Interglobe Aviation Ltd surged as much as 10 percent after the company, which flies the countery's largest airline IndiGo, said it is planning to raise fares to return to profit after posting loss in the March quarter.
The stock hit a high of Rs 1,808.50 on the BSE, up 10 percent from its previous close. At 10am, the scrip was trading 5 percent up at Rs 1,737 on the BSE.
InterGlobe CEO Ronojoy Dutta said profitability was the top-of-the-mind periority for the company. "It's clearly very - you almost have to hit the point - the sweet spot just right, because you can keep pushing up fares and then at a certain point demand actually falls off," Dutta said in an earnings call. "So you have a tug-of-war, but the key to profitability is to keep managing our business on the revenue side."
The company reported a consolidated net loss of Rs 1,681.80 crore, reflecting the impact of the third-wave of Covid, record rise in jet fuel prices and rupee depreciation. Revenue jumped 29 percent from a year ago to Rs 8,020.75 crore. Operating profit margin contracted sharply to 2.1 percent in the quarter from 10.4 percent a year ago. A Bloomberg poll had estimated a quarterly net loss of Rs 978.30 crore on a revenue of Rs 8.000.30 crore for the quarter under review.
Also Read - IndiGo Q4 net loss widens: Should you buy sell or hold InterGlobe Aviation?
"The Q4 loss was driven more by a weak macro in the first half of the quarter. Indigo’s pruning of costs, increasing prices and playing the balancing act on revenue maximisation has helped it stem losses in March. Superior network coverage and yield management are likely helping Indigo make small profits starting Q1. It expects rational pricing in the market to continue, and we concur," Kotak Institutional Equities said in a note to investors.
For March, the company had increased yields to Rs 4.7/ASK versus Rs 4.4/ASK for the March quarter. "It has then seen an increase to Rs 5.4/ASK in May, which we believe will ensure that Indigo makes money at current Rs 125 per litre of ATF price, current 80 percent load factor and current volumes for IndiGo that have already breached pre-Covid levels for the domestic market," Kotak Equities said.
Analysts have cautioned investors on increasing competitive intensity from Air India after its acquisition by the Tata Group and entry of two new carriers, Akasa and Jet Airways 2.0. This is likely to reduce the market share of IndiGo and also to cause the yields to normalise. Rising fuel prices on account of the geopolitical situation is likely to have an impact on profitability, analysts mentioned.
"We believe the stock will remain under pressure, given increasing competitive intensity in the sector, margin pressure due to surge in ATF prices and decision of Rakesh Gangwal to reduce his 36.6 percent stake in the company over the next five years which is likely to cap stock performance," JM Financial said in a note to investors.
As of March 31, IndiGo had a total cash balance of Rs 18,227.5 crore, while the airline’s total debt (including the capitalised operating lease liability) stood at Rs 36,877.80 crore.
The company said it sees the first quarter of the fiscal year 2023 capacity to increase by around 150 percent, while for the whole fiscal, it expects the capacity to increase by around 55-60 percent.
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