared to an EBITDAR of INR 11.3 billion with an EBITDAR margin of 17.4% during the same period last year.

As Rono mentioned, our profitability was better during the quarter compared to the same period last year mainly on account of strong revenue performance. Our revenue from operations in the June quarter was INR 94.2 billion, an increase of 44.7% against the capacity increase of 30.3% compared to the same period last year. Our other income was INR 3.7 billion for the quarter. Our RASK for the quarter was INR 4.10 compared to INR 3.70 during the same quarter last year, an increase of 10.7%. Our yield increased by 12.8% to INR 4.08, and our load factor was nearly flat at 88.9%.

Our CASK for the quarter was INR 3.45 compared to INR 3.69 during the same period last year, a decrease of 6.3%. Our CASK excluding fuel was INR 2.11 for the quarter, a decrease of 2.8% from the same period last year. Excluding the impact of foreign exchange, our CASK excluding fuel increased by 2.6%. This was primarily driven by an increase in employee costs and lower aircraft utilization, which was partly offset by a reduction in maintenance cost. Let me talk about each of these factors.

Our employee cost this quarter was higher primarily due to 3 reasons: firstly, we've given salary increments to all employees; secondly, we've hired a large number of pilots who are currently undergoing training and, as a result, while we're incurring salary expenses, we do not have the associated ASKs; and finally, we have in-sourced ground handling at most of the domestic airports through our wholly owned subsidiary, Agile Airport Services Private Limited. These services were previously outsourced and were recorded under the other expenses line item. So while this resulted in an increase in the employee cost line item, we have a corresponding reduction in other expenses.

We had an aircraft utilization of 11.7 hours during the quarter compared to 12.6 hours during the same period last year. This was partly due to the fact that with the uncertainty of how the Jet Airways' domestic slots and international traffic rights would be allocated, we held a certain number of aircraft in reserve till we had more clarity on the allocation. In addition to this, unavailability of pilots under training also impacted our utilization. We expect aircraft utilization to remain at similar levels in the second quarter, but expect it to increase in the latter half of the year as we receive more clarity on slot allocation and the pilots that we have hired complete their training and start flying.

Now talking about the decrease in maintenance costs. We had a lower number of shop visits for our older A320ceo engines in the quarter compared to the same period last year.

Our balance sheet continues to remain strong. Our cash balance at the end of the period was INR 173 billion comprising of INR 77 billion of free cash and INR 96 billion of restricted cash. As I mentioned on our previous call, we have now capitalized our operating leases in accordance with Ind AS 116. The capitalized lease liability as of June 30, 2019, was INR 161 billion. Our total debt, including the capitalized lease liability, was INR 184 billion.

During the previous quarter, our Board of Directors recommended a dividend of INR 5 per share for fiscal 2019. This will be placed for approval at our upcoming Annual General Meeting. Subject to us receiving this approval, the dividend will be paid shortly after the AGM.

With this, let me hand it back to Rono.

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [5]

--------------------------------------------------------------------------------

I just want to confirm that we had a Board meeting today, and this Board meeting will continue tomorrow as well. The Board in its meeting today had a discussion on the appointment of an independent woman director to the Board of the company. Of course, we have to take this step to comply with the law, but in order to induct an independent woman director, we need to change the Articles of Association of the company, which now needs to be amended. We are working on this, and a final decision on this subject will be made tomorrow.

And now I hand it over to Ankur.

--------------------------------------------------------------------------------

Ankur Goel, InterGlobe Aviation Limited - Associate VP of Treasury & IR [6]

--------------------------------------------------------------------------------

Thank you, Rono and Rohit. (Operator Instructions) And with that, we are ready for the Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Kunal Lakhan from Axis Capital.

--------------------------------------------------------------------------------

Kunal Lakhan, Axis Capital Limited, Research Division - VP of Realty and Aviation [2]

--------------------------------------------------------------------------------

Just on the last point that you mentioned. So the Board is going to have discussion only on this one aspect of appointing an independent director or there are other certain aspects which get quoted in the media are also being discussed, like increasing the number of directors, overall directors in the Board?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [3]

--------------------------------------------------------------------------------

The Board is having a fulsome discussion on all issues. We obviously had a number of committee meetings today, including Audit Committee and then the Board covered a whole range of issues and will continue to do so tomorrow. I mentioned the woman -- independent woman director issue because it is a compliance issue with the law, so it is very urgent for us to resolve this, and we hope to have a solution tomorrow. That's the only reason I have mentioned it.

--------------------------------------------------------------------------------

Kunal Lakhan, Axis Capital Limited, Research Division - VP of Realty and Aviation [4]

--------------------------------------------------------------------------------

Okay. Secondly, on the unit revenue, you mentioned that this quarter also you'll see a 5% increase. However, like just considering that the sales have again started to moderate in kind of July with -- and like you mentioned that most of the capacity of Jet is now absorbed by the airline, this 5% unit revenue growth is primarily on account of the internal measures that you're taking. Will that assumption be right?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [5]

--------------------------------------------------------------------------------

That is correct. And as we said before, the industry will cycle up and down based on seasonality and so on. As you know, this quarter that we're in is traditionally a very, very weak quarter. So and that's why we mentioned that we expect to see some downward pressure in revenues. But that is a cyclical effect, but on top of that, we have to add on the fact that we have a base level effect of our internal initiatives.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

The next question is from the line of Aimee Truesdale from Jupiter Asset Management.

