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Net loss led by seasonality but guidance remains intact

* INDIGO reported a 26% YoY decline in EBITDA to INR16.2b in 2QFY25 and a net loss of INR9.9b (vs. our est. net loss of INR6.8b). Revenue passenger kilometers (RPK) stood at 31.6b. Passenger load factor (PLF) was 82.7% with available seat kilometers (ASK) of 38.2b (est. of 27.2b) and yield of INR4.55 (vs. est. of INR4.51, +2% YoY) in 2Q.

* Currently, over 60 aircraft of the company are grounded due to P&W engine issues, and the management believes this number would be in mid-40s in FY26. INDIGO added two new international destinations in 2Q and would add three more in FY25. Thus, capacity share in the international market is expected to reach its targeted level of 30% by FY25 end.

* According to our airfare tracker, the 30-day domestic forward prices for INDIGO are up 16% QoQ at INR7,020 and the 15-day prices are up by 35% QoQ at INR7,255 in 3QFY25’TD. The management highlighted that 3QFY25 capacity in terms of ASKs is expected to increase by early double digits as compared to 3QFY24. The cargo/freighter business has started to do well for the company and ancillary revenues contributed handsomely in 2Q.

* For Oct’24, INDIGO is seeing solid demand led by the festive season, and the management believes there would be a natural comeback in demand in 3QFY25. Thus, capacity guidance and outlook have not changed for the company as of now. Its long-term guidance of doubling the capacity stays intact, despite short-term headwinds in terms of supply and inflationary trends in costs, as per the management.

* Due to the underperformance in 2QFY25, we lower our EBITDA estimate for FY25/FY26/FY27 by 5%/9%/10%. However, we raise our EPS estimates by 7% each for FY26/FY27 to account for lower tax as accumulated losses stand at INR130b. The stock is trading at ~20x FY26E EPS of INR222.9 and ~10x FY26E EV/EBITDAR. We reiterate our Neutral rating on the stock with a TP of INR4,130, based on 8.5x Sep’26E EV/EBIDTAR.

EBITDA in line; net loss driven by higher fuel costs

* Yield was INR4.55 vs. our estimate of INR4.51 (up 2% YoY). RPK was 31.6b (est. 22.7b, +7% YoY), with PLF at 82.7%. ASK came in at 38.2b (est. 27.2b, +8% YoY).

* Thus, revenue stood at INR169.7b (+39% est., +14% YoY), which included compensation from International Aero Engines LLC (IAE) for the aircraft-onground (AOG) situation due to the unavailability of engines.

* EBITDAR stood at INR23.8b (est. INR18.2b, flat YoY) with EBITDA at INR16.2b (est. INR16.7b, -26% YoY). The company has paid IGST of INR738m in 2Q on re-import of repaired aircraft, which is under dispute right now. Net loss stood at INR9.9b (est. net loss of INR6.8b, Profit to Loss YoY).

* For 1HFY25, revenue stood at INR365b (+16% YoY), EBITDAR was INR81.5b (+8% YoY), EBITDA stood at INR67.6b (-6% YoY) and PAT was INR17.4b (-47% YoY). ASK was at 74.5b (+10% YoY) and RPK was 63.1b (+8% YoY). As a result, PLF was at 84.7% (-120bp YoY) with yield at INR4.9 (+2% YoY). In 2HFY25, we expect revenue/EBITDA/PAT growth of 14%/13%/12% YoY.

Other highlights

* Free cash was INR244b in 2QFY25 vs. INR181b in 2QFY24. It reported capitalized operating lease liability of INR478b with total debt of INR592b as of 2QFY25. There was a net increase of 28 passenger aircraft during the quarter, taking the total to 410 as of Sep’24 end.

* INDIGO has announced an investment of INR3b in IndiGo Ventures Fund-I (a scheme of InterGlobe Aviation Ventures – Category-II, Alternate Investment Fund – AIF Trust). The scheme will primarily invest in equity of start-ups in preseries A, Series A and Series B stages, and will focus on aviation & allied sectors. The contribution agreement will be executed in FY25. The investment amount will be drawn by the scheme over the next 3-4 years through multiple tranches.

Valuation and view

* INDIGO is striving to improve its international presence through strategic partnerships and loyalty programs. It served 106.7m customers in FY24, with a net increase of 63 aircraft. The company had eight strategic partners with a 27% international share in terms of ASKs in FY24.

* The management has also taken several preemptive measures to increase its global brand awareness as it expects to capture a bigger share of growth in the international market over the coming years. INDIGO is further enhancing its international travel and working relentlessly to adjust schedules to reassure customers.

* The stock is trading at ~20x FY26E EPS of INR222.9 and ~10x FY26E EV/EBITDAR. We reiterate our Neutral rating on the stock with a TP of INR4,130, based on 8.5x Sep’26E EV/EBITDAR.

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