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Indigo posted Q1FY26 SA revenue/EBITDA of Rs205bn/Rs54bn, missing our estimates by 2%/5%, though staying broadly in line with consensus estimates. The earnings miss was mainly owing to yields coming 4% below expectations, declining 5% YoY due to elevated cancellations amid external headwinds. CASK was 2% below our estimate. ASK grew 16% YoY to 42.3bn (a 1% beat), while redeliveries in Q1 resulted in fleet size of 416 as of Q1FY26-end vs 434 QoQ. Load factor was lower at 84.6%, while pax/RPK rose 12%/13% YoY. The management reiterated its FY26 double-digit ASK growth guidance. A mid-tohigh single digit growth is expected in Q2 due to seasonal weakness, albeit followed by a stronger rebound in H2FY26. Q2 yields are expected to be flat YoY. We slightly tweak our estimates; however, on the back of a positive sector outlook, Indigo’s continued dominance, and international expansion, we raise our PER to 23x from 22x. We revise up our TP by ~8% to Rs6,500; retain BUY.

Result Highlights

RPAT stood at Rs21.6bn in Q1FY26, at a 7% miss. Indigo’s RPK declined 3% QoQ to 35.7bn, implying a PLF of 84.6%, while yields were down 6% QoQ to Rs4.98. RASK fell 10% YoY/8% QoQ to Rs4.86. Fuel cost per ASK was 5% below our estimate, down 22% YoY/14% QoQ. Aircraft & engine rentals were 13% lower than expected on redelivery of damp leases, while Employee cost/Other expenses were higher by 5%/3%. Airport charges and Supplementary rentals were also higher, by 3% and 1%, respectively. D/A rose 3% QoQ to Rs25.5bn, while finance charges were up 1%. Other income rose 10% QoQ to Rs10.5bn (a 5% beat). Indigo’s fleet reduced by 18 aircraft QoQ to 416, largely due to redeliveries of damp-leased aircraft as AOGs declined to the 40s in Q1FY26. Core gross debt was up 15% QoQ to Rs217bn, while total cash balance rose 3% QoQ to Rs494bn, with free cash up 5% to Rs348bn. PBT/ASK was lower at Rs0.54 vs our estimate of 0.58. Indigo added one destination in the international sector in Q1.

Management KTAs

Yields were impacted during the quarter, although have stabilized in July, with improvement expected in August and September. Given the seasonal softness in Q2, the airline plans to discontinue underutilized routes and prioritize aircraft maintenance and modifications to gear up for a stronger Q3. Aircraft rental costs are expected to be stable ahead, as IndiGo plans to induct more widebodies on damp lease while phasing out narrow bodies. FY26 CASK (ex-fuel) is expected to remain largely in line with FY25 levels. Customer feedback has been strong on its widebody international operations and stretch services, prompting the airline to expand both—international flights and stretch offerings.

Valuation

We value Indigo at P/E-based TP of Rs6,500 (~23x Mar-27E EPS). Although Indigo would benefit from accumulated tax losses well up to FY28, we adjust our APAT to reflect the normalized taxation. Key risks: adverse currency/fuel prices, economic slowdown, stake sale, and operational issues.