--------------------------------------------------------------------------------

Aimee Truesdale; Jupiter Asset Management Limited; Analyst, [7]

--------------------------------------------------------------------------------

I've seen that there was a positive outcome from this Ernst & Young review that has been done. I'm just wondering when you'll be releasing the [terms of] reference and the report itself, the Ernst & Young report itself?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [8]

--------------------------------------------------------------------------------

As you know, we are responding to SEBI on an inquiry, and we have given the report to SEBI. And we don't plan to make it public at this time.

--------------------------------------------------------------------------------

Aimee Truesdale; Jupiter Asset Management Limited; Analyst, [9]

--------------------------------------------------------------------------------

Okay. Yes. I think -- I just think it would be quite helpful to have that in the public domain, but I appreciate you answering my question.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

The next question is from the line of Achal Kumar from HSBC.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [11]

--------------------------------------------------------------------------------

Congratulations for such a solid results. Wanted to understand couple of things. First of all, on the engines, sir, you have ordered CFM engines recently. So now are you sort of planning to move completely to CFM? Or are you still going to have a mix of the CFM and Pratt? And if you're going to have both, how would that impact your maintenance cost or inventory cost? And secondly, I wanted to understand about the international expansion. I mean you said that you're going to have 50% of capacity coming on the international expansion and now looks like everybody is sort of running to grab the international pie. You're growing at about 90%, SpiceJet is about 80% and then Go, Vistara and AirAsia all are sort of struggling to win the silver medal. So how do you see in that scenario the yield and the profit outlook on the international side? And what's your strategy on the international? Are you still going to deploy 50% of the new capacity on the international side? And then lastly, I wanted to understand about your aircraft financing strategy. I mean in such a wonderful favorable environment, do you plan to buy more aircraft? Or are you still planning to continue with the sale and leaseback model? And when we say the favorable environment, do you expect this environment will sort of also promote the competition and bring more people and then yield and profitability come back to the normalized level? Just wanted to have your views on that.

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [12]

--------------------------------------------------------------------------------

Okay. So let me try and take these one at a time. So first on the engines. Clearly, we have a large number of Pratt engines, and they're still coming. And CFM engines don't come till next year. And so no, we're not going back and sort of replacing the Pratt with the CFM. These are going to be 2 different pools of engines. To the issue of compatibility or commonality, if you will, it's always better to have 1 than 2, of course. But beyond a certain mass, the differences become very minor. You do have a sort of diminishing return. So both pools are large enough so we don't think that commonality is an issue.

Then on the international, you said everyone is scrambling for international. True. I think we started a little earlier than some of the carriers we've mentioned. And the scramble now really is to replace most of Jet. So this is not added capacity. Jet capacity that went down is being replaced partially by us, partially by Spice, Vistara and so forth. So you don't see a net-net increase in capacity. To our profitability on international, we are very, very pleased with what's happening with international. The unit revenue is strong. The profitability is strong. So we are very pleased with international. You might have had a few more. I'll ask Rohit to talk about the financing issue.

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [13]

--------------------------------------------------------------------------------

Yes. So on aircraft financing, I think our plan remains the same that we would like to use our excess cash to start buying aircraft outright in addition to supplement the sale and leaseback model that we've historically relied on. We consider the optimal cash balance or minimum cash balance that we need to maintain roughly 15% of revenues, which roughly becomes about INR 4,500 crore. So based on that, we do have some excess cash. We're looking at all the options based on the aircraft deliveries that we have as to what's the optimal way to utilize them to buy some of the aircraft with cash. Obviously, we won't have enough cash to buy most of the aircraft that we would be taking delivery of. So we primarily continue to rely on the sale and leaseback model, but we'd like to buy some aircraft with the excess cash that we have.

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [14]

--------------------------------------------------------------------------------

And how about my question on the competition? I mean the favorable environment can actually promote the competition and people can come in and join and that could lead the yield and profitability back to the normalized level. And any views on that, please?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [15]

--------------------------------------------------------------------------------

So you are suggesting that the revenue environment being strong, there could be some new entrant. Is that your question?

--------------------------------------------------------------------------------

Achal Kumar, HSBC, Research Division - Analyst [16]

--------------------------------------------------------------------------------

You can say that. Or you can -- and we can see the race between the existing players to increase capacity, oh my god, what a solid revenue environment. So how do you see that as such?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [17]

--------------------------------------------------------------------------------

Well, as you know, we have an aggressive growth plan. We are growing at 30% a year. We are not going to change that based on, oh, this quarter was good or next quarter is weak. Therefore, we're going to slow it down or accelerate. So our growth plan is set. We're going to grow at 30% a year. We have aircraft coming, and we're very comfortable and happy with the growth. If other people tend to grow faster, I guess, we'll just have to deal with it. But as of now, we are quite happy with the growth rate and the revenue environment.

I do want to caution everyone, though, when we talk about the revenue environment, we're talking of sort of steady state for the whole year. As you know, this second quarter is notoriously difficult quarter for the airline industry.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

The next question is from the line of Binay Singh from Morgan Stanley.

--------------------------------------------------------------------------------

Binay Singh, Morgan Stanley, Research Division - Executive Director [19]

--------------------------------------------------------------------------------

First question is on the financials. Like when we look at the lease rentals for the company. I think in notes to accounts you're stating that in case we were to look at the earlier accounting standard, then the lease rental will go up by around INR 9.7 billion. Even if I add that, then the lease rental adjusted for the quarter comes to around INR 11 billion versus around INR 14.6 billion that you did in the previous quarter. So why would lease rentals be down so sharply on a quarter-on-quarter basis?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [20]

--------------------------------------------------------------------------------

So you're looking at it, Binay, sequentially or on a year-over-year basis?

