FRA Final Submission Group 5

1

A Report On

Financial Analysis of Indian Aviation Industry

FRA Group – 5

Section F

Udayan sharma FPM16004

Vaibhav Lalwani FPM16005

Shradha Meryline Panna PGP30280

Anant Kumar PGP31309

Sandeep Vijyakumar PGP31343

Vaibhav Bhagwat PGP31358

Ksheer Sagar Prasad PGP31426

FINAL REPORT SUBMISSION

Indian Institute of Management, Lucknow

September 25, 2015

2

Interglobe Aviation Limited (Indigo)

Interglobe Aviation Limited (Indigo) is characterized by low profit margins and high fixed costs, including lease and

other aircraft acquisition charges, engineering and maintenance charges, financing commitments, staff costs and IT

costs. As quoted by the official significant operating expenses, such as airport charges, do not vary according to

passenger load factors. High utilization of our aircraft, low levels of operating and other costs, careful management

of passenger load factors and revenue yields, acceptable service levels and a high degree of safety, such that we

continue to generate high revenues in order to grow profitably. As some of the factors affecting these tasks are not

totally under control, there are no assurance to achieve any one or more of these aims to a sufficient degree for

business and growth plans to succeed at all to cover the fixed costs of our operations or achieve acceptable

operating or net profit margins.

Analysis of variety of areas are as follows:

1. Liquidity Analysis

a. Quick Ratio:

�� = �� ℎ + �� + ��

Quick ratio of the Indigo remains around and above one from 2010 to 2014, implying that liquidity position of

the company is better and have the capability to meet its short term obligations with its most liquid assets is

higher.

b. Current Ratio:

�� = ��

Due to high investment in asset procurement total current liability grew from INR 416.95 crore to INR 2860.83

Crore. Whereas current asset grew from INR 1423.94 crore to 2914.69 Crore. As the current asset is always

higher than the current liability. It shows the efficiency of the company to meet its working capital requirement.

The company is capable in paying its obligations regularly.

3

2. Solvency Analysis

a. Total Debt/Equity (x):

��/��(!) = ��ℎ��ℎ�#��$ ��

The company has been using debt capital more than the equity to pay its long term obligations.

Debt Equity Ratio varies from 4.16 in 2010 to 8.21 in 2014 and always has been more than 2.5 times which shows

company is using much debt capital to finance its assets relative to amount of value represented in equity.

b. Interest Cover (x):

%�� (!) = %��&�'�(��%�� #��)� %�� )*��

Even with the high debt capital, company`s interest coverage ratio has been more than 4 times since 2010 except

in 2012. This shows the company has been generating sufficient revenues to satisfy its interest expenses.

3. Efficiency Analysis

a. Days in Receivables:

�� = ��

360��

In aviation industry most of the transition with the end users happen before hand, so the amount receivables

are lesser as compare with the other industries. Most of the transaction regarding purchase of items can happen

which leads to account receivables. As this amount is very less, thus the days in receivables are always on the

lower side and remains almost constant. It varies from 1.71 in 2010 to 2.59 in 2014.

b. Payable Days:

�� .�� /� ��#��0(��1�� = 365 × ��0��#�.�� .��ℎ� �

4

Most of the payable in Indigo fuel purchases, food items purchased and raw material procurements. From 2010

to 2014 Annual Purchases of Indigo goes up as compare to the average trade payables, causing the Days

Payables Outstanding going down from 21.6 days in 2010 to 16.4 days in 2014.

4. Profitability Analysis

a. Gross Profit Margin:

4� .�(��0�� = �� 5 �/4�� × 100

Operating income of Indigo kept on increasing from INR 2,601.57 crore in 2010 to INR 11,116.58 crore in 2014.

Though raw material consumed grew down the year from INR 12.89 crore to INR 59.33 Crore but as compare to

operating cost, raw material consumed was very less. Hence the overall change in Gross Profit Margin

throughout the years is not significant. It varies from 6.73 in 2011 to 7.02 in 2014. The high gross profit margin

indicates that the company can make a reasonable profit, as long as it keeps the overhead cost in control.

b. Inventory Turnover:

%�� = �/4�7'�0��0%��'�� + ��#��0%��'��

2 9

It measures company's efficiency in turning its inventory into sales. Purpose of it is to measure the liquidity of

the inventory. Average inventory is be used for inventory level to minimize the effect of seasonality. In aviation

industry the majority of inventory are Stores and Spare, Consumable tools and Goods in trade. It grew from

74.99 in 2010 to 185.96 in 2014. Though inventory increases with the years but not as fast as COGS grew, hence

we can observe a drastic hike in inventory turnover over the years. It also implies strong sales and ineffective

buying.

c. Return on Assets:

�/� = :�%��&�� × 100

Total assets of Indigo grew from INR 904.50 Crore in 2010 to INR 4450.46 Crore in 2014. Whereas operating

income hiked from 2601.5 in 2010 to 11,116.58 Crore in 2014. This causes overall decrease in ROA from

34.15 to 4.2 over 2010-14 depicts that initially they were having higher return on assets because the

5

company is earning more money on its assets. Later on they procured assets rapidly causing low return on

assets. This implies that they are still finding the ways to utilize their procured assets. So the earnings

generated from invested capital are good for Indigo.

d. Return On Capital Employed:

�/�� = ��0 '�(��%�� #��)(�'%�)��*��&*��#

It started with 51.72 in 2010 then goes down to 9.55 in 2012 then up gain to 57.13 in 2013. And finally

ended up with 20.42 in 2014. In year 2012 they invested heavily in asset procurement causing decrease in

operating profit and hence the profit before tax was very less for Indigo, forcing them to make negative

provision for income tax, thus the return on capital employed goes down but later they picked up.

