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Indigo logged a sizable >60% beat to our earnings estimate in Q1FY25, driven by receipt of higher-than-expected P&W claim, 1% YoY uptick in yield at Rs5.24 (2% beat), and 4% lower than expected CASK ex-fuel & forex. ASK grew 11% YoY to 36.3bn (1% miss), as Indigo ended Jun-24 with fleet size of 382 vs. 367 QoQ. Load factors stood at 86.7%, missing our estimate by 90bps, while RPK came at a 2% miss. The mgmt lowered guidance of ASK growth for Q2 to a high single digit, while that for FY25 is steady at 10-12% YoY. The AOG situation is stable, at mid-70s. Yield is expected to be stable YoY, in Q2FY25. New initiatives like business class offering, and induction of A321 XLRs and A-350s are expected to be implemented over CY24-27. We trim FY25E EPS by 5% to factor in the forex loss, with FY26E EPS only slightly tweaked. We roll-over to Sep-26E with 6% higher TP to Rs5,300/sh, and retain 20x target P/E. We maintain BUY on Indigo.

Result Highlights

EBITDA was up 7% YoY to Rs52.0bn (34% beat). Indigo’s RPK rose 9% YoY/5% QoQ to 31.5bn, implying an 86.7% PLF. Fuel cost per ASK was 5% above our estimate, at Rs1.77, up 3% QoQ, while forex loss stood at Rs575mn. D/A rose 4% QoQ, while finance charges were up 5%. Other income was flat QoQ. Non-fuel forex CASK was flat QoQ at Rs2.84, as supplementary rentals/ASK fell 10% QoQ, while airport fee/ASK was up 4%. Indigo’s fleet size saw 15 net additions QoQ to 382, with AOGs in the mid-70s. Core gross debt fell 3% QoQ to Rs75.7bn but total cash balance was up 4% QoQ to Rs361bn, with free cash reserves up 6% to Rs208bn. Lease liability was up 3% QoQ to Rs449.6bn. PBT spread works out to be Rs0.77/ASK in Q1, down 18% YoY and up 52% QoQ.

Management KTAs

July pax volume is better vs past months, and was impacted by issues like the elections, etc. AOGs remain in the mid-70s, but are expected to reduce from next year. Indigo’s pipeline includes launch of business offering by year-end, XLR induction from next year, and induction of A350s from CY27. The Japan Airlines codeshare would allow 14 cities to be accessed via Delhi and Bangalore. Indigo has entered into a deal with Qatar Airways for 6 more damp-wet leases to be run on the Doha route, commencing in coming quarters. Indigo booked engine OEM compensation under the ‘Other Operating Revenue’ head, as per its customized agreement with P&W. The earlier provisions were lower, hence true up happened in Q1 which drove profitability; this would normalize going ahead. Further, supplementary rentals saw some adjustment as well. Indigo is looking to move volumes to new airports in Noida and Navi Mumbai, which would be good demand centers with costs likely lower (ATF VAT in UP is much lower than in Delhi).

Valuation

We value Indigo using P/E-based TP of Rs5,300/sh (20x Sep-26E target P/E). Key risks: adverse currency/fuel prices, economic slowdown, stake sale, and operational issues.

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