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Published on 15/06/2020 3:07:33 PM | Source: Motilal Oswal Financial Securities Ltd

Neutral InterGlobe Aviation Ltd For Target Rs. 1, 080 - HDFC Securities

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In the midst of precariousness

In-line yield, RPK, and PAT for 4QFY20

* With the global outbreak of COVID-19, entering into March, unit revenues began declining sharply as nationwide lockdown was enforced. Also, various countries announced their travel ban advisories halting international operations.

* The unprecedented impact led to only five aircraft additions during the quarter (+4.1% ASK growth v/s +20% guided by the company earlier).

* The company continued to accrue higher supplementary rentals, which it believes should reduce with the replacement of CEO aircraft with new NEO aircraft.

* INDIGO has also freezed supplementary rentals for nine months, with lessors allowing relief on 50% of rentals.

* Since aircraft operations resumed from 25th May, the company has been operating at 20% capacity only (v/s a cap limit of one-third capacity by MoCA); however, last week saw strong yield and load factors owing to pent-up demand.

* We believe in the long run, Aviation would witness continued headwind in terms of surplus capacity, the lack of confidence among passengers to resume travel, or demand for business travel.

* Furthermore, even INDIGO has not guided for any specific ASK growth plans, announcing strategic decisions only for the near/short term. In the current state of uncertainty in the industry, we remain Neutral on the stock

 

Higher accruals continue for rentals

* INDIGO reported yield in line with est. at INR3.74 (+1.1% YoY).

* ASK growth increased 4% YoY to 23b and RPK growth 1% YoY to 19.1b. Thus, revenue improved 5% YoY to INR83b.

* Reported EBITDAR came in at a loss of INR127m (v/s est. loss of INR751m and gains of INR20.6b in 4QFY19 and INR45.4b in FY20 (-5% YoY)).

* During the quarter, the company recognized ~INR2.7b in additional accruals toward supplementary rentals and repairs (over and above INR6.2b recognized up to 3QFY20, totaling INR8.9b for FY20).

* The company recorded forex loss of INR10.5b (v/s our est. of INR9.4b), resulting in reported PAT loss of INR8.7b, in line with estimates (v/s loss of INR8.4b est. and gains of INR5.9b in 4QFY19). PAT for full-year FY20 stood at a loss of INR2.5b v/s profit of INR1.6b reported in FY19

 

* COVID-19: ASK growth decreases, while CASK increases

* In 4QFY20, CASK jumped to INR4.17 v/s INR3.3 a year ago (~27% increase led by significant headwind from INR depreciation). Adjusting for MTM FX loss (INR depreciation), CASK could have been higher by 12–13% (v/s 27% recorded). CASK ex-fuel was much higher at INR2.9 (+44% YoY).

* Cost was higher as fixed cost was spread over a smaller fleet capacity, with decline in load factor to 83% (-341bp YoY, -520bp QoQ).

*  In FY20, the company inducted 45 new aircraft, resulting in ASK growth of ~19% at 96.3b. PLF for the year stood at 86%, clocking RPK of 82.6b (+18.4% YoY). Yield saw a jump of 6% YoY to INR3.8/RPK. CASK ex-fuel spiked 18% YoY to INR2.43 (with CASK up 6% YoY to INR3.74).

 

 

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