InterGlobe to lag unless load factor rises: Expert

Most airline stocks have rallied purely due to linear correlation with aviation turbine fuel prices without giving due consideration to other variables like utilisation levels, infrastructure costs etc., which also eat into margins, says market expert Prakash Diwan commenting on the weak show of InterGlobe Aviation in the first quarter. It is highly competitive environment and the results clearly indicate pricing power is not yet back, he says.He points that 18-20 percent of the new routes launched are sub-optimal with less than 55 percent occupancy. Unless occupancy rates and load factors improve, investors will not prefer to enter a high-risk business at such valuations. During the first quarter InterGlobe's load factor declined to 83.3 percent from 87.9 percent year-on-year.Another factor that investors could take negatively is decline in the earings before interest, tax, depreciation and lease rentals margins which declined to 33.9 percent from 37.4 percent YoY. Diwan says if the stock price declines and operational performance improve then one can consider investing it in sometime in the first half of September. Watch video for more.