IndiGo share price fell as much as 4.8 per cent to a low of Rs 4,275 per share on the BSE in Monday's intraday trade as investors booked profit in the stock post a its April-June quarter (Q1) results for financial year 2024-25 (FY25).
The stock ended 1.36 per cent lower at Rs 4,430 as against a 23-points gain in the benchmark BSE Sensex.
The selling also got exacerbated as the management commentary, post Q1FY25 results, highlighted that inflationary pressure could likely dent July-September (Q2FY25) performance.
"While we are seeing solid demand in July, helping us keep the growth outlook guidance intact, expenses have been going up.
"Some of the states have increased value added tax (VAT) on aviation turbine fuel (ATF), while airport partners have jacked up airport charges due to inflationary cycle," the management highlighted in their post Q1FY25 earnings conference call.
This, analysts at Kotak Institutional Equities said, would limit the airline's ability to hike ticket prices much; thus, limiting its chances of expanding spread between cost and revenue in the near future.
"Growing cost inflation may test the airlines' ability to retain benefits in the near-term. Specifically, if IndiGo aims to breach spread estimates of FY2024, it will need to take price increases ahead of cost inflationary pressures.
"This may not happen in the near term," the brokerage said as it cut net profit estimates by 6 per cent for FY25 and 4 per cent for FY26.
According to industry estimates, the 30-day domestic forward prices for IndiGo are down 6 per cent quarter-on-quarter (Q-o-Q) at Rs 5,609 and the 15-day prices are down by 19 per cent Q-o-Q to Rs 5,072 in Q2FY25 to date.
Yields outlook muted
Additionally, the management's expectation that the airline might witness a high single-digit growth in capacity addition in Q2FY25, due to seasonality, which dampened sentiment.
While Yields -- a measure of how much revenue a passenger is paying per kilometer -- grew 1 per cent Y-o-Y and Q-o-Q to Rs 5.2 in the June quarter, led by strong capacity additions and absorption of higher ticket price across its extensive network, these are expected to remain flat Y-o-Y in Q2, which implies a 16 per cent sequential fall, said analysts at Nuvama Institutional Equities.
Meanwhile, IndiGo's revenue passenger kilometer (RPKM) rose 9 per cent year-on-year (Y-o-Y) in the quarter gone by, as capacity (available seat per kilometer; ASKM) expanded 11 per cent.
This was partially offset by a 190bp Y-o-Y fall in passenger load factor (PLF) to 86.7 per cent.
Cost of available seat kilometer (CASK) also rose 11 per cent Y-o-Y on higher fuel cost and increased damp leases.
Hold for long-term
That said, analysts believe IndiGo remains a long-term play as the airline is set to receive wide-bodied aircraft and expand its international network.
It aims to induct extra-long range (XLRs) aircraft in 2025, induct wide body aircraft in 2027; and eventually double narrow body fleet by 2030.
Furthermore, codeshare agreements with various international airlines are expected to improve foreign connectivity in the medium-to-long term.
Notably, IndGo entered into a codeshare partnership with Japan Airlines during Q1FY25, under which Japan Airlines' customers will be able to travel to 14 Indian cities through Delhi and Bengaluru.
"Long haul is a new market for IndiGo. Considering the promising market proposition and captive domestic network available, IndiGo is well placed to capture the potential," ICICI Securities said.
Overall, InterGlobe Aviation-owned IndiGo reported a 11.7 per cent Y-o-Y dip in its consolidated net profit in Q1FY25 to Rs 2,728.8 crore.
The airline's total income stood at Rs 20,248.9 crore, up 18 per cent Y-o-Y, while total expenses increased 24 per cent Y-o-Y to Rs 17,444.9 crore.
The numbers, however, beat most analysts' estimates IndiGo booked engine OEM compensation under the 'Other Operating Revenue' head, which drove profitability.
Brokerages have mixed rating on IndiGo stock.
ICICI Securities maintained 'Buy' (unchanged target price of Rs 5,265); Nuvama Institutional Equities maintained 'Buy' (increased target of Rs 5,300); Motilal Oswal Financial Services maintained 'Neutral' (increased target of Rs 4,420); Kotak Institutional Equities maintained 'Buy' (unchanged target of Rs 5,400); and Elara Capital maintained 'Sell' (increased target price of Rs 3,715).
