Indigo reported a weak 1QFY21 (loss of Rs 28.4bn) due to the adverse impact of COVID (flights commenced only from end of May-20). The demand will take longer to recover, in our view, with several restrictions in place on flying as well as weak demand from the corporate segment (50% of domestic). Amidst this uncertain backdrop, IndiGo remains better placed to withstand the downturn due to its dominant market share (current market share of 52.5%), a healthier balance sheet (as compared to competition) and cost reduction measures. We re-iterate our ADD rating.
* 1QFY21 Financials: Due to 2 months of countywide lockdown, revenues declined 92% YoY to Rs 7.6bn. Load factor was at 61.7% vs. 89/83% YoY/QoQ. However, yields at Rs 4.5 improved 9% YoY. Ancillary revenue contributed 24% to the revenue vs. 14% QoQ driven by higher cargo volumes. The airline reported an EBITDAR loss at Rs 15.3bn due to the adverse environment and higher operating expenses. Net loss in the quarter came in at Rs 28.4bn.
* Call & other takeaways: (1) After the restrictions being lifted in May-20 end, IndiGo operated 200 flights/day, which has now risen to 400 flights/day. (2) The co expects to trim down the fixed costs (leasing costs, payrolls, others) by 15-20% for FY21. With salary cuts, management expects 30% lower staff cost than pre-COVID levels. (3) Cash burn rate was Rs 400mn/day in Mar-20, which has now come down to Rs 300mn/day owing to cost cutting initiatives. The company will raise additional funds to further strengthen its balance sheet. Cash balance is at Rs 184bn in 1QFY20. (4) Prior to COVID situation, leisure to business travel ratio was 50:50. However, the corporate travel remains weak.
* We are lowering our EBITDAR estimates by ~33% over FY21/22E to factor in the above. We set a revised Jun-22 TP of Rs 940 (we continue to value the stock on 6x EV/EBITDAR). Key risks: Any resolution of promoter differences on the upside, an increase in oil prices on the downside.
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