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Rakesh Gangwal & Rahul Bhatia: Men behind IndiGo’s blockbuster takeoff

The roots of InterGlobe Enterprises and its flight can be traced back to Delhi Express, a travel company run by Bhatia’s father Kapil Bhatia.

Nov 11, 2015, 10.39 AM IST
MUMBAI: Rakesh Gangwal was never really all that keen on starting an airline in India in the first place. Perhaps the former US Airways CEO had Richard Branson’s dictum in mind — if you want to be a millionaire, start with a billion dollars and launch a new airline. But the Bhatias of Inter-Globe Enterprises wouldn’t take no for an answer.

The roots of InterGlobe can be traced back to Delhi Express, a travel company run by Bhatia’s father Kapil Bhatia.

The company fell into bad times when Bhatia was still in the US. He came back, took the reigns of the business and subsequently launched Inter-Globe expanding it to a conglomerate with interests in travel technology, hospitality, business jets and retail, apart from its prized airline IndiGo.

Rakesh Gangwal & Rahul Bhatia: Men behind IndiGo’s blockbuster takeoff

“Rahul and his father (Kapil Bhatia) had, since many years prior to 2005, been talking about starting an airline and I always stayed away from it. I had zero desire,” Gangwal told ETin an interview in October.

Seated next to him, Rahul Bhatia picked up the thread of the story: “He was a difficult customer. I had been chasing him for years. I saw as much potential in aviation (in India) as telecom.”

Eventually, Gangwal felt he couldn’t hold out anymore. “One day, we had this dinner I remember at his (Bhatia’s) house. I said ‘Look, you guys decide how much money you want to lose. I will work with you. I don’t want any part of this business. I will give you all my knowledge or whatever experience I have. But once you have lost that money, shake hands and remain friends’.”

Obviously, nobody’s lost money investing in IndiGo, the airline that Bhatia and Gangwal went on to set up in 2006. Having declared a series of blockbuster dividends over the past few years of its unlisted life, the stock surged on its debut as a publicly-held company on Tuesday.

Gangwal and Bhatia put in place a strategy that they have implemented successfully. This began with large orders — first 100 planes, then 180, 250 — as the basis of a sale-and-leaseback financial model that has worked very well thus far.

“Our vision, Rahul’s and mine, was that in our lifetime we must leave a massive air transportation network for the Indian consumers,” Gangwal said in the October interview, which took place during road shows before the initial public offering. The carrier has an all-Airbus A320 fleet, currently up to 97. The size of the first order was key to the choice of plane maker.

“Airbus said they were with us and wanted to know what my vision and commitment was — I walked them through it,” Gangwal said. “They had to have the confidence that it wasn’t about buying planes and selling them in the aftermarket cheap, which we could have done and made enormous money. But we wanted to make a huge air transportation order… And we followed it up with massive air transportation orders every time.”

Gangwal and Bhatia, who usually leave media interactions to president Aditya Ghosh, were keen on countering the narrative that they had squeezed out an excessive dividend just before the IPO.

The level of the payout wasn’t a break with previous practice, Gangwal pointed out. And clearly, the concern didn’t seem to have weighed too heavily with investors, going by the stock’s surge on the first day.

Gangwal was asked whether anything had been left on the table for small investors. “I shouldn’t put it that way,” Gangwal said.

“All investors have to make their minds. We have great conviction in Indi-Go. This is not about trying to do an IPO. If we didn’t sell the business for two years, we would keep on declaring these dividends. This is a passage-of-time issue. This is about trying to get lease costs down. This is about building a world-class company in India.”

Shukor Yusof, head of Singapore-based consultant Endau Analytics, said IndiGo should be careful to avoid over-reach. “Don’t make the same mistakes AirAsia did by biting more than one can chew. India has fantastic opportunities, but IndiGo must not rush,” Yusof said.

“At the rate, it is expanding. IndiGo has surpassed even AirAsia’s success during the same period (last five years)… Indigo can continue to grow given the huge Airbus aircraft orders it has.”

IndiGo doesn’t need to follow the low-cost carrier model used by Southwest or Ryanair. “India is unique and intra-India travel has lots more to grow,” Yusof said. Profitability has always been paramount, Gangwal said, adding that the company had paid out a total $600 million in dividends thus far.

Based on an estimated market capitalisation of up to $4.2 billion (Rs 27,917 crore), “We have handed out 15% of the value of the company to the shareholders. Going forward, we want to be able to do that and we want to see where it goes. It is part of the process of building a good business”, Gangwal said. At the end of trade on Tuesday, InterGlobe Aviation had a market cap of Rs 31,940 crore, or $4.8 billion.

Gangwal also said that the initial 100-plane order had been conservative. “We should have done a 200-plane order because Icould see the market,” he said.

“You will notice that our airplane orders are till 2024-25. By then, without a doubt, a brand new plane will come out. And we will be back ordering many more airplanes then... We will again do the flip of totally new planes.” Bhatia gave an insight into the other aspect of the carrier — a relentless focus on details, including costs and on-time performance.

“We saw that the aircraft area where the cabin crew rests and all the food is kept is separated from the rest of the passengers by two sets of curtains. We decided to take one off, as it would take some weight off the aircraft. We take off the rods that the curtains are hung on and keep them. When it’s time to give the plane back to a lessor, we screw them back on again,” he said.

Back in October, Gangwal reflected on his relationship with Bhatia, which began when the former senior vice-president of planning at US Airways. “It evolved into a phenomenal friendship. Blind trust is the way to look at it. It has worked well for both of us. I’ve enjoyed this relationship,” he said.

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