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Optimistic business outlook…

Driven by both domestic market and global expansion

* InterGlobe Aviation (IndiGo) has expanded its domestic network to 88 destinations and added new international routes, including 7 new destinations, while navigating fuel price volatility and economic risks. With an order for nearly 985 aircraft, including that of Airbus A350-900s, the airline aims to enhance efficiency and meet the rising demand by CY30.

* IndiGo aims to solidify its domestic leadership while preparing for global expansion through its Reassure, Develop, and Create strategy. It focuses on enhancing customer trust, expanding its network, upgrading digital capabilities, and introducing new aircraft to support future growth.

* IndiGo is boosting its international presence through strategic partnerships and loyalty programs. In FY24, it served 106.7m customers and added 63 aircraft. The stock trades at ~24x FY26E EPS. We maintain our Neutral rating based on 10x FY26E EV/EBITDAR multiple, with a TP of INR4,970.

Growth levers in place…

* IndiGo's business and industry outlook remains robust, driven by its market leadership and global expansion plans. It is set to benefit from India’s booming aviation sector while enhancing sustainability and customer experience. However, fuel price volatility and global economic risks remain key challenges.

* IndiGo expects significant growth in India’s aviation sector, driven by the rising air travel demand, a growing middle-class population, and improved connectivity in an underpenetrated market. With the goal to strengthen its domestic leadership, IndiGo added 10 new destinations in FY24, bringing the total to 88, while focusing on affordable fares, efficiency, and punctuality to capture this expanding opportunity.

* IndiGo’s international growth is pivotal to its strategy, having added 7 new destinations in FY24 to reach a total of 33. The airline is capitalizing on the rising demand for direct, cost-effective global travel from India and plans to expand further into regions such as Africa and the Far East. With the deliveries of IndiGo’s wide-body Airbus A350-900 aircraft slated to begin in CY27, the company is poised to enhance long-haul connectivity and shift from short-haul to a more global aviation presence.

* IndiGo’s fleet expansion is marked by a substantial order of nearly 985 aircraft, including fuel-efficient Airbus A320neo and A321XLR models, which are crucial for maintaining cost advantages and enhancing operational efficiency. By CY30, the airline plans to operate over 600 aircraft to meet the rising demand and leverage growth in both domestic and international air traffic.

Led by a three-fold strategy

* IndiGo's strategy is to consolidate its leadership in the domestic market while positioning itself for long-term global growth. It is aligning itself to not only meet the current demand but also tap into future opportunities in both domestic and international aviation. It focuses on three main pillars for this growth: Reassure, Develop, and Create.

* IndiGo's core focus is to strengthen customer trust by upholding its promises of affordable fares, punctuality, and seamless service. In FY24, the airline flew over 107m passengers (up 25% YoY) and placed a record order for 500 planes to support future growth. Additionally, IndiGo expanded its network, targeting high-demand and underserved routes, to enhance its global and domestic presence. Management believes that the network advantage would only increase over time.

* IndiGo is enhancing its digital capabilities with a Passenger Services System (PSS) upgrade and the 6Eskai AI chatbot while expanding its workforce with over 5k new hires and robust training programs. The airline is also committed to sustainability, shifting to fuel-efficient aircraft and targeting a fully sustainable fleet by CY30.

* IndiGo’s ‘Create’ pillar emphasizes international expansion and enhanced connectivity through codeshares with Turkish Airlines and Qantas. The airline will introduce wide-body Airbus A350-900 aircraft by CY27 for long-haul flights and launch business class services (from Nov’24) to capture the growing premium market.

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 has 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 ~24x FY26E EPS of INR204 and FY26E EV/EBITDAR of ~10x. We reiterate our Neutral rating on the stock with a TP of INR4,970, based on 10x FY26E EV/EBITDAR.

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