6

Spicejet Profitability Ratios:

1. Gross profit margin: A company's total sales revenue minus its cost of goods sold, divided by the total sales

revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the

company retains after incurring the direct costs associated with producing the goods and services sold by a

company.

4� ��0��(%) = 4� .�(��

2010 2011 2012 2013 2014

Gross profit margin 19.35 17.24 -15.9 -4.9 -15.8

Analysis: By 2012 ending, Spicejet inducted 9 additional jets. This Asset purchase activity to increase the overall

capacity and future revenues lead to additional expense and reduced the profit margin in 2012 to 2014.

2. Net Profit Margin: The ratio of net profits to revenues for a company or business segment - typically expressed

as a percentage – that shows how much of each dollar earned by the company is translated into profits.

:��0�� = ��– �/4�– /*��0�)*�� – %�� #��)� ��

2010 2011 2012 2013 2014

Net profit margin 3.02 3.51 -15.3 -3.3 -15.9

19.35 17.24

-15.9

-4.9

-15.8-20

0

20

40

2010 2011 2012 2013 2014

Gross profit margin

3.02 3.51

-15.3

-3.3

-15.9-20

-10

0

10

2010 2011 2012 2013 2014

Net profit margin

7

Analysis: Explanation is same as for gross profit margin. Additional purchases of jet planes reduced net profits

and had impact on upcoming years.

3. Return on Assets Including Revaluations: A ratio that measures a company's earnings before interest and taxes

(EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its

assets to generate earnings before contractual obligations must be paid.

2010 2011 2012 2013 2014

Return on Assets Including Revaluations (%) -14.4 7.79 -3.34 -4.91 -19.67

Analysis: Due to heavy purchase of assets during 2012, the net income decreased and the total assets

increased hence we observe a zero (negative) value in 2012 to 2014.

4. Current Ratio

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt

and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the

more capable the company is of paying its obligations.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its

product into cash. Companies that have trouble getting paid on their receivables or have long inventory

turnover can run into liquidity problems because they are unable to alleviate their obligations.

�� = ��

2014 2013 2012 2011 2010

Current Ratio 0.39 0.68 0.76 0.54 0.64

-14.4

7.79-3.34 -4.91

-19.67

-40

-20

0

20

2010 2011 2012 2013 2014

Return on Assets Including

Revaluations(%)

8

Analysis:

• Increase in Forward Sales account (FSA) has led to an increase in Current Liabilities. Online ticketing

services are growing in leaps & bounds in India hence causing more people booking advanced flight

tickets online. Airline companies do not recognize this revenue until the service has been rendered

and put this amount into FSA. (As a result Denominator goes up)

• SpiceJet purchased nine more aircrafts in 2012 causing increase in current liabilities.

• Also in 2010 SpiceJet started international operations hitting its current assets.

• Aviation turbine fuel prices account for 40-45% of an airline’s revenue. A persistent increase trend

in ATF since 2012 has affected ratios across the industry.

5. Quick Ratio

A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate

liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio,

primarily because the working capital ratio allows for the inclusion of inventory assets.

Furthermore, if the acid-test ratio is much lower than the working capital ratio, it means current assets are

highly dependent on inventory. Retail stores are examples of this type of business.

�� = �� 5 %��

2014 2013 2012 2011 2010

Quick Ratio 0.42 0.76 0.86 0.56 0.65

Analysis:

• Less reliance on Cash and using current liabilities to fund fixed assets.

0.39

0.680.76

0.540.64

0

0.2

0.4

0.6

0.8

2014 2013 2012 2011 2010

Current Ratio

0.42

0.760.86

0.560.65

0

0.2

0.4

0.6

0.8

1

2014 2013 2012 2011 2010

Quick Ratio

9

• Increase in Current liabilities over time because of use of forward sales account (as described in

Current Ratio Analysis)

• Increase in inventory over time as Jet is spending more on maintenance of its aging fleet.

6. Debt Equity Ratio

It is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders'

equity. It indicates what proportion of equity and debt the company is using to finance its assets.

If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially

generate more earnings than it would have without this outside financing. If this were to increase earnings

by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being

spread among the same amount of shareholders. However, the cost of this debt financing may outweigh

the return that the company generates on the debt through investment and business activities and become

too much for the company to handle.

��(��) = �� Shareholder′sEquity

2014 2013 2012 2011 2010

Debt Equity Ratio -1.49 -7.48 -5.81 0.17 -1.28

Analysis:

• The debt equity ratio of spice jet has been negative during the period of study (except in 2011)

• This has been due to negative net worth arising out of huge losses.

• D/E ratio is not comparable in negative figures.

7. Fixed Assets Turnover Ratio

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to

generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net

of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in

using the investment in fixed assets to generate revenues. Fixed assets are important because they usually

represent the largest component of total assets. A declining trend in fixed asset turnover may mean that

the company is over investing in the property, plant and equipment

M�)�#� �� = �� M�)�#� �

-1.49

-7.48

-5.81

0.17

-1.28

-8

-6

-4

-2

0

2

2014 2013 2012 2011 2010

Debt Equity Ratio

10

Analysis:

• The rapid reduction in the ratio after 2011 is due to addition of 7 Boeing 737 and 2 Q400 NextGen

turboprop aircrafts to its fleet in 2011-12. This led to a sharp increase in it “Fixed Assets” from INR.

86.75 Cr. In the year ending march 2011 To 850.22 Cr in the year ending March 2012. Whereas the

sales increased from INR 2,876.97 Cr. to 3,943.26 Cr. during the corresponding period.

• Again during the FY 2012-2013 the company added 4 Boeing 737 and 5 Bombardier Q400

Turboprop aircrafts, which lead to increase in it “Fixed Assets” from INR. 850.22 Cr. In the year

ending march 2012 To 1,793.52 Cr in the year ending March 2013.

