Despite stellar profits, IndiGo's debt rose 630.8% in Q1FY20. Here is why

InterGlobe Aviation Ltd, the market leader in the aviation industry reported very strong numbers for the quarter ended June 2019.

The company posted record-high profit and EBITDAR as the yields surge post Jet Airway's grounding.

Yields went up 12.8 percent YoY at Rs 4.08 per kilometer against Rs 3.62 per kilometer and the revenue per seat kilometer up 10.7 percent at Rs 4.1 against Rs 3.7.

However, the company’s total debt has increased by 630.8 percent on a YoY basis. This looks like a huge number but it is due to the changes with regard to lease accounting under new IND AS 116.

All the leases to be treated as financial leases i.e. transfers ownership and risks to the lessee.

The new standard requires lessees to recognise long-term leases on balance sheets.

Airlines

Hotels

Restaurants

Multiplexes

Retailers

Assets on the balance sheet to increase.

Debt to increase.

Lease rent expense to decrease.

Depreciation to increase.

Interest expense to Increase.

EBITDA margins to increase.

Reported PAT to be lower.

RoCE and RoE to decrease.

Cash profit to remain the same.

Hence, InterGlobe said that due to the lease accounting, total debt increased to Rs 18,430.9 crore against Rs 2,522 crore YoY. The rise in debt due to lease liability is Rs 16,070 crore. The company’s gross debt has fallen 6.4 percent to Rs 2,360.8 crore. InterGlobe has a cash of Rs 17,337 crore in its books, which makes the firm a net debt-free company.