IndiGo Shares: Shares of InterGlobe Aviation Ltd (IndiGo) surged as much as 10 per cent after the company said it is planning to raise fares to return to profit after posting loss in the March quarter. The markets also cheered higher revenue on the back of a rebound in traffic and yield improvement. Yield is the average amount of revenue received per paying passenger flown one mile.
However, hit by the Omicron wave of COVID-19, the domestic budget carrier, posted a widening consolidated net loss at Rs 1,681 crore in the quarter ended March 31, 2022. The aviation company had posted a net loss of Rs 1,159 crore in the year-ago period.
India’s biggest airline reported a larger loss for the fourth quarter as higher fuel costs more than offset a rebound in demand for air travel. However, it saw an increase in the number of passengers by 10.3 per cent compared to the same period last year.
The revenue from operations increased 28.8 per cent to Rs 8,020.74 crore in the quarter under review from Rs 6,222.94 crore in the same quarter last fiscal, on a strong traffic rebound in the latter half of the quarter, it added.
IndiGo’s EBITDAR came at Rs 171.8 crore with EBITDAR margin of 2.1 per cent, compared to EBITDAR of Rs 648.3 crore with EBITDAR margin of 10.4 per cent, respectively, for the same period last year.
Commenting on the results, IndiGo’s CEO, Ronojoy Dutta said, “This quarter has been difficult because of the demand destruction caused by the Omicron virus in the first half. Although traffic rebounded and demand was robust during the latter half of the quarter, we were challenged by high fuel costs and a weakening rupee.”
“We believe IndiGo 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 and continuing to build the most efficient network in the region,” he added.
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Analysts at Prabhudas Lilladher said, “IndiGo’s reported a disappointing EBITDAR of 1.3 percent, impacted by soaring fuel costs, higher forex losses and demand affected by Omicron wave. The company was able to maintain yields at Rs 4.4, alike QoQ. Load factors at 76.5 percent contracted 300bps QoQ impacted by lower RASK (-3 percent QoQ).”
“Despite demand recovery in April-May profitability will remain impacted in the next quarter, due to higher ATF prices and rupee depreciation. However, over the medium to long term IndiGo remains optimistic on long term demand opportunities and is focused on (1) higher capacity deployment (management highlighted 50 percent-plus growth in FY23) as domestic demand improves and international travel comes back, (2) responsibly fortifying and widening of its domestic network (3) increasing cargo revenue and (4) softening of commodity costs,” the note said.
Prabhudas Lilladher believes IndiGo will emerge stronger and continue to remain better placed than its peers with 55 percent market share driven by (1) demand recovery along with capacity deployment (2) superior balance sheet (Rs76bn free cash) (3) better than industry cost structure and (4) strong management. We reduce our EV/EBITDAR multiple to 8x (9x earlier) to factor in the inflationary cost environment. Maintain ‘HOLD’ with a Target Price of Rs 1,800.
Research firm Credit Suisse has maintained outperform call on the stock and cut the target price to Rs 2,200 from Rs 2,500 per share. The strong yields & sustained traffic bode well, while lower supplementary rentals suggest lower maintenance costs.
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