• There was a slight decline in the ratio from 2013 to 2014 as the sales fell from 6304 Cr to 5172 Cr.

8. Debtors Turnover Ratio

It measures how many times a business can turn its accounts receivable into cash during a period. In

some ways the receivables turnover ratio can be viewed as a liquidity ratio as well. Companies are more

liquid the faster they can convert their receivables into cash.

�� = :��#�� 0��

Since the receivables turnover ratio measures a business' ability to efficiently collect its receivables, it

only makes sense that a higher ratio would be more favourable.

2014 2013 2012 2011 2010

Debtors Turnover Ratio 48.35 89.3 209.8 159.34 139.13

Analysis:

• This ratio is very helpful when used in conjunction with short term solvency ratios i.e., current ratio

and quick ratio. Short term solvency ratios measure the liquidity of the company as a whole and

accounts receivable turnover ratio measures the liquidity of accounts receivables.

2.76 3.52 6.59

45.46 44.12

0

20

40

60

2014 2013 2012 2011 2010

Fixed Assets Turnover Ratios

48.3589.3

209.8159.34 139.13

0

100

200

300

2014 2013 2012 2011 2010

Debtors Turnover Ratio

11

• A high ratio for Spice Jet indicates that the receivables are more liquid and are being collected

promptly.

9. Total Assets Turnover Ratio

The ratio of the value of a company’s sales or revenues generated relative to the value of its assets. The

Asset Turnover ratio can often be used as an indicator of the efficiency with which a company is deploying

its assets in generating revenue.

� �� = ��

Generally speaking, the higher the asset turnover ratio, the better the company is performing, since higher

ratios imply that the company is generating more revenue per dollar of assets.

2014 2013 2012 2011 2010

Total Assets Turnover Ratio 12.79 3.86 5.57 7.1 22

Analysis:

• Spice Jet’s TAT ratio fell from 2010 to 2013 despite sharp increases in sales turnover (72% CAGR).

• This was due to high increases in fixed assets due to fleet expansion.

• This ratio increased in 2014 due to decrease in total assets 1453 Cr to 496 Cr. (This occurred due to

sharp increase in current liabilities due to fuel costs and as a result fall in net current assets)

12.79

3.86 5.57 7.1

22

0

10

20

30

2014 2013 2012 2011 2010

Total Assets Turnover Ratio

12

Jet airways (India) Ltd.

1. Liquidity Ratios

a. Current Ratio:

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt

and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the

more capable the company is of paying its obligations.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its

product into cash. Companies that have trouble getting paid on their receivables or have long inventory

turnover can run into liquidity problems because they are unable to alleviate their obligations.

�� = ��

Analysis

• Increase in Forward Sales account (FSA) in Current Liabilities. Airlines industry is growing in leaps &

bounds in India hence causing more people booking flight tickets online. Airline companies do not

recognize this revenue until the service has been rendered and put this amount into FSA.

(denominator going up)

• SpiceJet purchased nine more aircrafts in 2012 causing increase in current liabilities.

• Also in 2010 SpiceJet started international operations hitting its current assets.

• Aviation turbine fuel prices account for 40-45% of an airline’s revenue. A sharp increase in ATF in

2011- 12 has affected ratios across the industry.

b. Quick Ratio:

A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate

liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio,

primarily because the working capital ratio allows for the inclusion of inventory assets.

Furthermore, if the acid-test ratio is much lower than the working capital ratio, it means current assets are

highly dependent on inventory. Retail stores are examples of this type of business.

13

Analysis

• Less reliance on Cash and using current liabilities to fund fixed assets.

• Increase in Current liabilities over time because of use of forward sales account (as described in

Current Ratio Analysis)

• Increase in inventory (which is subtracted from Current Account in case of quick ratio) over time as

Jet is spending more on maintenance of its aging fleet.

• Market Share of spice jet suddenly rose to 12.5 % from 10.5 % in 2013 causing a high current ratio

compared to other years. This has been possible due to better aircraft utilization.

c. Debt Equity Ratio:

It is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders'

equity. It indicates what proportion of equity and debt the company is using to finance its assets.

If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially

generate more earnings than it would have without this outside financing. If this were to increase earnings

by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being

spread among the same amount of shareholders. However, the cost of this debt financing may outweigh

the return that the company generates on the debt through investment and business activities and become

too much for the company to handle.

��(��) = �� ℎ��ℎ�#��′ ��

14

Analysis

• A noticeable dip in the Jet Airways Debt equity ratio in 2013 is due to heavy losses coming via profit

and loss account affecting reserves and surplus, which is turn, caused Net worth of shareholders

funds to be negative.

• Fleet size of Jet has increased from 61 to 115 in 5 years. Majority of airplanes are leased on financial

lease and hence are considered as debts (Unsecured Loan under Loan Funds) in the balance sheet

of Jet Airways in 2013.

• Secured loans to finance negative working capital (Current ratio is less than 1) have also gone up

for Jet Airways. Equity has remained same and debt has gone up for Jet Airways.

2. Efficiency Ratios

a. Fixed Assets Turnover Ratio

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to

generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net

of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in

using the investment in fixed assets to generate revenues. Fixed assets are important because they usually

represent the largest component of total assets. A declining trend in fixed asset turnover may mean that

the company is over investing in the property, plant and equipment.

M�)�#� �� = �� M�)�#� �

15

Analysis

SpiceJet: During the FY 2011-2012 SpiceJet added 7 Boeing 737 and 2 Q400 NextGen turboprop aircrafts to

its fleet. This led to a sharp increase in it “Fixed Assets” from INR. 86.75 Cr. In the year ending march 2011

To 850.22 Cr in the year ending March 2012. Whereas the sales increased from INR 2,876.97 Cr. to 3,943.26

Cr. during the corresponding period. This led to a sharp decline in Fixed Asset Turnover Ratio.