--------------------------------------------------------------------------------

Binay Singh, Morgan Stanley, Research Division - Executive Director [21]

--------------------------------------------------------------------------------

Sequentially.

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [22]

--------------------------------------------------------------------------------

On a sequential basis, I think foreign exchange is -- was one factor. On a year-on-year basis, you'll see sort of the reverse effect actually happen with foreign exchange actually contributing to an increase in the lease rentals.

--------------------------------------------------------------------------------

Binay Singh, Morgan Stanley, Research Division - Executive Director [23]

--------------------------------------------------------------------------------

Because the sequential drop, even adjusting for foreign exchange or maybe there is a very sizable sale and leaseback gains that you would have made that could explain that because it's quite a sharp drop from INR 14.6 billion to around INR 11 billion.

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [24]

--------------------------------------------------------------------------------

Yes. There was also a -- in terms of that reconciliation, there is an early termination of 4 leased aircraft in the fourth quarter last year that there was a charge associated with that in the fourth quarter that sort of on the quarter-year-quarter comparison will show up in this calculation that you're doing.

--------------------------------------------------------------------------------

Binay Singh, Morgan Stanley, Research Division - Executive Director [25]

--------------------------------------------------------------------------------

Right, right. Yes. That makes sense. And secondly, when does the company now reply to SEBI and to Ministry of Corporate Affairs? What is the time line for these things?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [26]

--------------------------------------------------------------------------------

SEBI submission went today or is going as we speak. For the Ministry of Corporate Affairs, we're planning end of next week.

--------------------------------------------------------------------------------

Binay Singh, Morgan Stanley, Research Division - Executive Director [27]

--------------------------------------------------------------------------------

And, Rono, just one last question on this issue. Media has talked a lot about promoter disagreement with regard to international strategy whether you go for long haul or short haul. Any comments on that?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [28]

--------------------------------------------------------------------------------

There is absolutely no disagreement on international strategy. And I think we've said many times that when it comes to overall strategy of growth of international expansion, et cetera, the 2 promoters are totally in sync. They've confirmed that again today at the Board meeting. And the only issue is this disagreement is between -- the agreement between the 2 promoters, nothing to do with the company and its strategies.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

The next question is from the line of Vijayant Gupta from Edelweiss Securities.

--------------------------------------------------------------------------------

Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [30]

--------------------------------------------------------------------------------

So I had a question around...

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Mr. Gupta, we are unable to hear you. Can you be a bit loud, sir?

--------------------------------------------------------------------------------

Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

Am I audible now?

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

Not very clear, sir. May I request you to use the handset?

--------------------------------------------------------------------------------

Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [34]

--------------------------------------------------------------------------------

Yes. I had a question around redistribution of Jet's 12 slots. So would it be possible to get a breakup of, say, the domestic and international slots allotted to IndiGo? And potentially what are the remaining slots which can -- which remain to be distributed?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [35]

--------------------------------------------------------------------------------

Yes. Wolfgang Prock-Schauer is going to take that question.

--------------------------------------------------------------------------------

Wolfgang Prock-Schauer, InterGlobe Aviation Limited - President & COO [36]

--------------------------------------------------------------------------------

Yes. On the domestic slots, there were about 150 slots, means departure slots available both in Bombay and Delhi. This is actually less than Jet Airways had. Jet Airways had around 200 slots, but 1 airport of the 2 just could not give as many slots as previously Jet Airways had. And out of these slots, we have got about 30% of the slots. We would have expected more because our market share is 50%, but that's where we stand at this point of time, and we'll see how it goes further when we move into September/October. We definitely expect more out of these slots to be available, both in terms of more slots becoming available, specifically Delhi, who has not given all the slots for certain reasons, and also Mumbai. So we expect some significant impact on going further.

And on international, we have out of the Jet Airways pool of traffic rights, we have been awarded 12 departures in -- so 12 a day, 12 departures. Again, this is much less than what Jet Airways has been flying. And out of this 12, we have made operationally and already gone for sale on 7 of that and remaining 6 are still open because of slot issues we're having also again, in major airports here in India. But we welcome it, and we are very hopeful that these slots can be used -- will be made available to us in the next one week or so so we can use all the slots allocated to us. And then going further, after there is more clarity about what's happening to Jet Airways, we also expect here a major boost to our portfolio in international slots and traffic rights, especially.

--------------------------------------------------------------------------------

Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [37]

--------------------------------------------------------------------------------

Okay. So if I'm correct in my calculation, Jet currently or at least at its peak had a total international slot portfolio of 150. Would that be fair, 150 per day?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [38]

--------------------------------------------------------------------------------

Is that both departures and arrivals? Is that how you're counting it?

--------------------------------------------------------------------------------

Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [39]

--------------------------------------------------------------------------------

I mean (inaudible).

--------------------------------------------------------------------------------

Wolfgang Prock-Schauer, InterGlobe Aviation Limited - President & COO [40]

--------------------------------------------------------------------------------

So if you have 150 departures per day, but actually Jet Airways had more. 150 departure slots were made available in Delhi and in Bombay. So in Bombay was 108, Delhi was 52. And as I said at the beginning, Jet Airways had got much more departure slots at its peak at 150. But certain constraints will be removed. We expect that there will be additional slots departure and arrivals must be made available going forward, let's say, starting probably October/November. So Jet Airways had more than 150, which were given to other airlines to take.

