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Higher airfare, but medium-term difficult

Q3 PAT at INR 30.4bn, up 52% YoY

InterGlobe Aviation (INDIGO IN) adjusted PAT was at INR 30.4bn in Q3FY24 vs our estimates of INR 16.8bn against INR 8.1bn in Q2FY24 and INR 20.1bn in Q3FY23. This was based on: 1) 23% YoY passenger volume growth, 2) an 68bp passenger load factor rise to 85.8%, and 3) 7% YoY decline in unit fuel CASK to INR 1.9/seat-km vs a 1% YoY increase in unit revenue or RASK to INR 5.3/seat-km. Q3FY24 PAT was higher than our estimates, due to yield growth.

Record grounding in Q4 on P&W issues

Around 75 planes are grounded (out of total 136 Pratt & Whitney [PW] engine-fitted fleet) currently vs ~40 in Q3FY24, on P&W continuing engine inspection that would take 8-10 months. The company has set a target of 12% YoY capacity growth in Q4FY24, implying ~2% QoQ capacity decline. INDIGO has not announced FY25 capacity guidance.

Competitors aggressively add fleet in Q3FY24

We observed INDIGO’s peers added 32 airplanes (5% of India’s total in-service fleet) in Q3FY24 at annualized rate of 124, which is likely to accelerate with higher delivery target by aircraft manufacturers from mid-CY24. During Q3, narrowbody aircraft delivery was nine from Boeing (Air India at seven & Akasa at two) and 21 from Airbus (Air India at nine, Vistara at three, and INDIGO at nine).

Valuation: retain Reduce with a TP of INR 3,005

We raise our FY24E EPS by 4% based on 9MFY24 financials, but we reduce our EPS by 13% for FY25E and by 8% for FY26E based on higher fleet grounding in FY25 and lower passenger volume growth due to increased competition in FY26. We retain our Reduce rating, given the anticipated pause in market share growth and potential margin decline during FY25 with an unchanged TP of INR 3,005 based on 8.0x  FY26E EV/EBITDA. We expect a 19% (from 22%) passenger volume CAGR during FY23-26E.

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