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Performance hurt by elevated fuel costs Operating performance below our estimate

* InterGlobe Aviation (INDIGO) reported a 2.6x jump in EBITDAR to INR22.2b on a lower base of 2QFY26, while EBITDA (excl. forex) declined 8% YoY to INR31.6b (INR13.7b FX loss in 2QFY27 vs INR29b in 2QFY26). Despite these ongoing cost headwinds, the company delivered 34% YoY growth in yield to INR6.3, supported by price hikes.

* Margin pressure is likely to persist in the near term due to elevated fuel costs and rupee depreciation. For 3QFY27, ASK growth is expected to be in the early single digits, with PRASK growth of over 25% YoY and load factors likely to remain stable YoY, supported by resilient festive demand and price hikes. For FY28, ASK growth is expected to be in the mid-teens, supported by fleet additions and international expansion. We believe disciplined capacity deployment and free cash of INR399b will provide flexibility to navigate near-term volatility.

* Factoring in the ongoing West Asia crisis, which is keeping crude prices and jet fuel crack spreads elevated and limiting the scope for fuel-cost relief in 2HFY27, we cut our FY27/FY28 EBITDAR estimate by 6% each. We value the stock at 10x FY28E EBITDAR to arrive at our TP of INR6,000. Reiterate BUY.

Cost inflation outpaces yield expansion, leading to earnings loss

* INDIGO’s yield was INR6.3 vs. our estimate of INR5.9 (up 34% YoY). Revenue passenger kilometer (RPK) stood at 32.8b (our est. of 34.3b, -4% YoY), with the load factor at 80.3%. ASK remained flat YoY at 40.8b (our est. of 41.6b).

* Consequently, revenue stood at INR233.6b (est. in line, +26% YoY). EBITDAR stood at INR22.2b (est. of INR26.4b, +2.6x YoY), with EBITDA at INR18b (our est. INR22.2b, +3.3x YoY). The miss was largely due to lower-than-expected non-ticketing revenue (INR27.3b vs. our est. of INR31.4b).

* EBITDA (excluding forex loss) stood at INR31.6b (down 8% YoY), as forex loss stood at INR13.7bm as against INR29b in 2QFY26.

* The company reported an adj. loss of INR20.6b (est. adj. profit of INR13.7b) compared to an adj. profit of INR25.1b in 2QFY26.

* As of Sep’26, the total cash balance stood at INR526.9b, which provided flexibility to manage near-term volatility and fund longer-term growth. Gross debt stood at INR873b (vs. INR777.5b in FY26)

Highlights from the management commentary

* Outlook/guidance: PRASK growth is expected to exceed 25% YoY in 3QFY27, while capacity growth is guided at the early single digits for FY27 and the mid-teens for FY28. The ~300b ASK target by FY30 remains intact. Load factors are expected to remain broadly flat in 3Q, while FY27 CASK (ex-fuel and forex MTM) is guided to rise by high-single-digits to early-double-digits, driven by rupee depreciation and contractual escalations. Fuel-cost uncertainty and elevated refining spreads may limit profitability.

* Widebody operations and international strategy: INDIGO will discontinue its damp-leased widebody operations from Nov’26, as elevated fuel costs, rupee depreciation, and geopolitical disruptions have weakened their economic viability. The exit is likely to improve unit economics, while international expansion plans remain intact, with A350 operations targeted from CY28. A321XLRs will retain the Amsterdam slot, while selective international expansion continues, including Mumbai–Dar es Salaam daily services from Nov’26.

* Revenue diversification and monetization: Ancillary revenue per passenger increased to ~INR590 in 2QFY27 from INR525 in 1QFY27, with further upside expected from broader service offerings and improved digital distribution. The cargo business grew 37% in 2QFY27 and demand remains encouraging into 3QFY27, although reduced long-haul belly capacity will constrain growth.

Valuation and view

* Despite continued near-term headwinds from the Middle East airspace disruptions, high fuel costs, and INR depreciation, we remain confident in INDIGO’s growth strategy, anchored by India’s strong domestic demand base and steadily expanding international network.

* Looking ahead, gradual normalization of international operations, easing Pratt & Whitney-related groundings, fleet expansion (including A321XLR-led international deployment), and resilient demand trends are expected to support performance recovery over the coming quarters.

* We estimate a CAGR of 14%/42% in revenue/EBITDAR over FY26-28. We value the stock at 10x FY28E EBITDAR to arrive at our TP of INR6,000. Reiterate BUY.

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