Again during the FY 2012-2013 the company added 4 Boeing 737 and 5 Bombardier Q400 Turboprop

aircrafts, which lead to increase in it “Fixed Assets” from INR. 850.22 Cr. In the year ending march 2012 To

1,793.52 Cr in the year ending March 2013. But during the corresponding period sales also increased from

INR 3,943.26 Cr. To 5,600.68 Cr. Hence there was only a marginal decrease in the Ratio.

b. Inventory Turnover Ratio:

It shows how effectively inventory is managed by comparing cost of goods sold with average inventory for

a period. This ratio is important because total turnover depends on two main components (stock

purchasing & sales) of performance. That's why the purchasing and sales departments must be in tune with

each other.

%�� = �/4�%��

A higher value of inventory turnover indicates better performance and lower value means inefficiency in

controlling inventory levels.

Analysis

• A lower inventory turnover ratio for Jet Airways is possibly an indication of over-stocking which

may pose risk of obsolescence and increased inventory holding costs. However, a very high value

of this ratio for Spice Jet suggests loss of sales due to inventory shortage.

• Spice jet fleet capacity is 57 planes compared to 89 working planes of jet airways. Market share of

Spice jet is 14.3% compared to 17.3% of Jet airways. With comparable market share and big

difference in number of planes (major part of inventory in aviation sector) difference is ratio is

justified. From here it can be said that operational efficiency of Spice jet is better than others.

-100

-50

0

50

100

150

Mar '14Mar '13Mar '12Mar '11Mar '10

Inventory Turnover Ratio

Spicejet Jet Airways

16

c. Debtors Turnover Ratio

It measures how many times a business can turn its accounts receivable into cash during a period. In some

ways the receivables turnover ratio can be viewed as a liquidity ratio as well. Companies are more liquid

the faster they can convert their receivables into cash. Debtors Turnover Ratio = Net Credit Sales / Average

Debtors

Since the receivables turnover ratio measures a business' ability to efficiently collect its receivables, it only

makes sense that a higher ratio would be more favorable.

Analysis

• This ratio is very helpful when used in conjunction with short term solvency ratios i.e., current ratio

and quick ratio. Short term solvency ratios measure the liquidity of the company as a whole and

accounts receivable turnover ratio measures the liquidity of accounts receivables.

• A high ratio for Spice Jet indicates that the receivables are more liquid and are being collected

promptly. A low ratio for jet is a sign of less liquid receivables and may reduce the true liquidity of

the business in the eyes of the analyst even if the current and quick ratios are satisfactory.

3. Profitability Ratios

a. Gross Margin

A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed

as a percentage. The gross margin represents the percent of total sales revenue that the company retains

after incurring the direct costs associated with producing the goods and services sold by a company.

4� ��0��(%) = 4� *�(�Sales

17

Analysis:

Spicejet: By 2012 ending, Spicejet inducted 9 additional jets. This Asset purchase activity to increase the

overall capacity and future revenues lead to additional expense and reduced the profit margin in 2012 and

2013

Jet Airways: There was rise in earnings due to the change in the depreciating policy adapted by Jet Airways

from written down method to straight line method in 2009. This resulted in to one time impact of MRs.

9,159 but it raised the net earnings afterwards.

b. Net Profit Margin

The ratio of net profits to revenues for a company or business segment - typically expressed as a percentage

– that shows how much of each dollar earned by the company is translated into profits.

:��0�� = ��– �/4�– /*��0�)*�� – %�� #��)� ��

Analysis

The gross profit shows similar trend as the net profit due to the same reasons mentioned above

c. Return on Total Assets

A ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The

ratio is considered an indicator of how effectively a company is using its assets to generate earnings before

contractual obligations must be paid.

�/�� = :�%��&� + %�� )*�� + ��)� ��:��

18

Analysis

Spicejet: Due to heavy purchase of assets during 2012, the net income decreased and the total assets

increased hence we observe a zero (negative) value in 2012 and 2013.

d. Return on Capital Employed

A financial ratio that measures a company's profitability and the efficiency with which its capital is

employed. Return on Capital Employed (ROCE) is calculated as:

�/�� = ��0 '�(��%�� #��)(�'%�)��*��&*��#

“Capital Employed” as shown in the denominator is the sum of shareholders' equity and debt liabilities; it

can be simplified as (Total Assets – Current Liabilities). Instead of using capital employed at an arbitrary

point in time, analysts and investors often calculate ROCE based on “Average Capital Employed,” which

takes the average of opening and closing capital employed for the time period.

A higher ROCE indicates more efficient use of capital. ROCE should be higher than the company’s capital

cost; otherwise it indicates that the company is not employing its capital effectively and is not generating

shareholder value.

19

e. Return on Equity

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a

corporation's profitability by revealing how much profit a company generates with the money shareholders

have invested.

ROE is expressed as a percentage and calculated as:

�� = :�%��&�/�ℎ��ℎ�#��′ ��

Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to

preferred stock.) Shareholder's equity does not include preferred shares.

Analysis

Spicejet's high ROE of 2012 indicates higher management's effectiveness when compared with Jet Airways.

Spicejet’s ‘Get more when you fly’ campaign received a fresh thrust with the launch of i Vista Digital

solutions. This increased their online presence and helped drive the customers to the Spicejet website, as

evident by the high ratio of 2012.

Jet Airways: The reason for the low ratios evident in the years 2009-2010 was that their debt increased

which in-turn increased the interest liability of the company. The underlying reasons were:

• Cost Structure

• Aggressive expansion in the airline industry

• Dearth of experienced pilots

• Foreign pilots commanding higher salaries

• Depreciation of rupee.

f. Earnings per Share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share

serves as an indicator of a company's profitability.