--------------------------------------------------------------------------------

Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [41]

--------------------------------------------------------------------------------

Okay. And so on the international front, as you said, we have just got 12 slots, how is the slot allocation being done? And who has been the primary beneficiary on the international front?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [42]

--------------------------------------------------------------------------------

So this was a very complicated process, if I may say. So the ministry kept calling us week after week about how do we do this. They were also not sure how best to do it. So they asked every airline to give your top priority 1, priority 2, priority 3. So we ranked. And then they called each of us and said, okay, lottery. So let's say, Spice, you go first. What do you pick? And let's say, they said, I pick Bombay-Hong Kong. Okay. Go, you're next. What do you pick? And they might have picked Bombay-Kuwait. Okay. IndiGo you're next. And so that's how it went round after round till all the slots were exhausted.

--------------------------------------------------------------------------------

Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [43]

--------------------------------------------------------------------------------

Okay. And so right now how many international slots are still in the pool, in the distribution pool yet to be allocated?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [44]

--------------------------------------------------------------------------------

I don't have a good feel for that. I mean they said -- the ministry told us, okay, these are the bilaterals that are available. I don't think they gave out everything, but they gave us a limited number, and we all drew from that. They are still holding onto a few, I think, but I can't be sure.

--------------------------------------------------------------------------------

Operator [45]

--------------------------------------------------------------------------------

The next question is from the line of Avinash Vazirani from Jupiter Asset Management.

--------------------------------------------------------------------------------

Avinash Vazirani, Jupiter Asset Management Limited - Head of South Asia Equities Team and Fund Manager of Indian Equities [46]

--------------------------------------------------------------------------------

Am I correct in assuming that there are no directors on this call?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [47]

--------------------------------------------------------------------------------

That is correct. Yes.

--------------------------------------------------------------------------------

Avinash Vazirani, Jupiter Asset Management Limited - Head of South Asia Equities Team and Fund Manager of Indian Equities [48]

--------------------------------------------------------------------------------

That is correct. Right. And who are the -- are there any members of the Audit Committee on the call? I assume they can't be because there's no directors on the call.

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [49]

--------------------------------------------------------------------------------

Right. I mean let me clarify. Our General Counsel, our CFO, they participate in the Audit Committee. They're not officially members of it.

--------------------------------------------------------------------------------

Avinash Vazirani, Jupiter Asset Management Limited - Head of South Asia Equities Team and Fund Manager of Indian Equities [50]

--------------------------------------------------------------------------------

Not members of it, right. So when I look at the business standard report today, which says that they have looked at this Audit Committee report, right, I think as shareholders, I think we would quite like to see that report together with a -- with the full terms of reference of it. Clearly, it is being leaked, and I think it is unfair on us as shareholders not to be aware of what is in the report, and much more importantly, what are the exact terms of reference of that report. And I think in order for the company to put this noise as some of your directors have said behind it, it will be best done in a transparent manner. And if the report and the terms of reference of the report are put out in public domain, I think that will be the best way of dealing with this issue such that it doesn't come up again. So would you please mind taking this recommendation to your Board and putting it out in the open?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [51]

--------------------------------------------------------------------------------

No, we very much respect what you just said. We're taking it on the advisement. And yes, even as you're speaking, we're like, hey, we need to get together and decide how to deal with this. And yes, thank you for this input. It's very valuable, and we will take action.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

The next question is from the line of Ashish Shah from Centrum Broking.

--------------------------------------------------------------------------------

Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [53]

--------------------------------------------------------------------------------

Sir, my first question is on the accounting change that's happened. So we have said that the capitalized value of the lease is about INR 16,000 crores. Would this represent the liability over the life of a lease for the aircraft or this is an estimate in terms of the lifespan of the aircraft? What I mean to say is that typically, the way the aircraft rentals were earlier valued is that one would take -- give it a factor of, let's say, 8 or 7 and which would represent the liability over the corresponding life of the aircraft in that sense. So does this represent in terms of the life of the aircraft? Or is simply the liability over the residual period of our leases? How has this been taken?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [54]

--------------------------------------------------------------------------------

Yes, sure. So it is done based on the standard, which is basically present value of the future lease payment. So it's based on the lease commitment and that's what gets capitalized on the books.

--------------------------------------------------------------------------------

Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [55]

--------------------------------------------------------------------------------

Right. So would I be fair in saying that as compared to the earlier practice where one would use a factor, whatever, 7 or 8 that people used, this understates the liability to that extent?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [56]

--------------------------------------------------------------------------------

I don't believe it does. I mean I believe when -- because the fact that we have a practice of...

--------------------------------------------------------------------------------

Operator [57]

--------------------------------------------------------------------------------

Ladies and gentlemen, it seems we have lost the line for the management.

(technical difficulty)

Ladies and gentlemen, apologies for the inconvenience. We have the line for the management connected. Over to you, sir. You may please go ahead.

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [58]

--------------------------------------------------------------------------------

Thank you. Sorry about the technical problem. We -- so just to answer the question, I think the -- by capitalizing it as the remaining lease period, that's the right -- that's, I think, the right way to look at the debt because that's the commitment. In most cases, people have a much higher sort of longer lease term, and that's why typically the lease capitalization factors are -- when people make an estimate are more like 6 to 7x. The standard is basically to say what is the actual commitment and what's the debt associated with the commitments that you've made, and that's what the standard says.

