Shares of InterGlobe Aviation Ltd, operator of India’s largest airline IndiGo, plunged as much as 7.5% in intra-day trade on Tuesday after a media report said that capital market regulator Securities and Exchange Board of India (Sebi) has discovered several related-party transactions between IndiGo and InterGlobe Enterprises that were not disclosed as per the required procedure.
“Sebi has found several related-party transactions that were not disclosed to the company’s audit committee and shareholders in their inquiry. The regulator has prepared a report, which has been sent to a committee of internal divisional chiefs for the future course of action,” a Moneycontrol report said quoting a source.
After the report came out, InterGlobe Aviation shares hit the day’s low of Rs 1,335 apiece in afternoon trade compared with their previous close of Rs 1,444.50. However, by 2:36 pm, the stock had pared losses to trade nearly 3% lower at Rs 1,400 level.
To recall, the issue of related-party transactions was earlier raised by the airline’s co-founder Rakesh Gangwal as well, who had alleged that the companies affiliated to InterGlobe Enterprises, which is privately held by IndiGo’s other co-founder Rahul Bhatia, had benefitted from transactions with IndiGo. InterGlobe Enterprises owns 37.87% in InterGlobe Aviation.
Gangwal had written a letter to Sebi in July 2019 saying “various RPTs (related-party transactions) with the IGE Group (InterGlobe Enterprises) were executed without seeking audit committee approval…without seeking competitive bids from third parties and various RPTs with the IGE Group have been signed with retrospective effect (backdated)."
Though, the report noted that it is not clear whether the undisclosed RPTs found by Sebi are the same as those highlighted by Rakesh Gangwal.
Separately, global brokerage firm Credit Suisse on Monday cut the target price on the IndiGo stock to Rs 1,850 from Rs 1,900 earlier, while maintaining an ‘outperform’ rating. It slashed its earnings estimates for the airline by 83/31/18% for FY20/21/22, respectively.
“We expect the company’s earnings to revive as cost structure spike tapers off. Weak SpiceJet balance sheet and Air India divestment can be additional opportunities,” Credit Suisse said.