Buy InterGlobe Aviation Ltd For Target Rs. 6,084 - Prabhudas Liladhar Capital Ltd
Yield and benign crude aids profits
Quick Pointers:
* ASKM growth is likely to be in mid-teens during 1QFY26E.
* Board recommends a dividend of Rs10 per share after a gap of 5 years.
We increase our FY26E/FY27E PAT estimates by 13%/10% as we fine tune our yield and fuel CASK assumptions. INDIGO reported better than expected performance with FX adjusted EBITDAR margin of 30.8% (PLe 28.5%) led by 1) 2.2% rise in yield to Rs5.32 aided by Maha Kumbh and 2) 6.6% fall in fuel CASK to Rs1.60 amid benign ATF prices. Notwithstanding near-term challenges amid the ongoing geo-political tensions, ASKM growth guidance of mid-teens for 1QFY26E is encouraging. Further, we expect the overall pricing environment to remain stable with yields of Rs5.1 over next 2 years as the aviation market is now a duopoly with limited threat of predatory pricing. Plans to deepen international penetration (ASKM share to rise to 40% by FY30E), strategic focus on premiumization (“Indigo Stretch” already launched on 5 routes with 16 aircrafts) and subsiding AoG count will act as key growth and margin levers. We expect sales/EBITDAR CAGR of 15%/12% over FY25-FY27E and retain BUY on the stock with a TP of Rs6,084 (11x Sep-26E EBITDAR). Excess FX and ATF volatility is a key risk to our call.
Revenue up 24.3% YoY: Revenue increased 24.3% YoY to Rs221.1bn (PLe Rs217.8bn). Passenger revenue increased 25.4% YoY to Rs195.7bn, while ancillary revenue increased 25.2% YoY to Rs21.5bn. Load factor stood at 87.4% (PLe 88.4%), while RASK was at Rs5.26. ASKM/RPKM was up 21.0%/22.7% to 42.1bn/36.8bn. Fuel CASK decreased 6.6% YoY to Rs1.60. Yield increased 2.2% YoY to Rs5.32 (PLe Rs5.19). Total fleet count stood at 434.
PAT at Rs30.7bn: EBITDAR increased 58.8% YoY to Rs69.5bn (PLe Rs62.1bn) (FX adjusted EBITDAR was Rs68.2bn) with a margin of 30.8% (PLe 28.5%). PAT increased 61.9% YoY to Rs30.7bn (PLe Rs28.9bn) (FX-adjusted PAT was Rs29.3bn).
Key takeaways: 1) 3 domestic and 7 international destinations have been added during the year. 2) Amid geo-political tensions, operations across 11 airports were suspended for 8 days in May leading to a cancellation of 170 daily flights. 3) Share of international ASKM stood at 30% in FY25. It is expected to touch 40% by FY30E. 4) Indigo has signed an agreement to damp lease 6 aircrafts from Norse Atlantic with plans to lease 5 more in 2HFY26. 5) Launched “Indigo Stretch” on 5 routes so far with 16 aircrafts with plans to extend it to 40 aircrafts 6) AoG count is in 40s. 7) Inducted 67 aircrafts during the year. 8) Purchased 2 ATR aircrafts (owned count is 8) in 4QFY25. 9) ASKM growth is likely to be in early double-digits in FY26E. 10) Around 19 routes and 34 flights have been impacted due to closure of Pakistan’s airspace. Flights to 2 destinations have been suspended. Indigo operates 2,200 daily flights and prima facie the impact from air-space closure appears limited. 11) As a policy, Indigo plans to hedge the cash outflows falling due in next 12 months after accounting for the natural hedge coming from international operations. 12) The aircraft engine and lease rental cost is expected to decline as damp leases would fall amid reduction in AoG count.
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