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ATF inflation and weak demand dents profit

INDIGO IN’s operational performance was broadly in line with our estimates with FX adjusted EBITDAR margin of 15.7% (PLe 15.6%). Fuel CASK increased 68.9% YoY to INR2.44 (PLe INR2.32) due to sharp increase in ATF price. In addition, inflation has seeped into the cost structure with CASK (ex-fuel & ex-forex) rising by 13.7% YoY to INR3.65 amid adverse FX movement and annual contractual escalations. While attempts are made to cover excessive fuel & FX volatility via repricing (yield up 34.3% YoY to INR6.3) it is proving to be insufficient given inflation is quite steep in nature. Further, given weak demand environment, ASKM growth is likely to remain subdued for 2HFY27E. While the near-term operating scenario continues to remain challenging, if yields show signs of stickiness once volatility in fuel & FX stabilizes, the stock could rerate. We expect 11% ASKM CAGR over FY26-FY29E with FX adjusted EBITDAR margin of 19.1%/25.0%/27.1% in FY27E/FY28E/FY29E and maintain HOLD on the stock with a TP of INR5,177 (8x Sep-28E EBITDAR; earlier 8.5x) as we await signs of yield stickiness to emerge.

Revenue up 25.9% YoY:

Revenue for the quarter increased 25.9% YoY to INR233.6bn (PLe Rs227.7bn). Passenger revenue increased 29.3% YoY to INR206.5bn while ancillary revenue increased 15.9% YoY to INR24.8bn. Load factor stood at 80.3% (PLe 80.0%) while RASK was at INR5.73. ASKM/RPKM was down 1.0%/3.7% YoY to 40.8bn/32.8bn respectively. Fuel CASK increased 68.9% YoY to INR2.44 (PLe INR2.32). Yield increased 34.3% YoY to INR6.30 (PLe INR6.05). Total fleet count stood at 442.

Adjusted loss at INR7,237mn:

EBITDAR increased 159.5% YoY to INR23.3bn (PLe INR25.1bn) with a margin of 10.0% (PLe 11.0%) as against an EBITDAR margin of 4.8% in 2QFY26. FX adjusted EBITDAR (excluding hedging loss) declined 3.3% YoY to INR36.7bn (PLe INR35.5bn) with a margin of 15.7% (PLe 15.6%). INDIGO IN reported a loss of INR18.8bn (PLe loss of INR11.4bn) for the quarter as against a loss of INR25.8bn in 2QFY26. Adjusting for the FX movement, loss stood at INR7.2bn (PLe adjusted loss of INR1.0bn) as against an adjusted PAT of INR1.0bn in 2QFY26.

Key takeaways:

1) CASK (ex-fuel & ex-forex) increased 13.7% YoY to INR3.65, driven by rupee depreciation, under-absorption of fixed costs following capacity rationalisation and annual contractual escalations.

2) INDIGO IN inducted 22 aircraft from its original order book during 2QFY27, all through its GIFT City entity, and redelivered 10 aircraft and 2 damp-leased aircraft, ending 2QFY27 with a fleet of 442.

3) Capacity growth pegged at single digit in FY27E.

4) CASK (ex-fuel ex-forex) is expected to witness high-single to early-double-digit inflation in FY27E.

5) INDIGO IN will discontinue its wide-body damp-lease operations from 1st Nov’26, considering the combination of exceptionally high fuel prices, rupee depreciation and geopolitical uncertainty.

6) Singapore jet fuel prices declined 24.6% QoQ to US$137.4 in 2QFY27 resulting in a sequential decline in fuel CASK to INR2.44.

7) Other expenses declined 10.0% QoQ to INR20.7bn in 2QFY27, partly due to an accounting classification adjustment of ~INR1,780mn.

8) The wide-body exit is not expected to have a long-term impact on INDIGO IN's international expansion plans or Amsterdam slot, which it intends to maintain using the A321XLR aircraft.

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