IndiGo Shares End 10% Higher As Most Analysts Retain Faith After Q4 Loss

Shares of Interglobe Aviation Ltd. jumped the most since September last year as analysts bet on the operator of India's largest airline citing better yields and efforts to return to profitability by raising ticket prices.

That even as the owner of low-cost carrier IndiGo posted a wider-than-expected loss in the quarter ended March.

IndiGo's revenue jumped 29% over the year earlier, while earnings before interest, taxes, depreciation, amortisation and rent fell. Its Ebitdar margin also contracted. Its yields—a measure of average fare per passenger per kilometer—however, rose to Rs 4.4 a km from Rs 3.7.

The company pegged its cost of available seat kilometre—a measure of unit cost in airlines—to be 55-60% higher than current levels in FY23. That translates it to be 13-17% higher than pre-Covid levels, a positive for analysts.

Outgoing Chief Executive Officer Ronojoy Dutta said that the quarter was "difficult because of the demand destruction caused by the Omicron virus in the first half".

The company, in a statement, also announced its plans to raise ticket prices to return to profitability in the forthcoming quarters.

IndiGo, according to Dutta, is "best positioned" to maximise revenue in a recovering market. "As we work to return the airline to profitability, we are focused on maintaining our cost leadership position."

In an earnings call, Dutta described returning to profitability as a "tug-of-war". "A tug-of-war is going on between a very good revenue performance and a very challenging fuel and rupee weakening."

On price hikes, he said the airline has to hit the "sweet spot". "You can keep pushing up fares and then at a certain point demand actually falls off. So judging that point is sort of a science."

Shares of IndiGo's parent gained as much as 11.4% intraday to Rs 1,836 apiece on Thursday, before closing 10.3% higher. Of the 25 analysts tracking the company, 14 maintain a 'buy', four suggest a 'hold' and seven recommend a 'sell', according to Bloomberg data. The average of 12-month consensus price target implies a 19.9% upside.

Here's what analysts have to say about IndiGo's Q4 FY22 results:

• Maintains 'outperform', cuts target price to Rs 2,200 from Rs 2,500 earlier, still implying a potential upside of 33%.

• Key takeaway was very strong yield commentary with March-April 2022 yields of Rs 4.7/5.14. Full-quarter yield was sequentially flat despite seasonal strength in October-December 2021 and Omicron weakness in January-February 2022.

• Lower load factors sequentially at 76.7% impacted margins. Lower supplementary rentals suggest lower maintenance costs as old version planes retire.

• Acknowledges risks related to crude, currency, new/reinvigorated competitors and management changes.

• Maintains 'buy', cuts target price to Rs 2,100 from Rs 2,280 earlier, still implying a potential upside of 27.6%.

• The company is guiding for CASK growth, much ahead of expectations. This is purely on better fleet utilisation as fleet expected to remain flat in FY23.

• With its strong liquidity, lowest-cost position and high customer satisfaction, IndiGo remains well positioned in domestic market and expects to gain strong market share in international.

• Flags that promoter entity Interglobe Enterprises has entered into a joint venture with United Parcel Services for logistics/cargo business. While this development doesn’t impact IndiGo's near-term cargo operations but it would potentially compete with IndiGo over the long term.

• Booking curve is going back to pre-Covid levels. International operations helping in better fleet utilisation as international flights are generally during night versus day-time for domestic.

• Considering strong FY23 guidance and consistently better yields, it is raising FY23/FY24 estimates.

• Maintains 'buy' rating, cuts target price to Rs 2,636 from Rs 2,759 earlier, implying a potential upside of 60%.

• IndiGo, with a relatively lean cost structure in a high-growth industry, is best placed amid the current inflationary scenario.

• On time performance and extensive network is helping IndiGo on pricing side.

• Industry behaving rationally for now, build weak yields in Q2 FY23 and mix improvement to help in second half of FY23.

• Maintains 'hold' rating, cuts target price to Rs 1,800 from Rs 2,050 apiece, implying a potential upside of 9.3%.

• Despite demand recovery in April-May, profitability will remain impacted in the next quarter, due to higher fuel prices and rupee depreciation.

• However, over medium to long term IndiGo remains optimistic on long term demand opportunities and is focused on higher capacity deployment as domestic demand improves and international travel comes back, responsibly fortifying and widening of its domestic network, increasing cargo revenue and softening of commodity costs.

• IndiGo will emerge stronger and continue to remain better placed than its peers with 55% market share driven by demand recovery along with capacity deployment, superior balance sheet, better than industry cost structure and strong management.

• Reduces EV/Ebitdar multiple to 8x (9x earlier) to factor in the inflationary cost environment.

• Upgrades IndiGo to 'buy' from 'hold' with a target price of Rs 2,350, implying a potential upside of 43%.

• In FY23-FY24, it expects competitive intensity to be moderate, as carriers focus on profitability and balance-sheet repair, after tough two years.

• IndiGo would be best placed in the recovery phase, given its high market-share, lean cost structure and strong balance-sheet.

• IndiGo’s high market-share (55%) and resultant network effect, lean cost structure and strong balance-sheet place it at a significant advantage versus peers.

• Maintains 'buy', cuts target price by 5% to Rs 2,256, still implying a potential upside of 37%.

• Near term, IndiGo is a proxy for a re-opening trade led by better yields and pent-up passenger demand. Longer term, addition of XLRR fleet and improved cargo business shall enhance competitiveness.

• The 15% fuel- and lease-efficient NEOs would replace CEOs in FY23, which shall enhance overall yields.

• Risks: Competition from the likes of Air India and higher oil prices.

• Maintains 'neutral' owing to limited upside, cuts target price to Rs 1,779, implying 8% potential upside.

• Despite the near-term challenges, IndiGo will be out of the woods stronger than before with various preemptive measures already undertaken.

• However, the resurgence of airlines (Air India, SpiceJet) and upcoming Akasa along with established Jet Airways would reduce IndiGo’s market share.