Buy InterGlobe Aviation Ltd for the Target Rs. 332 By Prabhudas Liladhar Capital Ltd
FX loss mars profits
Quick Pointers:
* ASKM growth guidance revised upwards to early teens for FY26E.
* PRASK is likely to remain flat or report marginal growth in 3QFY26E.
Despite reporting better than expected FX adjusted EBITDAR margin of 19.3% (PLe 17.6%) we cut our EPS estimates by 3%/6%/3% for FY26E/FY27E/FY28E as we realign our FX assumptions amid sharp rupee depreciation. Unfavorable FX is likely to escalate lease liability obligations and consequently the interest cost & supplementary rentals. On the other hand, as AoG count is unlikely to subside but remain stable at ~40 odd through FY26E, aircraft & engine lease rentals will remain elevated. While we foresee inflation seep into the cost structure in FY26E, we draw comfort from positive commentary on pricing (PRASK to remain flat/grow marginally in 3QFY26E) and upward revision in ASKM growth guidance to early teens for FY26E. We expect sales/EBITDAR CAGR of 12%/11% over FY25-FY27E and retain BUY on the stock with TP of Rs6,332 (11x FY27E EBITDAR; no change in target multiple). Excess FX and ATF volatility is a key risk to our call.
Revenue up 9.3% YoY: Revenue increased 9.3% YoY to Rs185.5bn (PLe Rs181.9bn). Passenger revenue increased by 11.2% YoY to Rs159.7bn while ancillary revenue increased 14.2% YoY to Rs21.4bn. Load factor stood at 82.5% (PLe 83.2%), while RASK was at Rs4.50. ASKM/RPKM was up 7.8%/7.6% to 41.2bn/34.0bn respectively. Fuel CASK decreased 16.3% YoY to Rs1.45. Yield increased 3.2% YoY to Rs4.69 (PLe Rs4.54). Total fleet count stood at 417.
Bottom-line in red due to FX loss of Rs26.8bn: FX adjusted EBITDAR increased 36.1% YoY to Rs35.8bn (PLe Rs32.0bn) with a margin of 19.3% (PLe 17.6%). The beat at EBITDA level was driven by lower-than-expected airport fees & charges at Rs15.1bn (PLe Rs16.4bn) and lower employee expenses at Rs20.4bn (PLe Rs21.3bn). Loss for the quarter stood at Rs25.8bn led by FX hit of Rs26.8bn amid sharp rupee depreciation. However, adjusting for the FX loss, PAT stood at Rs1.0bn (PLe loss of Rs1.7bn) versus a loss of Rs7.4bn in 2QFY25.
Key takeaways: 1) INDIGO IN’s FX exposure stood at US$9bn in 2QFY26 mainly arising from lease liabilities and maintenance obligations. Hedge position of US$850mn helped mitigate this exposure arising from sharp rupee depreciation to a certain extent. Overall, net FX loss for the quarter stood at Rs26.8bn. 2) Expanded network to 94/41 domestic/international destinations in 2QFY26. 3) Fleet size stood at 417 aircrafts in 2QFY26. Of these, 56 were leased through Gift City entity. 4) INDIGO IN inducted 15 aircrafts, redelivered 11, and purchased 6 finance lease aircrafts at nominal value, reclassifying them as owned. 5) Target is to have 30– 40% of the fleet as owned or on finance lease by 2030. 6) AoG count stands at ~40 and is expected to stay range-bound through FY26E. 7) A new MRO facility is likely to be set up in Bengaluru for Rs10bn. Currently, ~90-95% of the MRO activities are outsourced. 8) First Airbus A321XLR aircraft (wide-body) will be inducted soon extending the operational range to 7–8 hours. 9) 4 Boeing 787 widebodies were added on damp lease in 2QFY26 and 2 more will be added in the coming months. These aircrafts are currently deployed on routes to Amsterdam, Manchester, Copenhagen, and London Heathrow. 10) The international ASKM share is expected to rise from 30% to 40%; as wide-body induction gains momentum. 11) INDIGO IN’s loyalty program, “Bluechip”, has expanded to 7mn members since launch. 12) ASKM growth for 3QFY26E is expected to be in highteens range with majority of the capacity to be deployed on international routes. 13) In FY26E, CASK (ex-fuel & ex-forex) is expected to rise by early single digit.
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