InterGlobe Aviation Ltd (IGAL) has clarified that the existence of Related Party Transactions (RPTs) were disclosed at the time of the IPO in 2015.

This was one of the main accusations that Rakesh Gangwal, co-founder, IndiGo Airlines, had made in his submission to SEBI late on Tuesday.

“Post the IPO, many of the RPTs have ceased to exist while others have been renewed on an arm’s length basis as part of the normal course of business,” the airline said in a media statement.

The statement adds that InterGlobe Enterprises and its Group Entities (IGE) Group has ensured that no entity of the group takes advantage under the RPTs. “Without exception, IGAL has received more favourable treatment from the IGE Group entities as compared to their other customers,” the statement said. It added that the materiality of the transactions for IGAL is not significant, as it was only 0.53 per cent of its consolidated turnover for fiscal 2018-19.

IGE and its founders (Rahul Bhatia and family) are one of the two promoters of IGAL, which owns and operates IndiGo.

‘No change in mission’

Ronojoy Dutta, CEO, IndiGo Airlines, has told employees that the mission, direction and growth strategy of IndiGo Airlines remain “unchanged and firmly in place.”

His message came less than 24 hours after the war of words between Rakesh Gangwal and Rahul Bhatia about corporate governance norms not being properly followed in the airline came out in the open.

Gangwal has accused Bhatia of various issues, including his attempt to build an ecosystem of other companies that would enter into dozens of related party transactions with IndiGo. Bhatia denied the allegations.

“The issues between them will eventually get sorted out, but I want to stress that these issues have nothing to do with the airline and its functioning,” Dutta said in his message.

Impact on stock

Gagan Dixit, aviation analyst, Elara Capital, said that the tussle between the two co-founders can potentially impact the decision-making process at the top. “If the promoters’ issue reaches a court/ regulator, there might be a risk of some restrictions with regard to many transactions till it is resolved,” he said.

“Till this is resolved, a major overhang would remain on this stock, as investors would avoid uncertainty,” he said.

Other analysts — who declined to be identified — however, felt that if the story is true, then corporate governance in the airline will be “hot” and the market will no longer consider it a professionally managed company. One analyst was of the opinion that the airline’s share price will take a hit since the auditors will closely scrutinise the transactions with related parties to ascertain if they have been done as per governance norms, following tender procedures and at Fair Market Values.

Another was of the view that IndiGo’s success has been credited to the vision and execution skills by way of synergy between the promoters. While Gangwal is known to be the brain behind the negotiations with OEMs and suppliers, Bhatia has been the man running the show and operations in India.

“Clearly, the differences, now snowballing into larger issues, if not settled, could result in concerns around dilution of benefits/advantage to IndiGo from the synergy between the promoters. This could hurt the profits/expansion plans,” the analyst added.