Our IPO got caught in a tsunami: Gopinath

Nothing can shake Air Deccan managing director Captain G R Gopinath’s faith in the low-cost airline business model - not cut-throat competition, pushed back break-even, declining yields, high-cost funds … not even an IPO at a valuation way below his expectation. The pioneer of no-frills aviation in India spoke to Praveen Sharma on airline valuation and the future of budget carriers in the country.

Your initial public offer (IPO) is being used as benchmark for valuation of other airlines. Did the Air Deccan float lead to discovery of real value of Indian airline companies?
Many times, the bullishness or bearishness of a stock market is not the true reflection of the condition of a country’s economy or a company. What I mean is that when the market is on an upswing, stock prices gallop, and a company’s value goes up. And the converse happens when it crashes. However, in the long run, it is the performance graph of a company that is important for the stock to perform on a consistent basis. As far as our own valuation is concerned, we had wanted the issue price to be Rs 150-175 but because the market crashed, we lowered the allotment price to Rs 148. In my view, this may not be the true value for my company or for any airline. But it is not for me to decide that. The job of an entrepreneur or a CEO is to focus on the business, so that he can create an outstanding business, which India can be proud of and he can be proud of. The job of my company and me, in particular, is to focus on creating a great airline with a great business model, which can change the aviation scenario in this country and the lives of millions of people.

Generally speaking, a stock will perform consistently only if the company performs well. Mutual funds and high networth individuals are usually interested in making money in the short-run. They cannot make money if the company doesn’t make money. Which means, the Air Deccan stock is not for them. Air Deccan stock is for people who believe in the business model and believe in the country’s economy. Air Deccan will deliver profits, and it will deliver to shareholders. Air Deccan is an infrastructure company. An infrastructure company takes time to deliver profits. Right now, suddenly too many guys have come into the market, where everybody is trying to kill each other. This is a temporary aberration. It happened in cell phone, it happened in scooters and it’s now happening in aviation.

Do you think Indian airline companies were over-rated till now?
For this, you have to look at a longer horizon - not one or two years - when the entire sector was dormant. It was a sector that had become, in an unwritten and tacit way, stagnant and evolved into a cartelisation between Jet and Indian Airlines. Sahara was an indifferent player. Jet and Indian Airlines had a stranglehold on the market. They had a cosy and comfortable cartelisation. That is not what the country wanted. There are millions of people, who are poor and middle class, they cannot travel on Jet and Indian airline model, which had become a controlled model. So even though they had a monopoly, they did not grow because they out-priced themselves.

Thus, even as Jet and Indian had zero growth, every other sector was growing. Hero Honda, Bajaj, Bharat Forge, Airtel… hundreds of companies were growing at 25%, 30%, 40% and 50%, but Jet and Indian did not grow. How can an economy grow without travel being a part of the growth? They are both integral to each other. Because of the Jet-Indian cartel, we had reached a situation air travel had stopped growing.

Despite this, when Jet went public for the first time, it was the beginning of the stock market hotting up. There was hunger for stocks, and so their IPO got the oversubscribed. Whether it was right value or over-rated, it is not for me to comment because Jet is our competitor. I must admit here that Jet is a great airline. But probably you can get an idea by looking at the performance graph of its stock.

Any kind of valuation that you do either on Jet or Air Deccan may not be its true worth. True value of an airline comes only after four or five years. People in the stock market will make money and should make money if the company makes money. But people, who want to make money before the company makes money, are a different breed. I’m not saying they are right or wrong. Their expectations are different. So they can have disappointments.

As of today, our market share is 19% and Indian’s 21%. Today, we are carrying more than five lakh passengers every month. Towards the end of this financial year, we will be carrying 7.5-8 million passengers, which will put us past Indian Airline. After 53 years, Indian is flying 7.2 million passengers. And soon I’ll be within the spitting distance of Jet Airways. Our fleet size will be 45 aircraft at the end of this financial year. Today, we have 35 aircraft (21 ATRs and 14 Airbus). Last September, we had only 18 aircraft, we have not yet reached this September. See the kind of growth that we have achieved?

To be continued