--------------------------------------------------------------------------------

Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [59]

--------------------------------------------------------------------------------

Sure. So what would be the underlying period of the lease that we have taken here?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [60]

--------------------------------------------------------------------------------

I think as we've always discussed, our lease terms are typically 6 years. So when you talk about sort of the average remaining term of the lease, it's in the 3.5- to 4-year period. So that's -- so on average, that will be the lease term.

--------------------------------------------------------------------------------

Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [61]

--------------------------------------------------------------------------------

Sure. Sir, on the other parts of the balance sheet, so on the asset side, this would have loaded up our fixed asset as well. So what would be the impact on the asset side of the balance sheet? I mean liabilities part, this is clear, INR 16,000 crores. But what happens on the other side? How...

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [62]

--------------------------------------------------------------------------------

Yes, so on the asset side, there are sort of 2 factors. There's what's called right of use asset, an ROU asset that gets put on your balance sheet, and we have a depreciation expense associated with that. But that asset also has an offsetting feature, which is we -- as you know, we had deferred incentives that -- from [a peer] that was sitting on our balance sheet that from a P&L perspective we previously would deduct from lease rentals, and we'd have a net lease rental, and we'd report a net lease rental line net of deferred incentives. Now that deferred incentives balance sheet account is reduced from your right of use asset, and we have a net asset, and at the end of the quarter, it was about INR 8,900 crores. So the depreciation number is based on that net asset number that will hit the P&L.

--------------------------------------------------------------------------------

Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [63]

--------------------------------------------------------------------------------

Sir, if I understood correctly, you are saying that the deferred incentives that were earlier been amortized have been reduced from the cost of the right of use assets and you stated INR 8,900 crores is a net asset, net of the deferred incentives. Is that correct?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [64]

--------------------------------------------------------------------------------

That is correct.

--------------------------------------------------------------------------------

Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [65]

--------------------------------------------------------------------------------

So then how does the residual adjustment happen? I mean your liabilities side -- simply speaking, your liabilities side is inflated by INR 16,000 crores. You've added INR 8,900 crores to the asset side. So what else increases to get the balance sheet sort of balanced?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [66]

--------------------------------------------------------------------------------

There's a right of use -- there was already a liability on the books, which was the deferred incentive liability. So that liability is just netted on the asset. So it all stems up from the accounts. We can walk you through a reconciliation offline with Ankur, but this is -- the deferred incentive liability is already in our books. Just in this presentation now it's netted from the right of use asset.

--------------------------------------------------------------------------------

Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [67]

--------------------------------------------------------------------------------

Fair. Sir, last question. We have spoken about an assessment for the year '15/'16 and a liability of about INR 635-odd crores in case in this exposure could increase to INR 1,200 crores. Could you just explain a little bit on this and how this is likely to crystallize or not according to the management's view?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [68]

--------------------------------------------------------------------------------

So you're talking about the contingent liability footnote that we have, and it's the same footnote we had in the last quarter, and we've had that footnote in many quarters previously. I think we added some language into the footnote at the last quarter, and this quarter it's the same as last quarter. It's just based on a tax dispute matter that's in litigation, where we have favorable judgments for 3 prior years, and ongoing years are still under litigation. And we have disclosed that in -- while we have favorable judgments and we don't expect to have any negative outcome based on the litigation, we would -- in a continued liability, we're disclosing what that amount could be. And then the reason why there's 2 numbers is because there could be 2 ways to interpret whether -- if it was -- in the unlikely event it was taxable, it was determined to be taxable, under one -- there could be 2 methodologies to say do you tax it on a receipt basis or an amortization basis, and that's why we've disclosed both numbers.

--------------------------------------------------------------------------------

Operator [69]

--------------------------------------------------------------------------------

Next question is from the line of Ansuman Deb from ICICI Securities.

--------------------------------------------------------------------------------

Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [70]

--------------------------------------------------------------------------------

My question was regarding the capacity outlook as far as FY '20 is concerned. So we understand that 30 of the Jet aircraft have come back through Spice and possibly 6 to 10 might come back through Vistara. Still you will have a significant amount of capacity tailwinds in FY '20, so to say, because the overall aircraft size would be -- of Jet would have been much bigger. So what is the overall fair outlook in FY '20? I understand that Q2 can be a very bad quarter, but overall FY '20 fair outlook, if you could give some color, that would be great.

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [71]

--------------------------------------------------------------------------------

It's hard to go that far out. I can tell you what we experienced last quarter and what we're experiencing this quarter. So if you take some of the drivers, there's lot of talk about the economy softening. So we read in the paper, the auto sales are down, fast moving goods are not moving fast enough, all of that. In the last quarter that we're reporting here, we did not see economic softness. So we were like -- other industries might be getting hurt, we are not. So we were very comfortable in the quarter we've just reported. Now what's going to happen in this quarter? As you said, we're seeing some softness in the 0 to 15, and it's hard to say whether that's just seasonal or that's an annual cyclical effect. We're not sure yet. So again, we can only comment on the quarter we are in and we do see some softness whether the third quarter is typically strong. Whether it'll be strong again, we don't know. So we can't look that far ahead, frankly.

--------------------------------------------------------------------------------

Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [72]

--------------------------------------------------------------------------------

Right. But my point was like, the point that you alluded that no benefits of Jet. That is like -- that was my question regarding because we still have some significant capacity, which is not going to come back. So to that extent, the benefit of Jet can come back in Q3 also that...

