At Rs 919 crore, InterGlobe Aviation, the parent firm of low-cost airline IndiGo, posted its best-ever fourth quarterly net profit in the January-to-March quarter (Q4) of financial year 2022-23 (FY23).
The bottom-line, however, was lower than the Street’s expectations where estimates ranged from Rs 1,160 crore to Rs 2,180 crore.
On the bourses, shares of IndiGo have added just 30 paise (0.01 per cent) since the announcement of the Q4-FY23 results on May 18.
By comparison, the benchmark S&P BSE Sensex has added 550 points (0.89 per cent) during the period.
Going forward, analysts suggest investors closely track the airline’s costs, including rentals, maintenance, employee, and airport fees -- the key element that ate into its profitability this quarter.
IndiGo's Q4-FY23 revenue increased 76.5 per cent year-on-year (YoY) to Rs 14,160.6 crore.
Ebitdar (earnings before interest, tax, depreciation, amortization, and rental costs), meanwhile, climbed over 1,600 per cent to Rs 2,966.5 crore.
The Gurugram-based airline's fuel cost, however, jumped over 74 per cent YoY to Rs 5,613 crore, other costs rose 21 per cent YoY to Rs 8,067.3 crore, and total costs 38.4 per cent to Rs 13,680.3 crore.
While the management does not expect lease costs to increase substantially, analysts expect there could be a marginal increase due to rising interest costs.
The second key monitorable, they said, remains any possible cap on air fares.
According to a channel check by Motilal Oswal Financial Services, the 30-day domestic forward prices are up by 12 per cent QoQ so far in Q1FY24 and the 15-day prices are up by 20 per cent QoQ.
This, experts feel, could be partly due to the developments with Go First (erstwhile GoAir).
However, reports suggest that a parliamentary panel has summoned private airlines to discuss rising airfares.
Any cap on airfares, analysts at JM Financial said in a recent note, would adversely impact operations of airlines.
The brokerage also said steady stake sale by IndiGo's promoter Rakesh Gangwal could continue to weigh on the stock even as business fundamentals witness an improving trajectory.
That said, most brokerages have raised their earnings estimates for IndiGo, considering the growth runway for the Indian aviation sector.
The sector, they expect, could fare much better going ahead given improved utilisation and yields on the back of Go First being grounded, sharp demand comeback, and lower crude prices and stable rupee.
Specifically for IndiGo, they see brighter prospects due to its endeavour to create an international foothold, along with having a sharp focus on capacity addition.
IndiGo has guided for ASK (available seat kilometer) growth guidance of 17-18 per cent YoY for FY24, while Q-1FY24 is expected to increase by 5-7 per cent QoQ.
Passenger target is 100 million.
The airline hopes to add 40-50 aircraft in the current financial year, while the pending order book is 500 aircraft, with the current average fleet age of 3.5 years.
It also aims to handle 100 million passengers in FY24 (as against 86 million in FY23).
Against this backdrop, analysts at Reliance Securities factor-in 22 per cent CAGR in ASK over FY23-FY25E (vs 5 per cent CAGR over FY18-22).
"Considering higher capacity addition by about 15 per cent, we increase our revenue estimate by 0.4 per cent/5 per cent for FY24E/FY25E.
"We expect IndiGo’s revenue/Ebitdar to clock a CAGR of 19 per cent/71 per cent over FY23-FY25E and a PAT of Rs 8,220 crore in FY25E (vs net loss of Rs 310 crore in FY23)," they said.
Those at MOFSL have increased their revenue estimates by 12 per cent/17 per cent for FY24/FY25, while Emkay Global has raised net profit estimates by 40 per cent for FY24 and 16 per cent for FY25, factoring in better spreads and volumes.
Brokerage recommendations on the stock range from ‘Neutral’ to ‘Buy/Overweight’ with target prices ranging from Rs 2,135 to Rs 3,126.
This translates into an upside of up to 38 per cent from current levels.
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