Interglobe Aviation Limited: The Valuation Conundrum

Abstract

The case examines the valuation conundrum faced by the largest airline in terms of market share in the civil aviation industry in India. Indigo, a brand owned by Interglobe Aviation Limited, owned 47.2% of the total market share in India in 2019. The airline had done exceedingly well in terms of revenue growth. The share price also saw a meteoric rise from ₹1,000 to ₹1,800 in a short span of 4 years. Determining the intrinsic value of the airline’s share became imperative against the backdrop of the outbreak of the global COVID-19 pandemic. The global pandemic loomed large and seemed likely to disrupt the economy with a possible nationwide lockdown beginning in the last quarter of 2019–2020. All business activities were expected to come to a standstill. The airline industry was likely to be hit the worst, with economies across the globe restricting air travel (domestic and international). Valuation approaches such as discounted cash flow (DCF) technique and relative valuation multiples were employed to estimate the share’s intrinsic value. The intrinsic value was compared with the current market price to assess whether the airline stock was undervalued or overvalued. Questions on whether the airline could sustain this valuation in the future also came up. Tim Rogers, a recruit with an investment banking firm, was entrusted with the responsibility of analysing and valuing Indigo Airlines and preparing a recommendation report.