Concall Highlights

• Although Q1FY26 began on a strong note, it was impacted by several external disruptions, including geopolitical tensions, airport closures, reduced block hours, and elevated cancellations. Flights to Srinagar slowed down following the terror attack, while the closure of Pakistani airspace affected 30 flights originating from North Indian airports. Escalating geopolitical issues led to the closure of 10 airports, disrupting ~130 flights. Additionally, heightened caution among international travellers following the Air India accident resulted in increased cancellations, while the Middle East conflict impacted international flights.
• These headwinds led to higher passenger and flight cancellations and a dip in yields. Although Q1 faced multiple challenges, Q2 has shown signs of stabilization. The company anticipates a strong rebound and growth in Q3 and Q4. Yields were strong in April although they declined in May and June due to persistent cancellations; however, July has seen some stabilization, and yields are expected to improve through August and September. Yields in Q2FY26 are expected to be flat YoY.
• Profitability in Q1 was impacted by external factors, though partially offset by a softer fuel environment. Despite operational setbacks, IndiGo’s double-digit pax growth during the quarter underscores the strength and resilience of its network.
• The airline inducted 8 aircraft during Q1. AOGs remained steady in the 40s range. With declining AOGs, IndiGo redelivered ~16 damp-leased aircraft, leading to lower aircraft rentals. However, this benefit was neutralized by inflationary pressure and rising airport charges, resulting in a minimal impact on CASK. Going forward, rentals are expected to remain at current levels as IndiGo plans to induct more widebody aircraft on damp lease. Thus, savings from narrowbody redeliveries will be offset by new widebody inductions. FY26 CASK (ex-fuel) is expected to remain broadly in line with FY25. While FY25 saw elevated rental costs due to leased aircraft, these are likely to moderate in FY26, though inflation and cost escalations in other line items will counterbalance some of the savings.
• Double-digit YoY ASK growth guidance in FY26 is maintained, although Q2FY26 ASK is expected to grow at a mid-to-high single-digit. The lower growth in Q2 is primarily due to seasonal softness in domestic demand. As a result, the airline has strategically suspended some underutilized routes and undertaken structural inspections and modifications of certain aircraft to prepare for a stronger Q3. Additionally, the redelivery of damp-leased aircraft contributes to the slightly muted Q2 ASK growth. This planned moderation was already factored into the company’s annual outlook, which remains unchanged. With most airlines scaling back capacity in Q2, yields are expected to be supported by steady demand and tighter supply.
• Stronger growth is anticipated in Q3 and Q4, with ASK growth returning to double digits. Backed by a robust order book of over 900 aircraft, IndiGo is targeting to induct one new aircraft per week, offering ample operational flexibility to adjust its fleet and network. The airline expects no challenges in ramping up capacity in H2FY26. It also retains the option to add more damp-leased aircraft, while the PLFs provide additional headroom for growth. IndiGo remains confident that the planned moderation in Q2 will be followed by a solid rebound in Q3 and Q4. Notably, Q1FY26 was expected to be strong, and the airline had accordingly deployed higher capacity, resulting in a 16% YoY ASK growth.
• Fuel costs declined during the quarter, benefiting from the lower crude oil prices, reduced deployment of fuel-inefficient damp-leased aircraft, and some pricing negotiations with OMCs. The company expects fuel costs to remain at these levels going forward.
• In a strategic move to tap into the long-haul market, IndiGo has signed an MoU with Airbus for a firm order of 30 A350 aircraft, with deliveries slated to begin in CY32. Deliveries of other widebody aircraft are expected to start from CY27. Additionally, the airline has entered into an agreement with Norse Atlantic to damp lease six widebody aircraft. One aircraft has already been inducted and is currently operating on the Mumbai–Amsterdam and Mumbai–Manchester routes. The remaining five are scheduled for induction during the year.
• Customer feedback on widebody international operations has been encouraging, prompting IndiGo to scale up its overseas network starting Sep-25. The Mumbai– Manchester service will increase to four from three weekly flights, and the Mumbai– Amsterdam service to six from four. New routes to London and Copenhagen are also in the pipeline. The airline plans to induct A321XLRs this year, which will further support international expansion through CY26.
• IndiGo has received positive customer feedback for its stretch service on the Delhi– Bangkok route, prompting the airline to expand this offering to other select international routes such as Bangkok, Dubai, and Phuket, using A321 aircraft. IndiGo has curated tailored product and service bundles based on route types, to meet diverse customer needs (like offering hot meals on long-haul international flights).
• IndiGo continues to grow robustly on the international front, despite facing intense competition from both, Indian and foreign carriers, especially on Middle Eastern routes. However, the airline remains well-positioned, leveraging its cost leadership to stay competitive. Additionally, India's advantageous geographic location is helping IndiGo tap into international-to-international travel flows. The airline is witnessing a growing number of passengers transiting through Mumbai from Europe en route to Southeast Asia.
• Codeshare partnerships are expanding, with IndiGo’s agreement with Japan Airlines now becoming reciprocal. The airline has also entered into a new codeshare with Jetstar, enhancing connectivity to Australia and New Zealand. During the IATA AGM hosted by IndiGo in Delhi, the airline entered into a codeshare with Delta, and its partnership with Virgin Atlantic is expected to become reciprocal soon.
• IndiGo has secured key slots at the upcoming Jewar/Noida and Navi Mumbai airports, which will support further domestic and international expansion. These strategic slots will help strengthen its network leadership. The upcoming terminal shift in Mumbai may cause some operational disruptions, which IndiGo is taking proactive steps to minimize, as also to mitigate passenger inconvenience.
• Employee costs rose in Q1FY26, largely due to normal annual increments. Costs are expected to rise further due to regulatory changes in working hours, although the airline aims to offset most of this impact through in-house efficiencies.
• The airline has signed an MoU with Bengaluru Airport to establish a state-of-the-art MRO facility, which will boost operational efficiency by improving aircraft availability and turnaround times.
• IndiGo’s loyalty program 6E Bluechip has seen encouraging traction, with ~3.8mn registrations. Multiple brands have come on board, and Kotak Mahindra Bank has launched co-branded cards, strengthening the program’s value proposition.

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