Premji Invest, led by Azim Premji of Wipro, and Claypond Capital, representing the family office of Ranjan Pai from the Manipal Group, are currently negotiating a potential investment deal of approximately $125 million. They aim to acquire a substantial minority stake in Akasa Air, a move that could significantly impact the Indian aviation industry. The proposed funding values Akasa at over $350 million, demonstrating a strong show of confidence in the carrier’s future. This article will delve into the details of this significant development in the Indian aviation sector and explore its potential implications.
Initial Valuation and Investment:
The initial investment of about $35 million made by the family of the late Rakesh Jhunjhunwala valued Akasa at around $87.5 million. However, the new proposed funding stakes the company at over $350 million, showcasing a valuation increase of more than four times its initial investment value. This substantial growth in valuation is quite rare in the context of Indian carriers, highlighting the potential and attractiveness that Akasa Air holds for investors.
Due Diligence and Shareholding Changes:
To ensure the viability of the investment, the consortium has enlisted the expertise of consultancy firm Alvarez & Marsal to conduct due diligence. The fresh funds obtained through this investment will be directed towards the further expansion of Akasa Air and pre-delivery payments for aircraft. Consequently, this will lead to the dilution of shareholding for the Jhunjhunwala family and founder/CEO Vinay Dube, as they collectively own approximately 67% stake in the company.
Investor Sentiments and Industry Prospects:
Premji Invest and Claypond Capital are demonstrating a keen interest in well-run, consumer-facing startups that are on the cusp of breaking even and exhibit substantial market potential. Moreover, the investors are buoyed by the prospects of Akasa Air in the Indian aviation market, which is gradually shaping up as a two-horse race dominated by IndiGo and Air India. With the contrasting woes of competitors like Go First and SpiceJet, Akasa Air represents a promising contender for investors.
Akasa Air’s Expansion and Growth Strategy:
Since its inception in August 2021, Akasa Air has capitalized on the market conditions precipitated by the Covid-19 pandemic. It swiftly expanded its fleet with a record addition of 24 aircraft, achieving a milestone unparalleled in the Indian aviation sector since the liberalization of the industry in the early 90s. Notably, the carrier placed substantial orders for Boeing 737 Max aircraft, illustrating its long-term commitment to growth and expansion.
Operational Challenges and Future Outlook:
Despite its impressive growth trajectory and aggressive expansion, Akasa Air has not been immune to challenges. The slowdown in Boeing’s aircraft production, prompted by increased regulatory scrutiny following safety incidents, has impeded the carrier’s growth plans. Furthermore, the airline reported significant losses in its initial phases of operation, highlighting the inherent risks and challenges associated with its ambitious growth strategy.
Conclusion:
The potential investment of $125 million by the consortium led by Premji Invest and Claypond Capital in Akasa Air holds significant ramifications for the Indian aviation industry. It not only underscores the growing investor confidence in the aviation sector but also signals the emergence of new contenders in the Indian market. The strategic infusion of funds into Akasa Air is poised to reshape the dynamics of the Indian aviation industry, making it a development that industry stakeholders and aviation enthusiasts will keenly observe.
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