Akash Jain
We have become negative on the aviation sector after the recent rally in ATF fuel prices. Generally this sector is very risky and requires deep pockets. With regards to Interglobe Aviation, after the recent correction of around 30 percent owing to dismal performance in Q4FY18 (which was expected by us) and resignation of its President Aditya Ghosh, the stock may look cheap but are we are cautious on it. Aditya Ghosh, the company President, stepped down last week. Promoter and co-founder Rahul Bhatia, has been appointed as interim CEO.
We remain wary of rising ATF fuel prices owing to rising crude oil prices. The company reported a sharp 73 percent decline in net profit to Rs 1.17 billion for the March quarter (Q4FY18), due to higher fuel costs and adverse forex exchange positions. The country’s largest airline had profit of Rs 4.4 billion in the same quarter last year.
IndiGo’s revenue from operations during the quarter under review grew 19.6 percent at Rs 57.99 billion against Rs 48.48 billion during the same period last year. EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) margin declined to 19.5 percent in Q4FY18 from 29.9 percent in Q4FY17. Cost per available seat km (CASK) increased 7.1 percent YoY, leading to a 1,040bps YoY contraction in earnings before interest, tax, depreciation, amortisation and tax (EBITDAR) margin at 19.5 percent. This was primarily driven by rise in fuel cost, forex losses (booked a loss of Rs 925 million compared to a gain of Rs 2.5 billion in the same quarter last year) and fall in passenger yields. Apart from fuel expenses, all other expenses including staff costs, finance charges and aircraft rentals witnessed a rise in Q4FY18.
The company’s aggressive capacity addition has affected its profitability and intense competition took a toll on yield. It ended the quarter with a fleet of 159; added a net of 6 aircraft including 3 ATRs. Indigo added 4 new destinations in the quarter; total number of destinations increased to 50 including 8 international destinations.
The company said its entire debt at Rs 2,452.72 crore is aircraft-related. lndiGo does not have any working capital debt, it said. The aviation company had a total cash balance of Rs 13,708 crore.
We will wait for more clarity and commentary from the new CEO in the coming quarters as the confidence of investors have shattered after a sudden exit of its President. Investors may avoid taking fresh entry.
Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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