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High yield environment to improve profitability
* 4Q19 Yields up 12% YoY
* FY20 & 1Q20 capacity to grow at 30%
* Passenger traffic to grow at 12-14% in FY20 We upgrade FY20 & FY21 EPS by 18% & 20% respectively given the 1) strong yield environment following Jet suspending operations 2) industry leading capacity growth of 27% over FY19-21 and 3) focus on expanding international footprint and optimizing network shall enable unit revenues (RASK) to grow 5% over FY19-21.
We continue to remain positive on IndiGo as we believe it stands to gain the most from the capacity vacuum created in the industry due to Jet suspending operation & grounding of Boeing 737 Max over safety concerns. With ~50% domestic market share & a strong management team in place, IndiGo is well placed to leverage its large domestic network to fuel its international growth. Given its strong balance sheet, high operating efficiency & industry leading cost structure, we expect IndiGo to continue outperforming industry growth with ASK & Revenue growing at a CAGR of 27% & 34% over FY19-21. We value the stock at 8.8x adj. EV/EBITDAR. Maintain BUY with a TP of Rs. 1,948/- Any abnormal increase in crude oil prices & irrational yield environment are a key risk to our call.
Sales up by 36% aided by 12% increase in Yields:
Revenues grew by 36% to Rs79bn with Passenger revenue/Ancillary revenues growing at 40%/24% respectively. EBITDAR nearly doubled to Rs20.5bn, as CASK fuel declined 8% owing to benefits derived from A320neos & longer international stage length. PAT was reported at Rs5.9bn aided by 26% increase in other income to Rs3.7bn and lower tax outlay (4% vs 29%). RASK grew 6% YoY to Rs3.6 on account of Jet’s suspension, network optimization & higher connectivity on international market. Yield firmed up by 12% YoY.
1) Expect 5% improvement in RASK in FY20
2) Fares which were high in March & April have started to moderate in May. Expect it to moderate further in June as peers induct more capacity
3) FY20 & 1Q20 ASK to grow at 30%
4) Pilot situation has normalized. Internally promoting 40 pilots/month. Have currently added 285 Jet pilots & expect to sigh more in coming months
5) Impact of transition to new lease accounting standard on P&L to be neutral.
6) Domestic passenger traffic expected to grow at 12-14% in FY20
7) 50% of new capacity induction to be deployed on international routes.
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