With GoAir dealing with bankruptcy, Jet Airways still very far from resuming operations, and SpiceJet's ongoing financial troubles, airline company IndiGo is soaring. Shares of Interglobe Aviation (IndiGo) have been giving positive returns for 4 straight months this calendar year. The stock has gained 3.3 percent in June so far after an over 17 percent jump in May.
The stock has rallied 52 percent in the last 1 year and over 22 percent in 2023 YTD and brokerages expect the trend to continue going ahead.
In a recent report, global brokerage house UBS upgraded the target price for IndiGo sharply to ₹3,300 from its earlier target of ₹2,690. The new target implies an upside of 33 percent from its Friday's closing price of ₹2,466.80.
According to the brokerage, IndiGo remains very well equipped to tackle any downcycle and can handle any sharp up-move in crude or the US dollar without significant cash burn.
"We maintain our Buy rating on IndiGo as the company stands to be a key beneficiary of rising air travel demand in India. IndiGo's strong balance sheet, lowest unit cost, and high customer satisfaction should ensure it grows faster than the industry and makes significant market share gains in international travel from India. Industry consolidation following Tata's acquisition of Air India bodes well for yields and profitability. In addition, we expect the company's international expansion to outpace its overall growth and provide a structural tailwind to margins. We believe IndiGo's cost structure remains far superior to second-placed Tata (which operates Air India and Vistara), and therefore the company remains well placed to handle any downcycle or sharp increase in crude or the US dollar," it explained.
It further said that the improved outlook is driven by strong underlying demand lifting passenger load factors (PLF); higher yields aided by strong demand and suspension of GoFirst's operations; and lower fuel cost due to falling crude prices, lower VAT and higher engine efficiency.
"Yields are now higher by 30-40 percent than pre-Covid, as demand has reached similar levels (FY20). A consistently strong PLF despite high ticket prices points to a rising consumer appetite for flying, underscoring the sector's structural growth. Our FY24/25E PAT forecasts are 80 percent/14 percent above consensus and we see the upside. Given its strong prospects, we do not see significant risks from the potential sale of the Gangwal stake, as we would expect them to be absorbed by the market," predicted the brokerage.
With Tata's acquisition of Air India, the Indian aviation sector has become a near duopoly, boding well for pricing, added UBS.
It also pointed out that there's plenty of headroom for international travel growth and UBS expects this to be a key driver of IndiGo's future growth. International yields remain similar to domestic yields, but with a better cost structure (lower taxes on fuel and better efficiency considering long rides), noted the brokerage.
It also sees IndiGo's June quarter earnings per share (EPS) being higher than the entire FY18's annual EPS.
It estimated Q1 yields to grow 6 percent sequentially, available seat kilometres (ASK) to grow 7 percent quarter-on-quarter (QoQ) or 18 percent year-on-year (YoY), with PLF at 89 percent, implying revenue passenger kilometres (RPK) growth of 13 percent QoQ (32 percent YoY).
In the March quarter, IndiGo posted a consolidated net profit of ₹919 crore as against a loss of ₹1,682 crore in the year-ago period. Revenue from operations during the March quarter rose 76 percent YoY to ₹14,160 crore versus ₹8,021 crore in the corresponding quarter of last year.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.