Interglobe Aviation, the company operating the renowned low-cost carrier IndiGo, witnessed a 3% surge in its stock during the morning trade on November 6, as brokerages reiterated their optimistic outlook on the company in light of its robust performance in the September quarter, defying the usual seasonal weakness.
Goldman Sachs analysts have reaffirmed their “buy” rating on the stock, setting a target price of Rs 2,700. They attributed the Q2 profit to one-off reversals and compensations.
During the September quarter, IndiGo returned to profitability, reporting a profit of Rs 189 crore compared to a loss of Rs 1,583 crore in the same period last year. The company’s revenue also saw a notable 19.5% year-on-year increase, reaching Rs 14,943 crore.
UBS, likewise, has expressed a “buy” recommendation for the stock with a target price of Rs 3,000. They commended the airline’s efficient management of the 15% capacity grounding during the quarter. However, they cautioned that the anticipated grounding of an additional 26% of capacity for 300 days will have an impact on FY25.
P&W Concerns for FY25 Cast a Shadow
Kotak Institutional Equities analysts share a similar perspective, highlighting concerns that the number of grounded aircraft, currently at 40, might increase to as high as 80 due to a new issue identified by Pratt and Whitney (P&W) concerning powder metal, a critical component in aircraft engine manufacturing.
They anticipate that FY25 and FY26 will be affected by P&W issues, with FY25 experiencing the peak impact, resulting in approximately a 6% available seat kilometer (ASK) growth reduction and a slight overhang on rentals due to secondary leases.
Earlier this year, Pratt and Whitney, an American engine manufacturer, revealed that approximately 600-700 aircraft engines could be affected due to powder metal contamination that could lead to component cracking.
In anticipation of growing demand, IndiGo plans to expand its fleet size to 350 in FY24. However, the management refrained from providing a figure for FY25 due to the uncertainties related to P&W issues.
Against this backdrop, Motilal Oswal analysts have given a “neutral” rating to the stock, as they foresee the company facing several challenges in the near-to-medium term.
Positive Outlook on Global Expansion
IndiGo continues to expand its international footprint and has recently added six new cities in Central Asia to its network.
The airline’s international offering, which comprises 34 destinations, witnessed a remarkable 32% year-on-year growth in Q2, and the share of international available seats per kilometer (ASK) also increased by 26% year-on-year.
Kotak analysts have emphasized the internationalization of IndiGo’s operations, coupled with the establishment of aviation hubs over time, as factors that could create substantial value for the company and its shareholders.
Motilal Oswal also expressed confidence in the company’s potential to capture a larger share of growth in its international market in the coming years, as it expands its presence through strategic partnerships such as a codeshare agreement with Turkish Airlines and loyalty programs.
As of 11:21 AM, the stock was trading at Rs 2,535.15 on the National Stock Exchange, marking a 1.03% increase from the previous close.
