ASSIGNMENT:1.

One pharma and one healthcare company went for an

IPO in the current month- Alkem and Dr. Lal Path lab.
Illustrate in details the size of IPO, price band, reasons
of IPO, risks and financials.
ANS:Alkem IPO

Dr Lal Pathlabs

IPO size

Rs 1,311 cr - Rs
1,349.6 cr

Rs 626 cr - Rs 638
cr

Price band

Rs 1020 - Rs 1050

Rs 540-550

Reason for IPO

Provide some
liquidity to existing
shareholders, listing
of shares, better
visibility

It is an offer for
sale, company
won't get any
proceeds from this
issue. IPO is
primarily an exit for
the PE Investors.

Risks

Volatility in margins

High Valuations
because its a
concept stock

Focus on inorganic
growth

Organized
competitors include
Hospitals, SRL
Diagnostics,
Metropolis

Largely unknown
Late entrant into the
brand outside North
US
& East
Financials

Strong growth in
H1FY16

Net Cash Rs 235

crore (Debt free)

Profit Rs 438.6 crore

Profit Rs 37 crore

Revenue at Rs 2570
crore

Revenue Rs 407
crore

Margin at 17.9%

Margins 22%

2. The slowdown of China has affected the profitability

and growth of Tata Motors. Comment.
ANS:-

Indias Tata Motors unveiled a large and unexpected fall in fourth-quarter

earnings as the owner of Jaguar Land Rover suffered from the effects of a slowdown in
the crucial Chinese market.
The Mumbai-based group on Tuesday said there would be no full-year dividend for the
first time since 2002 as the domestic cars and trucks unit, which has long been propped
up by the more successful British stable, swung to a net loss.
The results are quite bad a lot worse than we thought theyd print, said Robin Zhu,
an analyst at Bernstein Research.
Once dominant in India, Tata Motors has suffered sharp falls in market share. Amid
criticism of out-of-date cars and a prolonged slowdown in the domestic commercial
vehicle market, it has been reliant on the highly profitable JLR, which it bought from
Ford in 2008 for 1.3bn.
But JLR is starting to suffer the effects of a slowdown in China, the worlds biggest
passenger car market and the driving force behind global carmakers profitability since
2010.
Premium and luxury carmakers are being affected by an official crackdown on
ostentation. Industry insiders also say some Chinese consumers are putting off
purchases because they think prices will come down following scrutiny of carmakers by
Chinas National Development and Reform Commission.
But more immediately, prices are falling in China as global manufacturers react to a shift
in consumer tastes towards cheap and cheerful sport utility vehicles made by domestic
brands.
That has come at a difficult time for JLR, which has just opened its first overseas factory
under a joint venture with domestic carmaker Chery.
Its a totally new experience for us to be in China, said Ralf Speth, JLR chief executive, adding
that the business had yet to alter pricing in China. Nevertheless, we are cautiously optimistic
that together with our joint venture partner, we will grow our business and market share in
China.

Tata Motors said net profit fell 56 per cent in the fourth quarter to Rs17.2bn ($269m),
despite revenues increasing 3.5 per cent to Rs676bn in the three months to the end of
March. Jaguar Land Rover sales also increased about 9 per cent to 5.8bn in the
period, but net income fell by a third to 302m.

This was partly because of some costs associated with its Chinese plant in Changshu.
Analysts also said favourable sterling exchange rates helped offset some of the pain in
China.
This was partly because of some costs associated with its Chinese plant in Changshu.
Analysts also said favourable sterling exchange rates helped offset some of the pain in
China.
Tata Motors full-year net income was flat at about Rs140bn, while the JLR units fullyear post-tax profit rose about 8 per cent to 2bn. The net loss at Tata Motors domestic
business was Rs47.4bn versus Rs3.3bn in profit in the previous year.
Mr Zhu said the decision not to pay a dividend was a pragmatic move. They are
worried about cash generation, trading conditions and margin, he said.
Tata Motors shares closed down almost 2 per cent in Mumbai, ahead of the release of
the results.

