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* IndiGo reported a PAT of INR30.9b, higher than our expectation, on account of an increased scale and efficiency in operations, lower fuel costs and favorable forex. Revenue passenger kilometers (RPK) came in at 29b. Passenger load factor (PLF) was higher at 88.7%, with available seat kilometers (ASK) at 32.7b (est. 31.5b) and yield at INR5.2 (est. INR4.3).

* Capacity guidance of achieving mid-teens growth in FY24 remains intact as the airline targets to service 100m customers in FY24. Management has guided that it would add 25% capacity in 2QFY24 vs. 2QFY23. While yield is likely to drop in the ensuing quarter due to seasonality, management believes that the load factor is going to be better in the coming quarters as historically visible.

* That said, according to our airfare tracker, the 30-day domestic forward prices are down 15% QoQ in 2QFY24 till date and the 15-day prices are also down 15% QoQ during the same period. The same for IndiGo is down 10% for 30-day domestic forward booking and down 11% for 15-day domestic forward booking. A total of ~11.5m customers were served by the Indian Aviation industry in Jul’23 vs. an average of 12.6m customers in 1Q but this would mainly be attributable to seasonality.

* Pratt & Whitney (P&W) has recalled some engine models for testing purpose and some of the aircraft would be grounded because of this testing. However, this is going to be in phases and all the aircraft fitted with P&W engines would not be grounded at once. As of date, total grounded planes count stands at ~40 (vs. ~30 in the previous quarter).

* We raise our revenue/EBITDA estimates by 11%/ 29% for FY24 led by a significant beat in 1QFY24. We raise our revenue estimate by 9% for FY25. IndiGo has an accumulated tax loss of ~INR160b because of which we believe the company would not be paying any taxes till FY25 at least until it recovers the loss. Therefore, we increase our EPS estimate by 138%/ 51% for FY24/FY25. We reiterate our Neutral rating on the stock with a TP of INR2,630 premised on 8x FY25E EV/EBIDTAR.

Beat led by increased scale and efficiency in operations

* Yield was at INR5.2 vs. our estimate of INR4.3 (and INR5.2 in 1QFY23).

* RPK was at 29b (+32% YoY), with PLF at 88.7% during the quarter.

* ASK was at 32.7b (+19% YoY).

* Thus, revenue stood at INR166.8b (+17% est., +30% YoY) in 1QFY24.

* EBITDAR stood at INR51.6b (est. of INR35b) with EBITDA at INR50b (est. INR34.2b).

* The company has paid IGST of INR728m in 1QFY24 on re-import of repaired aircraft, which is under dispute right now.

* PAT was at INR30.9b vs. our est. of INR11.9b (PAT of INR9.2b in 4QFY23).

* Depreciation charge was higher by INR362m on reassessment of estimated useful life for 14 CEO aircraft from 20 years to 13-16 years and consequent residual value.

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