�.� = .��/:. (�ℎ��

When calculating, it is more accurate to use a weighted average number of shares outstanding over the

reporting term, because the number of shares outstanding can change over time. However, data sources

sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

20

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the

outstanding shares number.

Analysis

Though all the companies do not seem to be very profitable, Spicejet tended to generate some profits over

2010- 2011, while Jet Airways generated some profits in 2011.

4. Du Pont Analysis

Du Pont Analysis tells us, assets are measured at their gross book value rather than at net book value in

order to produce a higher return on equity (ROE). It is also known as "DuPont identity".

The return on equity (ROE) ratio is used to evaluate how effectively assets are used. It measures the

combined effects of profit margins and asset turnover.

DuPont analysis tells us that three things affect ROE:

Operating efficiency, which is measured by profit margin

Asset use efficiency, which is measured by total asset turnover

Financial leverage, which is measured by the equity multiplier

ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)

Analysis

Spicejet and JetAirways: Both companies are underperforming and have poor financial leverage to invest

in future. Return on equity has taken a severe hit as net profit is in negative, which implies both airlines are

in heavy losses.

21

Exhibit 1. Balance Sheet of Interglobe Aviation Ltd.

Interglobe Aviation Ltd. Balance Sheet (New) - Standalone - Actual - Abridged- [INR-Crore]

DESCRIPTION Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

EQUITY AND LIABILITIES

Share Capital 34.37 34.37 34.37 34.37 189.77

Share Warrants & Outstandings 0.00 0.00 0.00 0.00 0.00

Total Reserves 373.26 498.02 348.31 220.43 179.58

Shareholder's Funds 407.63 532.39 382.68 254.81 369.35

Long-Term Borrowings

Secured Loans 3080.74 1617.33 905.55 773.05 900.39

Unsecured Loans 33.93 636.35

Deferred Tax Assets / Liabilities 54.28 53.72 -66.51 -2.54 -61.67

Other Long Term Liabilities 2661.22 1891.24 1154.22 569.28

Long Term Trade Payables

Long Term Provisions 36.83 23.16 15.83 13.38

Total Non-Current Liabilities 5833.07 3585.45 2009.09 1387.10 1475.08

Current Liabilities

Trade Payables 393.54 279.74 179.34 120.55 146.08

Other Current Liabilities 2002.78 1500.99 1120.44 682.43 253.56

Short Term Borrowings 81.43 30.56 54.03

Short Term Provisions 464.51 30.79 15.32 579.74 17.32

Total Current Liabilities 2860.83 1892.95 1345.66 1436.75 416.95

Total Liabilities 9101.52 6010.78 3737.43 3078.65 2261.38

ASSETS

Non-Current Assets

Gross Block 4450.46 2036.21 1073.72 952.79 904.50

Less: Accumulated Depreciation 494.49 271.75 187.71 121.65 68.20

Less: Impairment of Assets

Net Block 3955.97 1764.46 886.01 831.14 836.30

Lease Adjustment A/c

Capital Work in Progress 6.85 1.13

Intangible assets under development

Pre-operative Expenses pending

Assets in transit

Non Current Investments 0.05 0.04 0.00

Long Term Loans & Advances 799.29 681.75 443.76 285.95

Other Non Current Assets 1431.52 487.01 98.96 11.90

Total Non-Current Assets 6186.83 2940.10 1428.73 1128.98 837.44

Current Assets Loans & Advances

Currents Investments 1271.48 1138.34 523.42 802.24 657.09

Inventories 67.29 52.28 37.39 44.67 34.03

Sundry Debtors 89.12 68.52 38.92 16.66 18.05

Cash and Bank 1101.53 1340.59 1308.83 775.69 318.49

Other Current Assets 265.64 201.09 142.43 97.89 42.46

22

Short Term Loans and Advances 119.63 269.87 257.72 212.50 353.82

Total Current Assets 2914.69 3070.68 2308.70 1949.66 1423.94

Net Current Assets (Including Current Investments) 53.87 1177.74 963.04 512.92 1006.99

Total Current Assets Excluding Current Investments 1643.21 1932.34 1785.28 1147.42 766.85

Miscellaneous Expenses not written off

Total Assets 9101.52 6010.78 3737.43 3078.65 2261.38

Contingent Liabilities 35.67 241.90 250.70 11317.01 13865.98

Total Debt 3346.24 1800.42 1015.57 931.36 1536.74

Book Value 13158.24 17221.99 12345.57 8180.23 6849.54

Adjusted Book Value 13158.24 17221.99 12345.57 8180.23 6849.54

Exhibit 2. Profit and Loss Account of Interglobe Aviation Ltd.

Interglobe Aviation Ltd. Profit And Loss - Standalone - Actual - Abridged- [INR-Crore]


No of Months 12.00 12.00 12.00 12.00 12.00

INCOME :

Operating Income 11116.58 9203.08 5564.66 3825.41 2601.57

Less: Inter divisional transfers

Less: Sales Returns

Less: Excise Duty

Operating Income (Net) 11116.58 9203.08 5564.66 3825.41 2601.57

EXPENDITURE :