3. In recent times when Indian Aviation Industry is in

trouble due to high cost structure and infrastructural
bottlenecks, how does Indigo in India manage to
remain unaffected and continues to prosper? In its
recent IPO it has also set steep price band which is
subscribed more than six times. Justify the reasons of
Flying Alone, Flying High.
ANS:-

"They have figured out that people are more focused on getting to their
destination on time than anything else. And they deliver that better than any airline,"
said Gaurav Narain at Ocean Dial Investments, a London-based India dedicated fund.
Let's look at some factors that might have contributed to the consistent profits recorded
by Indigo.
I. Operations:
Hutum Pencha's answer covers the technical aspects really well. There may be some
repetition but I will try to add some more points.
1. Single type of aircraft: Take a look at the list of aircraft being used by different
airlines operating in IndiGO
Indigo's whole fleet consists of A-320-232 aircraft while Air India, Jet Airways and Spice

Jet use 10, 9 and 3 different makes of aircraft respectively. This results is in greater
flexibility by making use of the same crew from pilots to flight attendants to the ground
force thereby cutting hiring, training and upgradation costs.
2. Single Class: Having only Economy class means that Indigo does not have to spend
time, money and crew on privilege passengers. They also don't need to maintain
expensive lounges at airports further reducing costs.
3. Low average fleet age: Indigo has an average fleet age of less than 3 years. A
younger fleet means less maintenance costs. Indigo plans to maintain a lower fleet age
as all its aircraft are leased for a period of 5-6 years. This way they avoid the DCheck which is done after 8 years of operation of an airplane. (A D-check may take up
to 2 months during which the aircraft remains out of service.)
4. Fuel: Domestic fuel taxes can be as high as 30 per cent along with an 8.2 per cent
excise duty. As a result, fuel for Indian airlines accounts for about 45 per cent of total
operating costs, compared to the global average of 30 per cent.
Indigo's aircraft try to save fuel by using software to optimize flight planning for minimum
fuel burning routes and altitudes and also by making use of latest fuel saving
technology.
Press release | Airbus, Indigo becomes the first Indian airline to use sharklet equipped
A320.
Indigo was one of the first airlines to place order for the Airbus A320neo family which
claims to deliver 15% less fuel consumption and 8% lower operating costs.
Press release | Airbus, Indigo places order for 130 A320 neo
IndiGo was also among the first airlines to have the aircraft taxi to the terminal with one
engine, shutting down the second engine to save fuel.
The company is also involved in Fuel hedging after the government allowed it in 2007.
Other operators like Spice Jet and Air India have also taken up hedging recently.
5. Route Planning: Indigo operates over a lesser number of destinations than its
competitors but with a higher frequency - with a fleet of 78 planes for 36 destinations
while Spice Jet flies to 46 destinations with 58 planes. Not comparing Jet's fleet size as
it operates more than double flights per day compared to Indigo.

The network maps show that all Indigo's destinations are connected to at least two cities
while most are connected to 3 or more destinations, whereas this is not the case with
Jet Airways. This means Indigo can keep its aircraft in the air for a longer period of time