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [73]

--------------------------------------------------------------------------------

We really don't see it. Who really benefited from Jet? We had a very small benefit, and I'll tell you why. First of all, Air India must have seen a huge benefit because Jet had 65% international and 35% domestic. So Air India should have seen a big benefit. I'm sure British Airways and the international carriers are seeing a big benefit. Domestically, we just don't see a big change. Like we said March was strong, April was strong, but by June, the effect is almost 0. And here's why. Most of the capacity came back, as you know, and we got like 30, 35 slot departures in Mumbai, which is nice, which is very good, but this 35 departures out of our base of 1,400 departures. So it doesn't really impact us that much. It's hard to move the needle on the basis of 35 new departures in Mumbai.

And finally also the telltale sign is, when we look at what happened in this quarter that we're reporting, where did the unit revenue improvement come from. If it was Jet-driven, you would say, oh, Bombay must have got a big unit revenue improvement followed by Delhi because that's where the Jet capacity was in and out. Well, the answer is no. Of our 6 hubs -- or not hubs, that's a wrong word -- of our 6 metros, Mumbai actually performed #2 and Delhi performed a weak #5. So most of the revenue impact that we're seeing is from our own internal reallocation of capacity, sales initiative, et cetera. We find very little evidence of a strong [Jet tailwind].

--------------------------------------------------------------------------------

Operator [74]

--------------------------------------------------------------------------------

The next question is from the line of Mayur Milak from IndiaNivesh Securities.

--------------------------------------------------------------------------------

Mayur Milak, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [75]

--------------------------------------------------------------------------------

So just wanted to get your attention back from -- for the lease rental that you've mentioned. So I checked that there's a difference of about INR 375 crores. You mentioned that there is some benefit of favorable ForEx, and there was some -- I thought you mentioned 4 aircrafts [were given back]. Is it?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [76]

--------------------------------------------------------------------------------

Yes. I mean I -- yes, we can -- I mean just to repeat what I said earlier. On a sequential basis, there's a small benefit on ForEx, and there was an extra hit in rental expense last quarter due to early return of some older ceo aircraft. When you do early return, you take a charge against that, and that's what impacted. So when you look -- compare sequentially, that's what will explain the reconciliation. And on a year-over-year basis, you see that foreign exchange was actually worse on a year-on-year basis, and that's why you see it up. So that's why you'll get 2 opposite effects if you compare sequentially or year-on-year.

--------------------------------------------------------------------------------

Mayur Milak, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [77]

--------------------------------------------------------------------------------

Yes. I was doing a lease rent for ASK kind of calculation. And if I look at your 5 quarters gone in the past, it was in the range of about INR 0.58 per ASK between 4Q and 2Q and then it drastically went up to INR 0.64 in Q3 and Q4, and now all of a sudden it comes down to INR 0.47. So that is their -- that is the understanding. So what will be the normal per-ASK kind of rental that we should actually look at?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [78]

--------------------------------------------------------------------------------

Right. So I think one of the things that you need to adjust for foreign exchange that actually affects it fairly significantly, so why don't we -- I mean this is just a detailed reconciliation that we can walk you through offline. One of the other factors that you should note is when you're looking at comparing lease rentals from prior periods to the current period, the prior periods had supplementary rent as part of lease rentals. In the current period, the supplementary rent is a separate line item and it's only the base lease rentals that have been capitalized. So there's a line item called supplementary rent and aircraft maintenance. So that's the reason why the number has dropped because there is just a portion of it that's in another line item. But why don't we -- I think this is sort of just detailed reconciliation that Ankur can help you with offline.

--------------------------------------------------------------------------------

Mayur Milak, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [79]

--------------------------------------------------------------------------------

Sure. And just one more question on the RASK part. So yes, we do understand that Q2 is apparently the weakest quarter. And when you say that you're already witnessing some pressure, it could, of course, be the seasonal pressure as well. What I'm trying to understand is, can we just have a kind of flavor that, at least a YoY the yields and the RASK looks better or we are still not in a position to determine that as well?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [80]

--------------------------------------------------------------------------------

Yes, like we said, we lost 16% PBT. We're not expecting anything near that loss. But what we're pointing out is we have a steep hill ahead of us to climb. So yes, things will be better than last year for sure. But we still have a deep hole we're trying to climb out of.

--------------------------------------------------------------------------------

Operator [81]

--------------------------------------------------------------------------------

The next question is from the line of Deepika Mundra from JPMorgan.

--------------------------------------------------------------------------------

Deepika Mundra, JP Morgan Chase & Co, Research Division - Research Analyst [82]

--------------------------------------------------------------------------------

Just firstly wanted to clarify on the RASK bit. You mentioned that about 5% came from your internal efforts, another 2% to 3% from Jet Airways. Given that the increase was about 11%, what would be the balance they attributed to?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [83]

--------------------------------------------------------------------------------

I'll answer and then Willy can also step in here. So look, when we did our 5% and we said, okay, in the first quarter -- sorry, last quarter, we did that and we said it's an ongoing effort, and we think it'll -- on a full quarter basis, should be 5%. That doesn't mean we stop there. We continue to reallocate. We continue to take sales initiatives. So yes, we are seeing more than what we had expected, and that I'll ask Willy to comment as well.