Increase/Decrease in Stock 0.71 -1.87 -0.68 -0.11 -0.92

Raw Material Consumed 59.33 55.99 34.66 19.09 12.89

Power & Aircraft Fuel Expenses 5518.50 4316.55 2876.28 1523.63 913.63

Employee Cost 928.94 697.23 521.81 293.82 224.21

Operating Expenses 83.01 59.56 38.05 29.60 335.03

General and Administration Expenses 2154.33 1772.61 1102.90 594.21 351.89

Selling and Distribution Expenses 637.40 511.98 393.90 292.45 240.37

Miscellaneous Expenses 1217.47 894.83 561.25 370.24 4.52

Less: Expenses Capitalised

Total Expenditure 10599.68 8306.89 5528.16 3122.93 2081.63

Operating Profit (Excl OI) 516.90 896.19 36.51 702.48 519.94

Other Income 330.44 255.23 153.41 121.93 71.14

Operating Profit 847.34 1151.43 189.91 824.41 591.08

Interest 143.58 72.58 59.49 52.09 56.04

PBDT 703.76 1078.84 130.43 772.32 535.05

Depreciation 226.01 85.62 66.52 62.87 46.00

Profit Before Taxation & Exceptional

Items 477.76 993.22 63.90 709.45 489.05

Exceptional Income / Expenses

Profit Before Tax 477.76 993.22 63.90 709.45 489.05

Provision for Tax 160.76 205.88 -63.97 59.13 -61.65

Profit After Tax 316.99 787.35 127.88 650.33 550.70

23

Extra items

Adjustments to PAT -194.88

Profit Balance B/F 198.85 127.88 179.58 -369.00

Appropriations 515.84 915.22 127.88 635.02 181.70

Equity Dividend % 1230.00 1787.00 1597.49

Earnings Per Share 10325.44 25646.48 4165.34 21183.22 17938.14

Adjusted EPS 10325.44 25646.48 4165.34 21183.22 17938.14

Exhibit 3. Cash flow Account of Interglobe Aviation Ltd.

Interglobe Aviation Ltd. Cash Flow - Standalone - Actual - Abridged- [INR-Crore]


Profit Before Tax 477.76 993.22 63.90 709.45 489.05

Adjustment 94.35 -48.62 -5.08 26.27 45.26

Changes In working Capital 1130.94 981.85 873.95 268.49 198.94

Cash Flow after changes in Working Capital 1703.04 1926.45 932.78 1004.21 733.25

Interest Paid

Tax Paid -107.54 -185.15 -37.11 -132.22 -79.69

Other Direct Expenses paid

Extra & Other Item

Cash From Operating Activities 1595.50 1741.30 895.67 871.98 653.56

Cash Flow from Investing Activities -2913.78 -1889.69 -46.65 -590.21 -1377.98

Cash from Financing Activities 1284.84 36.08 -637.60 -272.07 594.64

Net Cash Inflow / Outflow -33.43 -112.30 211.43 9.71 -129.78

Opening Cash & Cash Equivalents 144.55 257.47 45.60 35.90 201.72

Cash & Cash Equivalent on Amalgamation / Take over /

Merger

Cash & Cash Equivalent of Subsidiaries under liquidations

Translation adj. on reserves / op cash balances frgn

subsidiaries

Effect of Foreign Exchange Fluctuations -0.47 -0.61 0.44

Closing Cash & Cash Equivalent 110.64 144.55 257.47 45.60 71.95

Exhibit 4. Balance Sheet of Jet Airways (India) Ltd.

Jet Airways (India) Ltd. Balance Sheet (New) - Standalone - Actual - Abridged- [INR-Crore]

DESCRIPTION Mar-15 Mar-14 Mar-13 Mar-12 Mar-11 Mar-10


Share Capital 113.60 113.60 86.33 86.33 86.33 86.33

Share Warrants & Outstandings 0.00 0.00 0.00 0.00 0.00 0.00

Total Reserves -4203.88 -2341.37 -428.86 1094.53 2518.01 2555.65

Shareholder's Funds -4090.28 -2227.77 -342.53 1180.86 2604.34 2641.98


Secured Loans 1394.13 551.27 1046.67 1672.18 1763.98 3836.18

24

Unsecured Loans 5213.17 5994.80 5821.93 7101.40 7283.97 10060.80

Deferred Tax Assets / Liabilities 33.63

Other Long Term Liabilities 1148.41 365.00 365.00 422.39 30.41

Long Term Trade Payables

Long Term Provisions 247.92 214.26 125.18 98.71 96.06

Total Non-Current Liabilities 8003.63 7125.33 7358.78 9294.68 9208.05 13896.98

Current Liabilities

Trade Payables 5427.82 4778.18 4691.77 3744.81 2090.04 1725.55

Other Current Liabilities 5811.37 6514.13 4988.81 4484.70 4241.38 1848.00

Short Term Borrowings 3644.29 2039.72 1952.59 2094.17 2452.74

Short Term Provisions 52.39 139.53 105.13 79.94 90.83 144.21

Total Current Liabilities 14935.87 13471.56 11738.30 10403.62 8874.99 3717.76

Total Liabilities 18849.22 18369.12 18754.55 20879.16 20687.38 20256.72

ASSETS

Non-Current Assets

Gross Block 16191.75 15820.28 16224.47 19031.49 17940.46 17932.75

Less: Accumulated Depreciation 5831.34 5056.12 4617.39 5249.04 4324.65 3502.83

Less: Impairment of Assets 1129.20 1129.20 830.04

Net Block 9231.21 9634.96 10777.04 13782.45 13615.81 14429.92


Capital Work in Progress 2.07 31.98 299.60

Intangible assets under development 19.42


Assets in transit

Non Current Investments 696.17 1641.21 1646.01 1645.96 1645.09 1645.00

Long Term Loans & Advances 3433.54 3087.23 2281.37 2108.50 2231.35


Total Non-Current Assets 13396.30 14374.56 14704.42 17538.98 17524.23 16374.52


Currents Investments 80.00 100.00

Inventories 927.02 803.76 786.67 778.35 711.18 584.79

Sundry Debtors 1374.48 1209.22 1184.58 1266.44 965.77 810.77

Cash and Bank 2068.60 1145.41 837.07 497.88 587.71 772.83


Short Term Loans and Advances 764.23 595.45 758.75 616.32 389.34 1613.81

Total Current Assets 5452.92 3994.56 4050.13 3340.18 3163.15 3882.20

Net Current Assets (Including Current

Investments) -9482.95 -9477.00 -7688.17 -7063.44 -5711.84 164.44

Total Current Assets Excluding Current

Investments 5452.92 3994.56 4050.13 3340.18 3083.15 3782.20


Total Assets 18849.22 18369.12 18754.55 20879.16 20687.38 20256.72

Contingent Liabilities 5963.66 6996.67 5657.63 4842.30 4198.86 4165.30

Total Debt 11902.67 10448.32 11248.95 13118.61 13480.40 13896.98

Book Value -387.82 -223.87 -113.58 -62.49 96.92 95.80

Adjusted Book Value -387.82 -223.87 -113.58 -62.49 96.92 95.80

25

Exhibit 5. Profit and Loss Account of Jet Airways (India) Ltd.