and save up on airport charges. Because of this Indigo has a high aircraft utilization rate
of more than 11.5 hours per day per plane. This also means that customers don't have
to look for connecting flights with other competing operators.
Spice Jet destinations also seem to be well connected, but they have a larger presence
in Tier 2 and Tier 3 cities (especially in the south) and traffic to and from these cities
tends to be seasonal.
6. Tightly framed maintenance contracts: Indigo has a Power by the Hourcontract
with International Aero Engines (IAE), which provides the engines, that put the onus of
performance delivery on the manufacturer. IndiGo has similar agreements with Airbus,
as well as with the vendors for other critical components. These contracts probably
come at a premium but it means that Indigo does not have to pull out planes from
service for repairs and also does not have to maintain a large inventory of spares.
7. Other cost-cutting measures:
1.
Turnaround time - An airline is charged for the duration its aircraft stays at
the airport. Indigo has a faster turnaround time (time taken between landing
and the next take-off) of 30 minutes. Point 5 is one of the reasons for this.
Having a single make of aircraft again helps in this regard as the time taken by
the crew gets optimized.
2.
Employee Aircraft ratio - Lower employee aircraft ratio of 102 compared to
Jet Airways's 130 and Air India's 262.
3.
Stage Length - Average Stage length (flying time per flight) of 1.5 hours,
which means not having to stock and serve hot meals in most flights. This
again contributes to the low turnaround time.
4.
Most Indian airlines take delivery of aircraft by sending their own pilots and
engineers (to Toulouse in the case of Airbus). Indigo prefers to get them
delivered to Delhi, this is costlier but it also leads to better utilization of the
available pilots and the engineering crew.
II. Marketing:
1.
2.

Little advertising spend.

High reliance on word of mouth marketing in its early days by establishing a
reputation of being a no frills airline which is always clean and on time.
3.
Strategic marketing - Indigo advertised heavily when it started international
operations and also when Kingfisher was going bust, with catchphrases like
'Let the bad times roll Fly IndiGo in good times and in bad times.' taking a
dig at Kingfisher's tagline 'Fly the good times.' This move was criticized but it
worked for Indigo.

The result of these operational and marketing aspects is visible in IndiGo which has a
market share of 30% and the highest passenger load factor of close to 90% compared
to 77% of JetLite and 81% of SpiceJet. This means better revenue for IndiGo compared
to its competitors.
http://dgca.nic.in/reports/Marke...
III. Financial Aspects:
1.

Debt: IndiGo has gone on record to say that the company has practically no
debt. This is not the case for other airlines - Air India, Jet Airways and Spice Jet
all have huge debts which were taken to finance expansions. A massive debt
of more than 123.03 billion rupees was one reason for Jet's 24% stake sale to
Etihad. Even Kingfisher Airline's major financial woes stemmed from their debt
of more than 75 billion Rupees. Spice Jet has a relatively smaller debt of 16.45
billion rupees but it has been recording larger losses for some time now. A
large debt leads to a considerable portion of revenue going to service the debt.
2.
Sale and Leaseback: From Wikipedia - Leaseback is a financial
transaction, where one sells an asset and leases it back for the long-term;
therefore, one continues to be able to use the asset but no longer owns it. The
transaction is generally done for fixed assets, notably real estate, as well as for
durable and capital goods such as airplanes and trains.
IndiGo has been able to better leverage this by placing bulk orders for aircraft. In 2005,
when IndiGo did not even exist as an entity InterGlobe Enterprises placed an order for
100 A320s during the 2005 Paris Air show. This was also one of the biggest orders
during the show. The company again placed an order of 180 new A320s in 2011. Press
release | Airbus, Indigo places order for 130 A320 neo
A bulk order implies better bargaining capability with the manufacturer while buying and
better returns when the aircraft are later sold using Leaseback agreements. It is
estimated that airlines can make about $5 million per plane through sale and leaseback
transactions. The returns from these transactions get amortized over several years and
can also be included in the profits of the airline. Industry analysts have been estimating
that Leaseback accounts for a large portion of IndiGo's profits but Indigo has been
denying this. Other airlines like Air India, Jet Airways and SpiceJet have also taken to
this model recently.
IV. Vision:
The large aircraft orders, phasing out of aircraft older than 6 years and Indigo's highly
connected flight network to which a new destination is not added unless it can be
connected to at least 2 other destinations point to a highly planned long term growth

trajectory. Fleet planning has to be done decades in advance, so the above points also
mean that IndiGo probably has cash rich investors.
V. Influence:
Finally, we come to the elephant in the room. IndiGo is privately held by two very low
key people.
- Rahul Bhatia, who owns 50% of the airline, is in charge of operations. He has almost
two decades of experience in the travel business and, some say, contacts in the
government. Does that mean acquiring the more profitable routes and slots? Maybe.
- Rakesh Gangwal who owns the remaining 50% has a long history in the US airline
industry. He brings global networking and expertise to IndiGo. Does that help in better
bargaining with manufacturers and other suppliers? Again, maybe.
Once again, since IndiGo does not make its financials public we can only estimate the
factors that may have contributed to IndiGo's success. But, IndiGo's real test starts now
as DGCA has given clearance to Air Asia, which is known to operate with a similar
model, and is already planning to offer 35% lower fares.

