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Expanding horizons, strengthening leadership

* INDIGO expects strong industry tailwinds as air passenger traffic is expected to more than double over FY26-FY35, led by an increase in first-time international travels, growing inbound tourism in India and a strong pipeline of new airports (~50 new airports expected in next five years).

* To capitalize on these tailwinds, the company has outlined its FY30 vision, in which it aims to scale up its capacity to 300b available seat kilometers (ASK) from 172.4b in FY26 (CAGR 15%) and cater to 200m passengers vs. 123m in FY26 (CAGR 13%) by expanding the aircraft count to 550 from 441 in FY26 and increasing average daily departures to 3,000 from 2,200 in FY26.

* INDIGO is focusing on expanding its global reach with a diverse fleet. The company expects strong growth in international travel, and hence, it aims to expand the capacity share of A321 XLR (two aircraft already procured) and Widebodies to 10-15% by FY30 from 4% in FY26 and overall international capacity to 40%.

* Fuel cost before the Middle East war was ~INR85-86 per liter, which has increased by 25-30% in domestic markets and has doubled in international markets. The company mentioned that it has covered 70-75% of cost increase in international markets and is fully covered for domestic markets.

* In the cargo business, industry data indicates less than 10% of cargo is lifted by Indian carriers, and given the under-penetration, the company plans to grow tonnage volume by 1.5-2x by FY30 from the FY26 level.

* Looking ahead, a 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 year. We expect a CAGR of 13%/46% in revenue/EBITDAR over FY26-28E. We value the stock at 9x FY28E EBITDAR to arrive at our TP of INR5,600. Reiterate BUY.

Capturing India's rising outbound travel demand

* Given that first-time international travel is growing in India and mere 9% of Indians hold passport (Vs 60% in USA), while the number of upper-income households (annual income INR1-2m) is projected to rise from 49m in FY25 to 66m by FY30, accompanied by a ~54% increase in disposable income from USD2,536 to USD3,911. Combined with a 35m+ overseas Indian diaspora—the largest globally—these factors are expected to drive a sustained increase in firsttime international travelers and outbound travel demand.

* In order to cater to growing demand, INDIGO aims to expand its capacity share of A321XLR and Widebodies from 4% in FY26 to 10-15% by FY30. A321XLR will service the mid-long haul international routes and Widebodies will cater to the long-haul international routes.

* INDIGO is targeting 40% of the total capacity for international by FY30, including A320/A321, which are operating for short-haul international destinations.

Valuation and view

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

* We like INDIGO for its unmatched domestic network leadership, rapidly expanding international presence, industry-leading cost structure, robust fleet expansion pipeline, and multiple growth levers such as premiumization, expansion in cargo and acceleration in loyalty, which positions the company for continued market share gains and healthy earnings growth in the medium term.

* Looking ahead, a 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 year.

* We expect INDIGO to clock a CAGR of 13%/46% in revenue/EBITDAR over FY26- 28E. We value the stock at 9x FY28E EBITDAR to arrive at our TP of INR5,600. Reiterate BUY

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