Can Good Procurement Lead to a Successful IPO?
IndiGo, a budget Indian airline, may well have procurement to thank for a successful IPO launch today.
It has been suggested that a frugal business strategy, including a strict focus on reducing costs has primed the airline for success in the hugely competitive Indian aviation market.
India’s aviation market is growing at roughly 18% a year and offers huge opportunities for investors looking to cash in on this demand spike.
Despite this boom in demand, high operating costs and taxes have hindered the progress of many airlines operating in the subcontinent. A debt-racked Kingfisher airline was recently grounded and Spicejet, another Indian carrier, is facing similar issues.
Cost Conscious Culture Drives IPO Interest
Aviation experts point to IndiGo’s cost conscious culture as the leading reason as to why the business is performing so well. IndiGo’s procurement strategy is simple – they buy just one type of plane from one supplier (the company’s recent order with Airbus was the largest single order in the manufacturers history). This simplicity allows the firm to save time and money on maintenance, and reduces the amount of effort that needs to be allocated to supplier management.
IndiGo also has an enviable record when it comes to punctuality. This has not only encouraged more passengers to fly with them, but has improved the airline’s forecasting and reduced fuel costs, ultimately contributing to a more profitable operation.
Interest Domestically and from Abroad
The IPO is has been seen by investors as a huge opportunity to capitalise on growth of IndiGo. The firm’s market share has increased from 12.5 per cent five years ago to 34 per cent at the end of March. The funds raised in the IPO are earmarked for the purchase of new planes that are expected to further spur the growth of the firm.
Interest from both foreign and Indian firms (including Goldman Sachs and Singapore Sovereign Wealth Fund) in the IndiGo IPO has already been strong. The IPO will be launched today.