.
Indigo, was one of the late entrants in the low cost airline business. There were
prominent players already in market by that time such as SpiceJet and Air Deccan (Air
Deccan was later taken over by Kingfisher Airlines). Inspite of its late entry, Indigo, at
present is the largest player (23%) in terms of market share. Indigo has reported pretty
much 15-20% YOY profit.
There are several reasons why Indigo is miles ahead of the other market players.
1) Aggressive Fuel Price Hedging - This is one single reason which saves millions for
Indigo.
2) Supreme Service - They have a fleet which runs approximately always on-time
(90%). This not only makes their customers come back for their next trip but also saves
a lot on operational cost
3) Low advertising - Most of their advertisements are only on their own inflight
magazines. They do not spend recklessly on advertising through TV or large hoardings
wooing customers.
4) Renting out its aircrafts - Not really sure, but once while discussing with someone,
I leanred that Indigo has a very robust maintenance team which takes care of its

aircrafts. The ones which are not flying are in turn leased out to other airlines (both to
domestic and international players). This is another zone where Indigo make good
money.
There might be many other trade secrets which keeps Indigo topping at the charts but
end of the day its their attitude towards their customers as well as their seriousness
towards the service what matters. Clean seats, cleaner toilets, courteous staffs, on-time
flights and good city-to-city connectivity makes a lot of difference to gain market share.
1) Common type rating: The whole fleet consists of A320-214 aircraft fitted with
V2500-A5 type engines. Flexibility in scheduling, training costs virtually nil (why? see
7,8). In non-aviation lingo, you own a fleet of Tata Sumos and not a hybrid group of Tata
Sumos and Mahindra Scorpio. All your drivers are proficient in driving Sumos and hence
they know their rides inside out.
2) Aggressive fuel planning: Their SOP demands you to fly with minimum required
fuel, at times dangerously low. In one particular incident, due to inclement weather over
Kolkata three (not one) of their aircraft had to make emergency landings in
Bhubaneswar declaring fuel emergency. Holding fuel and contingency fuel are kept on
bare minimums to avoid the extra load and costs.
3) Sale and leaseback: Another extremely wise step to generate cash flow without a
single flight. You buy an aircraft, sale it to the leasing giants like ILFC or the ALC and
they pay you for the aircraft and the insurance costs are taken off your shoulder. Most of
their aircraft are leased and owned by companies in Ireland and Cayman Islands due to
some reasons unknown. Instead of the giants, the minnows offer you far more
competitive figures and you are not directly influenced by the government in your
decisions.
4) Average fleet age: 6 years. A few other players in the field have aircraft older than
their CEOs. Once the aircraft begin to show signs of wear and tear (due for the first Dcheck), they are promptly taken off service which usually occurs at the end of 5 years
and the process to send them back home begins, keeping maintenance costs
significantly low.
They have certain routes which are linked through tier two cities to metropolis cities.
The revenue is twice for the same seat, which is being sold for the first leg and the
second leg separately. If the passenger is taking the terminating destination, its a down
point for them.
5) Route planning: They make their routes profitable. Wrong. They fly only on

profitable routes and slots. Being a private operator, they are not bound to fly on routes
which don't give you back the operating costs. Neither does the government force you
to fly on humanitarian grounds and regional sentiments. Hardly will you see an Indigo in
air after 2300 hrs save their international fights.

6) Salary structure: Unbelievably low.

