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Muted performance; forward-looking guidance remains intact

Earnings below our estimate

* InterGlobe Aviation (INDIGO) reported a 1% YoY decline in EBITDAR at INR56.9b (est. INR61.4b) and a PAT of INR21.6b (est. INR23.8b) in 1QFY26. Revenue passenger kilometers (RPK) stood at 35.7b. Passenger load factor (PLF) was 84.4% with available seat kilometers (ASK) at 42.3b (est. 41.7b), while yield stood at INR4.98 (est. INR5.04, -1% YoY).

* For 2QFY26, INDIGO expects ASK growth in mid-to-high single digits due to seasonality and maintenance, with PRASK likely to be flat YoY. We expect a stronger recovery in 2H, driven by new aircraft inductions, international ramp-ups, increasing MICE activities, and more wedding dates compared to last year.

* We broadly retain our earnings estimates and expect its revenue/ EBITDAR/Adj. PAT to clock a CAGR of 9%/13%/18% over FY25-27. We value the stock at 11xFY27E EBITDAR to arrive at our TP of INR6,900. Reiterate BUY.

Lower yield and reduced load factor hurt operating performance

* INDIGO’s yield stood at INR4.98 vs. our estimate of INR5.04 (down 1% YoY). RPK came in at 35.7b (vs. our est. of 35.6b, +13% YoY), with PLF at 84.4%. ASK was 42.3b (our est. of 41.7b, +17% YoY) for the quarter.

* Consequently, revenue stood at INR205.0b (est. of INR23.8b, +5% YoY).

* EBITDAR was INR56.9b (est. of INR61.4b, -1% YoY) with EBITDA at INR52.0b (our est. of INR52.7b, +1% YoY). The EBITDAR miss was revenue-driven due to weak yields and load factors, while EBITDA held up owing to lower fuel costs. PAT stood at INR21.6b (est. of INR23.8b, -21% YoY

Highlights from the management commentary

* Guidance: Management reaffirmed its early double-digit ASK growth guidance for FY26. The ASK moderation in 2Q is seasonal and planned, with no change in the overall annual outlook, and a strong ramp-up is expected in 3Q and 4Q.

* MRO strategy: INDIGO is shifting to finance leases to enhance asset control and enable end-of-term ownership, aligning with its MRO (Maintenance, Repair, and Overhaul) strategy. Its partnership with BIAL for a dedicated maintenance facility will improve aircraft availability and drive cost efficiency.

* Costs and profitability drivers: INDIGO continues to benefit from easing fuel prices and a shift away from high-cost damp leases, which supported EBITDA despite weaker yields.

Valuation and view

* Despite geopolitical disruptions and operational headwinds in recent quarters, INDIGO has demonstrated resilience through cost control, strong network execution, and steady passenger growth. Stabilizing fuel costs, the return of grounded aircraft to service, and improved demand are expected to drive performance in the coming quarters.

* Backed by early double-digit capacity growth, stable yields, a rising international mix (currently ~30% of ASKs), and improving operating leverage (from reduced damp leases and expanding wide-body routes), INDIGO is well-positioned to sustain healthy profitability. We broadly retain our earnings estimates and expect its revenue/ EBITDAR/Adj. PAT to clock a CAGR of 9%/13%/18% over FY25-27. We value the stock at 11xFY27E EBITDAR to arrive at our TP of INR6,900. Reiterate BUY.

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