--------------------------------------------------------------------------------

William Boulter, InterGlobe Aviation Limited - Chief Commercial Officer [84]

--------------------------------------------------------------------------------

Thank you. I think there's another factor which has come into play, which we've mentioned before on these calls, which is the proportion of revenue that is sold in the 0- to 14-day window as against that revenue that is sold at a much cheaper price further out. And what we saw in this quarter was that, that increased to about 42% compared to 38% in the previous quarters last -- in the past year. So that in itself had a positive effect on that yield number and accounts for certain percentage of it.

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [85]

--------------------------------------------------------------------------------

Look, we are doing several initiatives across the company to improve revenue. We talked about cargo and how processes are changing. In revenue management, as Willy was alluding to, we used to have this notion that, okay, let's go into the 0 to 15 at 50%. And now revenue management is saying, look, we can be more laser sharp than that. In certain months, it should be 47%, why should it be 50%. Similarly, in the digital marketing, they're doing things that are bringing in online apps, which is helping us. So we do have initiatives across the company. So it's tough to now keep saying, okay, 1% was this and 2% was that. We just have a favorable revenue environment and lots of initiatives across the company.

--------------------------------------------------------------------------------

Deepika Mundra, JP Morgan Chase & Co, Research Division - Research Analyst [86]

--------------------------------------------------------------------------------

Understood. Just a follow-up to that. You mentioned that the competition has been picking up. So given that the number of initiatives you have underway, is it safe to say that irrespective of competition, your base 5% to 6%, 7%, whatever, growth in RASK should be sacrosanct?

--------------------------------------------------------------------------------

Ronojoy Dutta, InterGlobe Aviation Limited - CEO [87]

--------------------------------------------------------------------------------

So again, I want to make a distinction between seasonal cyclicality and our base effect. So our base -- yes, our base is definitely up 5%, maybe a little bit more, but within that, we have the seasonal cyclicality. And we don't know the annual cyclicality of, is the economy weakening or not. So you have all 3 dynamics playing out. The only one we're confident of is the this 5% to 6% improvement.

--------------------------------------------------------------------------------

Deepika Mundra, JP Morgan Chase & Co, Research Division - Research Analyst [88]

--------------------------------------------------------------------------------

Got it. And just one last one, if I can squeeze it in. On the CASK ex fuel side, any significant tailwind that you're seeing over there?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [89]

--------------------------------------------------------------------------------

So I mean going forward, I mean obviously, this quarter, I mentioned sort of a few factors, one of which was aircraft utilization, which was a little lower because of some sort of what we think are some temporary sort of issues. As we sort of have -- get the aircraft utilization back to the levels that we had last year, you will see sort of a lot of leverage in fixed costs, especially in sort of your aircraft ownership line items, your finance cost and depreciation. So that scenario that we would expect to see some tailwinds.

The other thing is just overall on CASK, as neos continue to come in, they help us. And as the old planes go away, fuel costs get a lot better. If you just look at fuel CASK this quarter versus a year ago, fuel CASK was 11% better for us, even though fuel prices were actually only like 1.2% better compared to the same quarter a year ago. So that's already showing up in sort of the aircraft in the fleet plan that we have. So those are absolute tailwinds that we'll have. And as you see, 21 has also become a bigger percentage of our fleet with seats on the plane actually creates some unit cost advantages. So I think we -- the fleet sort of plan will give us those natural advantages.

--------------------------------------------------------------------------------

Operator [90]

--------------------------------------------------------------------------------

The next question is from the line of Arvind Sharma from Citi.

--------------------------------------------------------------------------------

Arvind Sharma, Citigroup Inc, Research Division - Associate [91]

--------------------------------------------------------------------------------

My question again on the accounting standard and sorry for...

--------------------------------------------------------------------------------

Operator [92]

--------------------------------------------------------------------------------

Mr. Sharma, can you be a bit loud, sir? Unable to hear you clearly.

--------------------------------------------------------------------------------

Arvind Sharma, Citigroup Inc, Research Division - Associate [93]

--------------------------------------------------------------------------------

Yes. Can you hear me now?

--------------------------------------------------------------------------------

Operator [94]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Arvind Sharma, Citigroup Inc, Research Division - Associate [95]

--------------------------------------------------------------------------------

And again, it's on the accounting standard. Sir, we see that when the expense hits of the previous quarters have been reclassified, there's been actually a slight decline in EBITDAR. I'm saying before reclassification of the rentals and after on the EBITDAR per se, purely because some of the supplemental rentals have moved above the EBITDAR line. So will it be correct to assume that the current reported EBITDAR is actually lower than what would have been had you persisted with the previous categorization irrespective of the accounting changes, only the supplemental rentals moving away from the rental line? Will that be current -- fair assumption to make?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [96]

--------------------------------------------------------------------------------

Yes, Arvind, that's absolutely right. It would have been about 33% instead of 27% -- yes, it would have been about 33% if you -- the EBITDAR margin would have been about 33% if we added supplementary rent.

--------------------------------------------------------------------------------

Arvind Sharma, Citigroup Inc, Research Division - Associate [97]

--------------------------------------------------------------------------------

Okay. So again, I mean on a quarter-on-quarter basis, it would have been a substantial increase versus what's recorded right now?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [98]

--------------------------------------------------------------------------------

That is correct. And it's -- the way the accounting standards work, we are sort of reporting under the new standard and we are not restating the old. So the comparison is not necessarily apples-to-apples. As we go forward, in the next quarter we publish the balance sheet, we'll try to do more sort of details that we can give to help all of you model this better. Having said that, I think when people look at EBITDAR to calculate firm value, typically, you look at -- your EBITDAR margin -- EBITDAR, you take a multiple of that, you get an enterprise value and then you deduct debt. So one of the earlier questions said that the earlier people would overestimate -- would make a higher estimate of debt now with the actual debt is slightly lower, EBITDAR is also slightly lower. So ultimately, on a like-for-like basis, if you use EBITDAR to calculate an equity value, you'll roughly get to the same answer. On a P&L basis, also actually, if you exclude the foreign exchange mark-to-market, which was a benefit in this quarter, if you exclude that, it's roughly sort of neutral. So that's -- but yes, you're right, when you look at EBITDAR in isolation on a like-to-like basis, the new standard would understate it compared to the old.