Experienced commanders : 3-4 lacs pm
Experienced first officers: 2-2.5 lacs pm
Newbs: 1 lac pm
Cabin crew: 35-50k pm
Engineering : 75-80k pm
The usual scale is double the amounts here. Contractual jobs, no commitment on the
company's half whatsoever but requiring back breaking efforts in order to renew your
contract every two years to keep your job. 75% of an airlines' monthly bill accounts for
the crew salary. Do the math.
7) Timing: By far the stars have been lined up in the most favourable formation. I
should consult the soothsayer they visit to get that elusive luck factor on
my
side. They came in when Deccan's demise was imminent. Lots of rated crew came in at
throw away prices to keep their pots Page on Boiling the recent past, the unfaithful wife
(readBeerjet) was screwed over by her cuckold husband and hence hoards of type
rated crew came flocking in, yet again.
8) Training & Operations: Elaborating on point 7, such a thing does not exist, at least
in the operations. Type rated crew keeps flowing in from the various A320 operators in
the country owing to the closure of their parent company or insecure future and irregular
salary payment. Once they had introduced a cadet program where you pay for your type
rating and if they find you competent enough, only then you get the right seat but that
has been stopped now for the collective good.
The most dreaded department in the company is this one . OPERATIONS. Have
seen a few commanders spend sleep less nights before the counselling sessions they
have been called for their own benefit. Flight safety asks you questions if you carry
even 300kgs of excess fuel. You are paid handsomely if you save fuel on your flights
and once on ground you receive the info on your phone via SMS. Days are not far
when they are de-rostered for going around.
9) Overlooked factors: The omnipresent PALM of the hand. Their excellent on-time
performance. Maybe the wigs they force their cabin crew to wear. Wonder how come
your bags reach the terminal before you do? The pax doors are opened a bit later than

the cargo bay doors facilitating early arrival of the cargo. The whistle blower for the pilot
scam originated from the nose landing incident of the same company. Several incidents
have gone unreported. March this year VT-IEW had veered off the runway upon landing
in Mumbai. The crew surreptitiously taxied away and the aircraft was identified through
the drag marks of the tyres which were being swiftly changed. Nice bit
of Holmicide ATS pulled off there. Previously, they took 5-10 minutes longer than their
counter parts to cover the same route paving the way for their trademark "Yet another
on time arrival is ..." (6E, isn't it?) That practice has been discontinued now and they
have regularized the timings. The aircraft are hardly kept on ground, reducing parking
costs and avoiding highly taxed airports.Utilization for a domestic company is pretty
impressive.

4.How do you think the proposed GST rollout will affect

the price of capital goods
ANS:- India's GDP could receive a boost from just capital goods becoming cheaper
once the goods and services tax is rolled out, the Arvind Subramanian panel report
said, making a case for this key reform.
The committee, set up to calculate a revenue-neutral rate (RNR) for GST, submitted its
report to the government last week, suggesting a two-rate structure for GST. The report
was made public on Wednesday.
The report has not gone into the detailed benefits of GST as its mandate was to
ascertain RNR, but it sees a clear lift for investment because of likely seamless and
efficient crediting of taxes paid on capital goods.
It reckons that in such a scenario, capital goods prices would effectively become 1214% cheaper, increasing demand and thereby boosting investment and growth.
Assuming an elasticity of investment demand with respect to price to be -0.5, GST - by
allowing full input tax credit for capital goods - could increase investment in capital
goods by 6% and raise overall investment by 2% (as machinery and equipment account
for around onethird of total investment).
This "in turn could lead to incremental GDP of 0.5%, assuming an incremental capital
output ratio of 4", the report said. Under the current system, no setoff or input tax credit
is provided for the excise duties and VAT levied on capital goods.
"This increases the cost of capital goods and reduces investment, which in turn leads to

lower employment and output," the report said. The panel cited the case of Canada,
which had an excise duty structursimilar to that in India when it introduced GST in 1991,
to back its assessment