Companies

IndiGo board decisions welcome but promoters should sort out remaining issues soon: analysts

Ashwini Phadnis New Delhi | Updated on July 22, 2019

The IndiGo board’s decisions taken in the last few days including amending the Articles of Association of the Company for expanding the board up to a maximum of 10, including four Independent Directors which was firmed up on Saturday have been welcomed by analysts.

The board also decided to seek the shareholders’ approval at the upcoming Annual General Meeting to expand the board to enable the induction of an independent woman director.

The board’s decisions came in the back drop of an open verbal feud between Rakesh Gangwal and Rahul Bhatia, the two co-promoters of the airline, with Gangwal alleging that Bhatia was not following corporate governance norms and also entering into Related Party Transactions (RPT). Bhatia has denied these allegations. The issues came to the fore as Gangwal who is said to have been raising them since late last year decided to approach the Securities and Exchange Board of India after he got no answers.

While the IndiGo board has taken decisions on the composition of the board, the issue of RPTs is yet to be answered, which was also one of the issues which Gangwal raised.

Tarun Bhatia, Managing Director, Kroll, expressed happiness that the two co-promoters have been able to sort out some of their differences. “This issue requires a quick solution. It should be resolved in the next 3-4 months. Surely by next quarter, otherwise it could affect the brand, reputation and also the company’s operations,” he told BusinessLine.

Kroll’s main area of work is in corporate risk mitigation and due diligence, investigations, analysing political risks, new market entry strategies and corporate governance in a wide range of sectors with a major focus on BFSI and NBFC.

The current spat

Pointing out that the current spat in IndiGo is nothing new and has happened in several big ticket companies including one of the most respected promoter groups, Tarun is of the view that the issues raised are not insignificant and have come into prominence because of the current environment where many high profile companies like Bhushan Power and Steel, Dewan and Cox and King have also been red flagged on various governance-related issues.

Gagan Dixit, Aviation Analyst at Elara Capital, was of the view that the present issues between the promoters will not meaningfully impact the airline’s operations in the near term “as related party transaction, that is a major cause of disagreement between the promoters is an insignificant amount out of overall revenue.”

“We believe expansion of the board would be positive decision as regards Corporate Governance and Brand as the board’s decision making would be more driven by independent directors instead of promoters-appointed directors as in the past,” he said.

He added that concerns remained about the smooth implementation of the company’s long-term plans such as international expansions and future fleet type decisions till the promoters resolve remaining issues other than the board expansion, which is a mandatory regulatory requirement.

While the spat saw the shares of the publicly listed IndiGo being impacted, Ronojoy Dutta, Chief Executive Officer, told analysts after the first quarter results for fiscal 2020 were announced that the only issue is the agreement between the two promoters. “When it comes to growth and international expansion the two promoters are totally in sync. The only issue is the agreement between the two promoters which has nothing to do with the company and its strategy,” he said.

Published on July 22, 2019

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