IndiGo May Report Higher Forex Losses In Second Quarter Of 2019-20
Every Rs 1 movement in exchange rate will roughly have a Rs 233-crore forex impact on profit and loss account, says IndiGo.
InterGlobe Aviation Ltd.’s foreign exchange losses may jump in the July-September quarter of 2019-20 as the operator of IndiGo airlines adopted a new accounting standard and the rupee fluctuated.
As the company adopted Ind AS-116 accounting standard, it had to capitalise its operating leases on aircraft, which resulted into a lease liability of Rs 16,070 crore as of June 30, 2019, according to IndiGo’s note to investors, a copy of which has been reviewed by BloombergQuint.
Every Rs 1 movement in the rupee-dollar exchange rate over and above Rs 68.90 will roughly have a Rs 233-crore mark-to-market foreign exchange impact on profit and loss account, the operator of the budget carrier said in the note.
The closing exchange rate of rupee against the U.S. dollar as of June was Rs 68.90. The domestic unit now is trading at Rs 72.29 against the greenback. This, according to BloombergQuint’s calculations, may result into Rs 800 crore of foreign exchange losses from operating leases for IndiGo.
These, however, are mark-to-market losses—that’s notional and the actual loss will only be realised when the company pays for these operating leases. Also, if the rupee appreciates during the rest of the quarter, these losses may be reversed.
“It’s important to note that this is purely a non-cash transaction arising out of revaluation of liability at period end and does not impact the cash flow of the company,” according to a separate media statement by IndiGo.
Passenger Growth
In its note to investors, IndiGo also clarified that the slowdown in passenger growth is due to capacity reduction by the airline and not because of lower demand.
This came after passenger growth of Indian airlines slowed in July. The number of passengers flying Indian airlines grew at 3 percent year-on-year during the month, the worst pace in July in at least six years.
On Tuesday, InterGlobe Aviation’s shares fell 3.82 percent to Rs 1625.40 apiece on the BSE while the benchmark Sensex shed 2.06 percent to end the day at 36,562.91 points.