--------------------------------------------------------------------------------

Arvind Sharma, Citigroup Inc, Research Division - Associate [99]

--------------------------------------------------------------------------------

Okay. And sorry for -- I mean it's a bit elementary, but on the supplementary rentals and aircraft repairs, expenses that you shared, this was up around INR 10 billion. How should we -- how should one see these? I mean how much of it is supplementary rentals, which is not directly related to the fleet part? And other part is maintenance and repairs, which could vary according to each of the overall fleet. So will you provide some more further granularity? Or do you think it is not really something that would change materially?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [100]

--------------------------------------------------------------------------------

Actually, so it's a good question, Arvind. It's about 50-50. It will change a little bit because on the maintenance side of it, as you know, there is a little bit of volatility based on the number of shop visits we have on the A320ceo aircraft. So there's a little bit of volatility on that side while the supplementary rent is -- will be based on the hours we fly the aircraft. So -- but it's roughly 50-50.

--------------------------------------------------------------------------------

Arvind Sharma, Citigroup Inc, Research Division - Associate [101]

--------------------------------------------------------------------------------

All right. Sir, and one more question, I mean on the supplementary rentals part, if I may just squeeze through. You gave an idea about the net assets increasing by around INR 8,900 crores. So if I understood correctly, essentially, that deferred incentive, which was there in your balance sheet on the liabilities side. And I believe in 2018, the last annual report, was around INR 20.5 billion. A part of it would have moved to the asset side and net it against the ROUs. Is that understanding correct?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [102]

--------------------------------------------------------------------------------

That's correct. And I think we will publish our annual report very shortly as we send out the notice for the AGM, and so you will have the March 2019 detailed figures available shortly. But that's -- but what you said is accurate.

--------------------------------------------------------------------------------

Operator [103]

--------------------------------------------------------------------------------

The next question is from the line of Santosh Hiredesai from SBICAP Securities.

--------------------------------------------------------------------------------

Santosh R. Hiredesai, SBICAP Securities Ltd., Research Division - Research Analyst [104]

--------------------------------------------------------------------------------

I just want to go back to the last point that was discussed in terms of deferred incentives netted off from the right-to-use asset. For the incremental aircraft induction that's going to happen, would it mean that there won't be any SLB cash flows into the company and the aircraft would be recognized at cost on the balance sheet? Or it wouldn't actually be so?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [105]

--------------------------------------------------------------------------------

No, I mean -- so the actual transaction will be exactly the same. Cash flow will be exactly the same. Instead of you having the deferred -- the cash to be given, deferred incentive will come on your balance sheet just like it used to be. Just the P&L impact is that, that ends up reducing your depreciation expense instead of reducing lease rental expense, but it would have done earlier. So really not much material change.

--------------------------------------------------------------------------------

Santosh R. Hiredesai, SBICAP Securities Ltd., Research Division - Research Analyst [106]

--------------------------------------------------------------------------------

Okay. So the cash flows will continue to come? Instead of reducing your gross lease rentals, you'll see a low depreciation on account of this netting off gross block from the deferred incentives?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [107]

--------------------------------------------------------------------------------

Exactly. There will be no change in the cash flows. Yes.

--------------------------------------------------------------------------------

Santosh R. Hiredesai, SBICAP Securities Ltd., Research Division - Research Analyst [108]

--------------------------------------------------------------------------------

Sure. A second related one. So I was also trying to understand, in the past for the finance lease assets, you had talked about the depreciation being higher in the income tax books and because of which, the tax rate -- effective tax rate is much on the lower side. Under the current arrangement of the new norms, would that still be the case so that your tax rate continues to be on the lower side as per the income tax books?

--------------------------------------------------------------------------------

Rohit Philip, InterGlobe Aviation Limited - CFO [109]

--------------------------------------------------------------------------------

I think we've talked about our tax rate being lower because of differences in sort of your book of taxings, which have a number of factors, which -- where there's significant line items that are subject to tax and not to tax. And so there's a whole calculation and there's a reconciliation in our annual reports every year, and you'll see it this year as well, which will have the reconciliation of your effective tax rate for book purposes to the statutory tax rate. So my suggestion is why don't you look at that disclosure that comes out in the annual report, and if there's questions, please call -- you please call Ankur.

--------------------------------------------------------------------------------

Operator [110]

--------------------------------------------------------------------------------

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Ankur Goel for closing comments. Thank you, and over to you.

--------------------------------------------------------------------------------

Ankur Goel, InterGlobe Aviation Limited - Associate VP of Treasury & IR [111]

--------------------------------------------------------------------------------

Sorry we could not take all the questions because of lack of time, but I hope you found the call useful. Thank you.

--------------------------------------------------------------------------------

Operator [112]

--------------------------------------------------------------------------------

Thank you very much. Ladies and gentlemen, on behalf of IndiGo, that concludes today's conference. Thank you all for joining us, and you may now disconnect your lines.