Rahul Bhatia and Rakesh Gangwal, the joint promoters of Indigo, India’s leading airline, have been embroiled in controversy over a variety of businesses in recent years. One thing they clearly agree on is that InterGlobe Aviation Limited has a compensation package for its Chief Executive Officer (CEO) Ronozoy Dutta, who took over in January 2019 and led the carrier through the post-Kovid mayhem. The big disruption last year left the company with a net loss ₹4,659 crore in the first nine months of 2020-21, which is much worse than reported ₹247 crore loss on revenue ₹35,756 crore in 2019-20. Dutta paid in those three quarters ₹8.2 crores ₹3.75 crores. This payment, a clear decrease from the amount of his previous year ₹17 crores, widely taken as equivalent to the course, but what provoked the revolt among the minority shareholders was the award of stock options, which allowed him to buy 185,000 shares next January 25%, then 35%, and rest at the end of 2023 at ‘exercise price’ ₹765 per. In a company vote that ended on April 10, many of its minority shareholders voted against the grant. Bhatia and Gangwal together have a one-third stake in the equity and have no trouble pushing it.
Shareholder activism is on the rise. In general, this is a welcome trend, albeit with a big warning. Minority owners should never hurt their own interests. This is what happens if they express their opinion about business facts that make them jealous of pay packages. Stock options are such a reality. They are a useful way to connect executive interests with shareholder interests. The size of a given bonanza usually determines how crucial the award recipient’s role is in increasing shareholder value. Since these shares can only be claimed later, they not only serve as a retention tool, but also extend the strategic horizons of CEOs so that they can focus only on short-term results. However, in the case of InterGlobe, does it have a point for its Nazarenes? The share dilution is not a cause for concern as the Data quota is very small for a company with nearly 385 million shares. What raises eyebrows is that the offer price is so low that the incentive for adoption to expand the company’s market capitalization seemed too weak — an important part of any CEO job. On Tuesday, its stock closed slightly higher ₹1,600. Even if the InterGlobe loses half of its value in the next few years, or scraps the depths of last year’s Kovid crash, Dutta will still make a profit. So, couldn’t the price of his suit be over-determined?
Well, if any stock float is working in favor of adoption, he has performed better anyway. Depending on where the interglobe’s scrip goes, the high bar is guaranteed. It’s hard to predict. Currently, Indigo accounts for more than half of the Indian aviation market. With cash high, this looks good for the post-epidemic boom in air travel caused by the release of pent-up demand. Some analysts predict earnings in 2022-23, which could justify doubling the stock price ₹765. However, with Kovid Raging, no one can say for sure what to expect. What if the epidemic spreads its economic conditions thinly? What if Tata-owned Air India went all out with Vistara in taking it over? As Indigo’s flight path is entangled with potential air pockets, it needs a steady hand to sustain success. And it costs money.