Jet Airways (India) Ltd. Profit And Loss - Standalone - Actual - Abridged- [INR-Crore]


No of Months 12.00 12.00 12.00 12.00 12.00 12.00

INCOME :

Operating Income 20132.13 17805.26 17360.46 15266.17 12933.53 10548.52


Less: Sales Returns

Less: Excise Duty

Operating Income (Net) 20132.13 17805.26 17360.46 15266.17 12933.53 10548.52

EXPENDITURE :

Increase/Decrease in Stock

Raw Material Consumed

Power & Aircraft Fuel Expenses 6702.05 7192.54 7007.66 6648.41 4385.38 3170.88

Employee Cost 2243.00 1899.59 1544.24 1599.49 1339.69 1225.28

Operating Expenses 7120.76 6821.84 4926.78 4032.13 3381.09 3132.62

General and Administration Expenses 1065.56 955.76 939.51 901.23 573.70 432.29

Selling and Distribution Expenses 2040.94 1448.29 1358.56 1361.67 1261.72 984.91

Miscellaneous Expenses 1075.77 971.89 680.78 497.82 299.78 338.85


Total Expenditure 20248.08 19289.91 16457.53 15040.75 11241.36 9284.83

Operating Profit (Excl OI) -115.95 -1484.65 902.93 225.42 1692.17 1263.69

Other Income 707.30 411.58 550.58 357.17 195.51 153.28

Operating Profit 591.35 -1073.07 1453.51 582.59 1887.68 1416.97

Interest 884.06 997.16 1118.98 971.23 1119.71 993.01

PBDT -292.71 -2070.23 334.53 -388.64 767.97 423.96

Depreciation 762.50 875.75 926.57 939.88 910.62 961.96

Profit Before Taxation & Exceptional Items -1055.21 -2945.98 -592.04 -1328.52 -142.65 -538.00

Exceptional Income / Expenses -758.50 -721.99 106.54 73.19 189.19 70.45

Profit Before Tax -1813.71 -3667.97 -485.50 -1255.33 46.54 -467.55

Provision for Tax -0.12 -19.23 36.85 0.09

Profit After Tax -1813.71 -3667.85 -485.50 -1236.10 9.69 -467.64

Extra items

Adjustments to PAT -28.61

Profit Balance B/F -6108.84 -2440.99 -1955.49 -719.39 -729.08 -261.44

Appropriations -7951.16 -6108.84 -2440.99 -1955.49 -719.39 -729.08

Equity Dividend %

Earnings Per Share -159.66 -322.87 -56.24 -143.18 1.12 -54.17

Adjusted EPS -159.66 -322.87 -56.24 -143.18 1.12 -54.17

26

Exhibit 6. Cash flow Account of Jet Airways (India) Ltd.

Jet Airways (India) Ltd. CashFlow - Standalone - Actual - Abridged- [INR-Crore]


Profit Before Tax

-

1813.71

-

3667.97 -485.50 -1255.33 46.54 -467.55

Adjustment 2156.18 2606.68 1745.11 1789.10 1757.89 1806.28

Changes In working Capital 193.95 2038.71 609.32 1737.67 -485.75 330.25

Cash Flow after changes in Working Capital 536.42 977.42 1868.93 2271.44 1318.68 1668.98

Interest Paid

Tax Paid -8.39 -56.16 -29.89 -30.83 -0.04 -17.56


Extra & Other Item

Cash From Operating Activities 528.03 921.26 1839.04 2240.61 1318.64 1651.42

Cash Flow from Investing Activities -172.45 -341.57 1677.24 293.43 13.83 160.10

Cash from Financing Activities 304.76 -426.63 -3443.55 -2610.26 -1297.46 -2083.52

Net Cash Inflow / Outflow 660.34 153.06 72.73 -76.22 35.01 -272.00

Opening Cash & Cash Equivalents 295.18 142.12 69.39 145.61 110.60 382.72

Cash & Cash Equivalent on Amalgamation /

Take over / Merger

Cash & Cash Equivalent of Subsidiaries under

liquidations

Translation adj. on reserves / op cash

balances frgn subsidiaries

Effect of Foreign Exchange Fluctuations

Closing Cash & Cash Equivalent 955.52 295.18 142.12 69.39 145.61 110.72

Exhibit 7. Balance Sheet of Spicejet Ltd.

