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Indigo posted 2QFY27 standalone EBITDA of Rs31.6bn, at a 1% beat on lower opex. ASK fell 1% yoy to 40.8bn (1% miss), while PLF were slightly better at 80.3%; PRASK at Rs5.1 was at a 2% beat (up 31% yoy), taking total revenue to Rs234bn (up 26% yoy; inline). CASK (ex fuel/FX) was 3% above estimate, while fuel expense came in 1% lower and was down 8% qoq. High fuel costs and seasonal weakness weighed on 2Q, while Indigo responded with capacity and network adjustments and fare hikes to partly offset cost pressures. 3Q ASK growth guidance is muted, at ~3% yoy amid international slowdown, while domestic demand is expected to improve seasonally. PRASK is expected to rise over 25% yoy, with PLF flat, though fuel cost remains elevated and uncertain amid geopolitical volatility. CASK (ex fuel/forex) for FY27 is expected to grow in a high single to low double digits, moderating sequentially in 2HFY27. We cut FY27E EBITDA by 12%, building in higher fuel costs on oil price volatility, while largely retaining FY28-29E EBITDA. We roll over to Sep-28E EPS and cut TP by ~4% to Rs5,300 from Rs5,500, maintaining the 20x target multiple. The Middle East scenario and fuel pricing are the key variables; retain ADD.

Results highlights

Reported net loss in 2QFY27 stood at Rs20.6bn vs our estimate of Rs18.1bn, owing to 15% lower other income at Rs9.4bn (down 10% yoy) and slightly higher forex losses at Rs13.7bn. RASK was up 26% yoy/2% qoq to Rs5.8, while yield was up 34% yoy/4% qoq to Rs6.3. Fuel cost/ASK was up 69% yoy/down 2% qoq at Rs2.4 (in-line). Airport charges were 6% higher than expected, at Rs16.6bn, while aircraft and engine rentals/other expenses were lower by 10%/17%; employee costs and supplementary rentals were 3% and 12% higher, respectively. D/A rose 3% qoq to Rs30.4bn, while finance charges were up 4% qoq. Total fleet rose by 10 aircraft qoq, with A321 NEOs/XLRs up by 11, while destinations fell by 10 due to international network cuts. Core gross debt rose 16% qoq to Rs321bn, while free cash was up 2% qoq to Rs399bn. PBT/ASK (excluding FX) of (Rs0.17) was a slight miss vs our (Rs0.15) estimate.

Earnings call highlights

Wide-body damp leases end from 1-Nov; higher core fleet utilization should lower costs, while further XLR/A350 inductions by CY28 should improve spreads. 3Q demand is resilient. Industry tends to adapt to higher fuel prices, though lower oil prices would benefit Indigo. Stretch-led premiumization and ancillary monetization remain priorities. Indigo supports fuel price stabilization schemes but opposes fare caps, emphasizing cost pass-through. Other expenses fell on account of absence of hedging losses

Valuation

We value Indigo at PER-based TP of Rs5,300 (~20x Sep-28E AEPS). Although it would benefit from accumulated tax losses well up to FY28, we adjust APAT to reflect normalized taxation. Key risks: Adverse currency/fuel prices, economic slowdown, stake sale, and operational issues.

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