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Performance impacted by elevated fuel costs

Operating performance misses estimates

* InterGlobe Aviation (INDIGO) reported a 34% decline in EBITDAR to INR37.5b, primarily due to high fuel costs (44.1% of sales vs. est. 37.8%), while EBITDA (excl. forex) declined 39% YoY to INR32.9b. Despite these significant cost headwinds, the company delivered 21% YoY growth in yield to INR6.0, supported by price hikes. ? We remain positive on the outlook despite margin pressure in 1Q amid high fuel costs. For 2QFY27, capacity growth is expected to remain flat YoY, while passenger revenue per available seat kilometer (PRASK) is expected to grow by 25% YoY, driven by the sustainability of increased pricing and healthy demand. The company expects most of the curtailed capacity to be restored by 3QFY27 and overall growth outlook for FY28 to remain intact, supported by low double-digit to mid-teen ASK growth expectation, international expansion, fleet additions and favorable industry demand trends.

* Factoring in the restart of the Middle East conflict, which is leading to higher Brent and cracking margins, we cut our FY27 EBITDAR estimate by 12%, while we largely maintain FY28 estimates. We value the stock at 10x FY28E EBITDAR to arrive at our TP of INR6,580. Reiterate BUY.

Cost inflation outpaces yield expansion, driving earnings loss

* INDIGO’s yield stood at INR6.0 vs. our estimate of INR5.5 (up 21% YoY). Revenue passenger kilometer (RPK) was at 36.2b (our est. of 37.6b, flat YoY), with load factor at 83.3%. ASK grew 3% YoY to 43.5b (our est. of 43.8b).

* Consequently, revenue stood at INR246b (est. in line, +20% YoY). EBITDAR stood at INR37.5b (est. of INR56.3b, -34% YoY), with EBITDA at INR32.1b (our est. INR51.4b, -38% YoY). The miss was largely due to higher fuel costs (44.1% of sales vs. est. 37.8%).

* EBITDA (excluding forex loss) stood at INR32.9b (down 39% YoY), as forex loss stood at INR793m as against INR1.5b in 1QFY26.

* The company reported an adj. loss of INR3.8b (est. adj. profit of INR16.5b) compared to an adj. profit of INR21.6b in 1QFY26. ? As of Jun’26, total cash balance stood at INR529b and gross debt stood at INR815.3b (vs. INR777.5b in FY26).

Highlights from the management commentary

* Outlook/guidance: Management maintained FY27 ASK growth guidance (high single-digit), with growth expected to accelerate to early double-digit to mid-teen levels after FY27 (300b ASK by FY30). For 2QFY27, ASK growth is expected to remain flat YoY, while PRASK is guided to grow ~25% with stable load factors. Fuel cost visibility remains weak due to renewed Middle East tensions, leading management to withhold RASK-CASK spread guidance.

* Fleet strategy: The airline inducted 13 aircraft during the quarter, ending with a fleet of 432 aircraft, while returning nine aircraft and redelivering 13 dampleased planes. Most damp-leased aircraft have now been returned, although management may consider temporary leases if demand strengthens. The company expanded its network by launching services to Jamnagar and becoming the first airline to operate from Noida International Airport (Jewar). Management expects most curtailed capacity to be restored by 3QFY27 and reiterated that long-term fleet expansion plans remain firmly on track.

* International expansion and CFM deal: International expansion remains a key long-term growth driver, targeting international capacity to reach ~40% of total ASKs by FY30 from ~33% prior to recent disruptions. Growth will be supported by upcoming A321XLR deliveries and future widebody inductions, with international operations expected to outpace domestic growth due to a larger TAM and a lower base. To support long-term expansion, INDIGO signed a landmark MoU with CFM International for over 1,000 LEAP-1A engines, alongside engine MRO and support infrastructure development.

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