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Capacity guidance and outlook remain intact 

*  InterGlobe Aviation (INDIGO) reported an EBITDA growth of 4% YoY to INR51.5b in 1QFY25, while PAT declined 12% YoY to INR27.3b (vs. our est. of INR15.7b). Revenue passenger kilometers (RPK) was 31.5b. The passenger load factor (PLF) was 86.8% with available seat kilometers (ASK) at 36.3b (est. of 35.5b) and yield at INR5.24 (vs. est. of INR4.72, +1% YoY) in 1QFY25.

*  Currently, INDIGO’s ~70+ aircraft are grounded due to P&W engine issues, and the management believes this number would be range-bound. INDIGO added incremental 17 destinations (10 domestic and 7 international) YoY in 1QFY25 while highlighting the fact that the Indian market is still underpenetrated both in terms of domestic and international travel.

*  According to our airfare tracker, the 30-day domestic forward prices for INDIGO are down 6% QoQ at INR5,609 and the 15-day prices are down by 19% QoQ to INR5,072 in 2QFY25 to date. Management highlighted that 2QFY25 capacity in terms of ASKs is expected to increase by high single digits vs. 2QFY24. Stable revenue (RASK) is likely in 2QFY25 compared to 2QFY24.

*  For Jul’24, INDIGO is witnessing healthy demand; hence, capacity guidance and outlook do not change as of now. Its long-term guidance of doubling the capacity remains intact, despite short-term headwinds in terms of supply and inflationary trends in costs, as per the management. Maintenance and airport charges are seeing inflationary trends.

* Due to the outperformance in 1QFY25, we raise our EPS estimates for FY25/26 by 7%/12%. The stock is trading at ~22x FY26E EPS of INR200 and FY26E EV/ EBITDAR of ~11x. We reiterate our Neutral rating on the stock with a TP of INR4,420, based on 9x FY26E EV/EBITDAR. 

Beat led by higher revenue, yield, and lower supplementary rentals 

*  INDIGO’s yield was INR5.24 vs. our estimate of INR4.72 (up 1% YoY). RPK was at 31.5b (our est. of 30.9b, +9% YoY), with PLF at 86.8%. ASK was 36.3b (our est. of 35.5b, +11% YoY)

*  Thus, revenue stood at INR195.7b (+13% est., +17% YoY) – this included a compensation from International Aero Engines, LLC (IAE) for Aircraft on Ground (AOG) situation due to unavailability of engines.

*  EBITDAR stood at INR57.7b (est. of INR38.7b, +12% YoY) with EBITDA at INR51.5b (our est. of INR36.7b, +4% YoY). The company has paid an IGST of INR802m in 1QFY25 on re-import of repaired aircraft, which is under dispute right now.

*  INDIGO’s PAT stood at INR27.3b (est. of INR15.7b, -12% YoY). 

Other highlights 

*  Free cash stood at INR221b in 1QFY25 vs. INR157b in 1QFY24. Capitalized operating lease liability was INR450b with a total debt of INR525b in 1Q.

*  As of Jun’24, INDIGO had a fleet of 382 aircraft including 38 A320 CEOs, 196 A320 NEOs, 98 A321 NEOs, 45 ATRs, 3 A321 freighters, and 2 B777 (damp lease) – there was a net increase of 15 passenger aircraft in 1QFY25; eight from the original order book and seven from the secondary market to mitigate AOG

Valuation and view 

*  INDIGO is striving to improve its international presence through strategic partnerships and loyalty programs. It served 106.7m customers in FY24, with a net increase of nine passenger aircraft. The company has eight strategic partners with a 27% international share in terms of ASKs in FY24.

*  Management has also been taking several preemptive measures to increase its global brand awareness, as it expects to capture a bigger share of growth from its international market in the coming years. INDIGO is further enhancing its international travel and working relentlessly to adjust schedules to reassure customers.

*  The stock is trading at ~22x FY26E EPS of INR200 and FY26E EV/EBITDAR of ~11x. We reiterate our Neutral rating on the stock with a TP of INR4,420, based on 9x FY26E EV/EBITDAR. 

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