InterGlobe Aviation Ltd, which runs budget carrier Indigo, has become India's first aviation company to cross Rs 1 trillion in market cap with its shares surging 29 percent so far this year to record highs.
The stock hit a high of Rs 2,595 on the BSE, up 2.5 percent from its previous close, with a market cap of Rs 1.01 trillion. It has rallied nearly 38 percent since March 28.
Indigo ranks 10th in terms of market value among world's top 10 listed aviation firms. Delta Airlines Inc is the world's biggest airline by value, with a market cap of $29.62 billion followed by South West Airlines Co and Ryanair Holdings PLC. United Airlines Holdings PLC ranks at number four, followed by Air China, Singapore Airlines, China Southern Airlines, China Eastern Airlines Co and Deutsche Lufthansa.
The stock started gaining recently amid expectations of rising market share after Go Air declared insolvency. Investors were also buying the stock after the recent announcement of placing an order for 500 Airbus A320 family aircraft, the biggest-ever single aircraft purchase order by any airline with Airbus. This eclipses Tata-owned Air India's record 470 aircraft order set in March.
Brokerage house UBS in its recent note has increased its EBITDA forecast by 18 percent for FY24 and 14 percent for FY25 and increased its target price to Rs 3,300 from Rs 2,690 a share.
The positive outlook is fuelled by a robust underlying demand that has led to increased passenger load factors (PLF) and higher yields. Strong demand, coupled with the grounding of Go First, has contributed to improved yields. Additionally, falling crude prices, lower VAT, and higher engine efficiency have resulted in lower fuel costs.
Yields are currently 30-40 percent higher compared to the pre-Covid levels, reflecting a resurgence in demand that has reached similar levels as in FY20. The consistently strong PLF, despite higher ticket prices, indicates a growing consumer appetite for air travel, highlighting the sector's structural growth, UBS said in its note.
"Our FY24/25 PAT forecasts are 80 percent/14 percent above consensus and we see an upside. Given its strong prospects, we do not see significant risks from the potential sale of the Gangwal stake, as we would expect them to be absorbed by the market," UBS said in its note.
Rakesh Gangwal, one of the co-founders of the budget airline, quit the company's board in 2022 after a fallout with fellow founder Rahul Bhatia. As of March end, the Gangwal family held 16.2 percent stake in the airline.
Kotak Institutional Equities has recently added Indigo to its recommended large-cap model portfolio with a weightage of 150 basis points. According to Kotak, Indigo presents a potential upside of 22 percent in relation to their 12-month fair value estimate of Rs 3,000. The stock is trading at 13 times the estimated earnings per share (EPS) for fiscal year 2024 and 2025. However, the brokerage house acknowledges the potential volatility of Indigo's earnings, which can be influenced by various external factors.
"For now, we draw comfort on a rational domestic market structure (consolidating in favour of Indigo) and muted global oil prices," Kotak said in its report.
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