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Strong earnings beat...network expansion to accelerate

InterGlobe Aviation Ltd. (Indigo) is one of the most efficient low cost air carriers (LCCs) with a market share of 54% in the Indian aviation sector. • Q4FY24 revenue grew by 26% YoY, beat expectations, propelled by 14% YoY surge in passengers and strong pricing environment amid capacity constraints. • Healthy demand from leisure and corporate travel continues to aid revenue growth, Avg. aircraft utilization was healthy at ~86.3%. • Reported a profit of Rs.1,894cr, with profit growing by 2.1x YoY, driven by higher revenue and other income. • The net aircraft addition to the fleet was 20, taking the total fleet count to 378. Going forward, with strong passenger demand, faster induction of aircraft, and a stable ticket price environment, we expect earnings momentum to continue. • Given a healthy cash position and strong outlook, we continue to maintain a positive view on Indigo. We value Indigo at a P/E of 20x (10.5x EV/EBITDA) on FY26E and maintain Buy rating with a target price of Rs. 4,903.

Growth momentum strong.

In Q4FY24, Indigo’s revenue demonstrated a robust 26% YoY growth, surpassing our expectations. This achievement was underpinned by strong passenger growth of 14% YoY and an 86.3% load factor. Both leisure and corporate travel continued to play a pivotal role in driving this growth momentum. Indigo’s market share expanded significantly to 60.3% YoY from 55.7% in Q4FY23, facilitated by substantial capacity enhancements, as reflected in a 22% YoY rise in ASK. Indigo expanded its fleet by 20 aircraft in the quarter, bringing the total fleet count to 378 aircraft as of the end of Q4FY24. We anticipate sustained robust passenger traffic, driven by the continued resurgence in leisure and corporate travel. Amid ongoing engine issues, more than 70 IndiGo aircraft are currently grounded. The airline’s management has secured secondary leases to alleviate capacity shortages to some extent. Going ahead, the focus is on increasing its international footprint, and management is actively pursuing opportunities, including entering into code pacts. Also, in FY25 plans to add business class on select routes, ramp in A321 and wide body in the future, which is in line with penetrating into international. Management has projected a 10-12.0% YoY increase in ASK in Q1 FY25E. We anticipate revenue to grow by 13.1% CAGR over FY24–26E.

Profitability ahead of estimates...outlook positive

In Q4FY24, Indigo achieved robust EBITDA growth driven by strong passenger demand and better pricing environment. EBITDA margins expanded to 22.4%, an increase of 290bps YoY. Fuel cost as a percentage of sales declined by 610bps YoY to 33.5%, largely due to lower ATF prices and cost efficiency. Consequently, the reported PAT was Rs.1,894cr, a 2.1x increase on a YoY basis supported by a 54.7% YoY increase in other income. Looking forward, tailwinds like moderation in ATF prices, healthy ticket pricing, and consistently high load factors instil confidence in sustaining earnings momentum. We expect net profit to grow by 8% from FY24 to FY26E.

Outlook and Valuation

Indigo’s market leadership position, ability to leverage its network, cost efficient fleet, and healthy cash position reflect our positive outlook for the stock. Healthy passenger volume, strong ticket prices, and an ease in fuel prices will support earnings momentum in FY25E. We value Indigo at a P/E of 20x on FY26E (10.5x EV/EBITDA) and maintain Buy with a target price of Rs.4,903.

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