Rising Competitive Intensity Could Weigh On IndiGo's Spreads, Says Jefferies
The brokerage retained "underperform" rating for the airline, with a target price of Rs 1,615 apiece.
Intensifying competitive could weigh on InterGlobe Aviation Ltd.'s spreads in the medium term, according to Jefferies India.
The brokerage retained "underperform" rating for the airline, citing concerns over medium-term industry capacity addition, with a target price of Rs 1,615.
Given the strong demand outlook in India's aviation sector, competition is also looking to order and new players are desirous to add capacities, the parent company of IndiGo said.
There are challenges in getting the supply right, however, "IndiGo is ahead of peers in terms of orders," the brokerage said.
Capacity Expansion
IndiGo is targeting a fleet size of 350 aircraft for FY24 as compared to 306 in FY23.
Its targeting a capacity growth, in terms of available seat kilometres, at north of mid-teens in FY24. It had a target of over 18% in FY23.
"From a long-term perspective, i.e., by 2030, IndiGo targets to double its fleet capacity and a significant share of the cap adds will be directed towards international routes," Jefferies said.
The airline could add net fleet to the tune of 40-45 every year for years ahead, while targeting to add 10-15 destinations in FY24 and taking destination count to 115, the brokerage said.
While external factors such as competition cannot be ignored, strong execution will help the airline maneuver rivalry, the airline said.
Falling Crude Prices To Aid
Jefferies expects the airline to benefit from the recent fall in crude oil prices. Fuel prices account for about 40% of IndiGo's costs.
Reduction in VAT rates in some states is also seen as a small tailwind for fuel costs, Jefferies said.
Employee costs will see natural inflation alongside the impact of growth in capacity, IndiGo said.
Shares of InterGlobe Aviation fell 2.29% to close at Rs 1,865.2 per share compared to a 0.77% decline in benchmark Nifty 50. The stock traded 0.4 times its 30-day average volume.
Of the 27 analysts tracking the stock, 21 recommended 'buy', three suggested 'hold', while three maintained 'sell', according to Bloomberg.
The return potential of the stock implies an upside of 31.1% over the next 12 months.