Spicejet Ltd. Balance Sheet (New) - Standalone - Actual - Abridged- [INR-Crore]



Share Capital 535.28 484.35 441.45 405.38 241.88

Share Warrants & Outstandings 36.86 17.49 4.39 5.27 16.34

Total Reserves -1591.62 -726.28 -593.08 -89.54 -600.40

Shareholder's Funds -1019.48 -224.45 -147.23 321.11 -342.18


Secured Loans 14.35 201.76 88.65 34.13

Unsecured Loans 1221.93 1228.20 561.79 404.16

Deferred Tax Assets / Liabilities

Other Long Term Liabilities 29.12 22.53 13.52

Long Term Trade Payables 110.36 100.34 71.87 19.52

Long Term Provisions 16.02 11.68 8.47 5.69

Total Non-Current Liabilities 1391.78 1564.50 744.29 25.21 438.29

Current Liabilities

27

Trade Payables 1040.38 671.52 470.13 268.75 154.85

Other Current Liabilities 1236.14 805.86 691.58 436.89 587.35

Short Term Borrowings 280.00 248.15 205.00 55.00

Short Term Provisions 5.65 5.42 6.57 2.65 147.48

Total Current Liabilities 2562.17 1730.95 1373.28 763.29 889.67

Total Liabilities 2934.47 3071.01 1970.34 1109.61 985.79

ASSETS

Non-Current Assets

Gross Block 2172.60 1945.29 919.61 127.62 102.71

Less: Accumulated Depreciation 295.93 151.77 69.40 40.87 35.71

Less: Impairment of Assets

Net Block 1876.66 1793.52 850.21 86.75 67.00


Capital Work in Progress 0.77 1.21 0.06 0.16 324.91

Intangible assets under development


Assets in transit

Non Current Investments 0.00

Long Term Loans & Advances 328.56 227.90 469.55 571.70


Total Non-Current Assets 2472.44 2285.34 1536.04 827.76 391.92


Currents Investments

Inventories 45.15 45.62 31.65 20.35 14.72

Sundry Debtors 155.74 105.03 20.41 17.18 18.96

Cash and Bank 5.06 217.08 235.91 14.00 450.70


Short Term Loans and Advances 98.47 138.50 79.74 183.44 84.77

Total Current Assets 462.02 785.67 434.30 281.84 593.87

Net Current Assets (Including Current

Investments) -2100.14 -945.28 -938.97 -481.45 -295.80

Total Current Assets Excluding Current

Investments 462.02 785.67 434.30 281.84 593.87


Total Assets 2934.47 3071.01 1970.34 1109.61 985.79

Contingent Liabilities 37.44 36.34 37.60 23.17 19.57

Total Debt 1708.92 1802.19 1008.58 85.00 438.29

Book Value -19.73 -5.00 -3.43 7.79 -14.82

Adjusted Book Value -19.73 -5.00 -3.43 7.79 -14.82

28

Exhibit 8. Profit and Loss Account of Spicejet Ltd.

Spicejet Ltd. Profit And Loss - Standalone - Actual - Abridged- [INR-Crore]


No of Months 12.00 12.00 12.00 12.00 12.00

INCOME :

Operating Income 6304.23 5600.68 3943.26 2876.97 2181.08


Less: Sales Returns

Less: Excise Duty

Operating Income (Net) 6304.23 5600.68 3943.26 2876.97 2181.08

EXPENDITURE :

Increase/Decrease in Stock

Raw Material Consumed

Power & Aircraft Fuel Expenses 3255.79 2806.71 2199.07 1228.54 816.58

Employee Cost 575.70 526.80 402.87 243.93 181.41

Operating Expenses 2732.33 1983.63 1498.56 1017.27 722.53

General and Administration Expenses 211.38 198.22 152.53 105.82 216.35

Selling and Distribution Expenses 352.15 279.15 270.42 209.47 192.15

Miscellaneous Expenses 25.36 1.30 16.63 12.78 26.22


Total Expenditure 7152.70 5795.80 4540.08 2817.81 2155.25

Operating Profit (Excl OI) -848.46 -195.13 -596.82 59.16 25.83

Other Income 132.82 204.46 76.09 86.95 61.01

Operating Profit -715.64 9.34 -520.73 146.11 86.84

Interest 139.34 116.87 54.04 11.31 11.38

PBDT -854.98 -107.53 -574.77 134.80 75.46

Depreciation 148.26 83.55 31.00 8.91 7.64

Profit Before Taxation & Exceptional Items -1003.24 -191.08 -605.77 125.89 67.82

Exceptional Income / Expenses

Profit Before Tax -1003.24 -191.08 -605.77 125.89 67.82

Provision for Tax 24.74 6.37

Profit After Tax -1003.24 -191.08 -605.77 101.16 61.45

Extra items

Adjustments to PAT

Profit Balance B/F -1518.06 -1326.99 -721.22 -822.38 -883.82

Appropriations -2521.31 -1518.06 -1326.99 -721.22 -822.38

Equity Dividend %

Earnings Per Share -18.74 -3.94 -13.72 2.50 2.54

Adjusted EPS -18.74 -3.94 -13.72 2.50 2.54

29

Exhibit 9. Cash flow Account of Spicejet Ltd.

Spicejet Ltd. CashFlow - Standalone - Actual - Abridged- [INR-Crore]


Profit Before Tax -1003.24 -191.08 -605.77 128.17 73.39

Adjustment 265.27 149.54 51.94 -19.94 -20.81

Changes In working Capital 801.47 -5.30 446.16 -128.25 77.88

Cash Flow after changes in Working Capital 63.49 -46.83 -107.67 -20.02 130.46

Interest Paid

Tax Paid -4.53 -6.98 2.43 -25.50 -3.10


Extra & Other Item

Cash From Operating Activities 58.96 -53.81 -105.25 -45.52 127.37

Cash Flow from Investing Activities -49.66 -741.20 -665.68 -118.41 -23.95

Cash from Financing Activities -221.29 791.41 977.38 51.90 -2.66

Net Cash Inflow / Outflow -212.00 -3.60 206.46 -112.03 100.76

Opening Cash & Cash Equivalents 217.08 220.41 14.00 126.03 25.27

Cash & Cash Equivalent on Amalgamation / Take

over / Merger

Cash & Cash Equivalent of Subsidiaries under

liquidations

Translation adj. on reserves / op cash

balances frgn subsidiaries

Effect of Foreign Exchange Fluctuations -0.03 0.27 -0.05

Closing Cash & Cash Equivalent 5.06 217.08 220.41 14.00 126.03

Date post:	09-Dec-2015
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FRA Final Submission Group 5

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