IndiGo stock nosedives 12% after Q2 net loss; brokerage remain bullish

The fall in IndiGo's bottomline happened despite a rise in its revenues as a result of a jump in airport fees and charges. A rise in supplementary rentals and aircraft repair, maintenance fees and aircraft fuel expenses hit the airline's operating profit.

Shares of IndiGo parent Interglobe Aviation plunged over 12 percent on October 28 after the airline reported a net loss of Rs 987 crore for the quarter ended September 30, 2024 compared to a net profit of Rs 189 crore in the year-ago period.

Despite the disappointing earnings, brokerages remained bullish on stock on account of healthy demand and efforts to improve its international presence through strategic partnerships and loyalty programs.

At 9:44 am, IndiGo shares were trading over 12 percent lower at Rs 3,811.35 on the National Stock Exchange (NSE). This is the biggest single-day drop that shares of the airline have seen since February 2022.

Kotak Institutional Equities has issued a 'buy' call on IndiGo, setting a target price of Rs 5,200 per share. The brokerage noted a sharp miss in the second quarter's profit before tax (PBT), primarily due to aircraft groundings, related compensation, and unexpected fuel inflation.

Additionally, there was an overhang from heightened seasonality, particularly in the context of a sharp uptick in demand and supply in the previous year.

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Despite these challenges, overall demand trends for IndiGo remain healthy, although there was a modest decline in the revenue per available seat kilometer (TRASK) due to a high year-on-year base for the third quarter, said the brokerage. As a result, Kotak has lowered its FY27 estimate by 10 percent.

Goldman Sachs has also issued a 'buy' call on IndiGo but has adjusted its target price to Rs 4,800 per share. The brokerage pointed out that the company's second quarter earnings per share (EPS) and profit before tax (PBT), excluding foreign exchange impacts, fell below estimates.

While the available seat kilometers (ASK) and revenue passenger kilometers (RPK) were largely in line with expectations.

IndiGo's yields exceeded estimates by 2.5 percent, driving a revenue beat. However, the cost per available seat kilometer (CASK) was higher than anticipated, attributed to increased fuel and lease expenses. Aircraft groundings remained stable in the mid-70s range, with signs of improvement, it noted.

Meanwhile, Nuvama has turned bearish on the counter. Following a 108–133 percent outperformance to US/European peers since January 2022, the brokerage downgraded IndiGo to 'hold' on 1.5x+ valuations to global peers and valuation premium to global LCCs ~2SD above average, slowing domestic demand and overcapacity concerns.

According to analysts, IndiGo's Sep-Nov’24 flight schedules imply a domestic share loss as well. Relentless promoter selling while IndiGo shifts from LCC to a hybrid model raises risk, the brokerage flagged while cutting FY25 and FY26 EBITDAR estimates by 14 percent and 7 percent respectively, and slashing target price to Rs 4,415.

"Near-term outlook looks challenging as capacity growth outpaces demand growth, affecting PRASK. Current valuations are unsupportive, but positive factors make risk reward balanced," said Nuvama.

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IndiGo served 106.7 million customers in FY24, with a net increase of 63 aircraft. The company had eight strategic partners with a 27 percent international share in terms of ASKs in FY24, noted Motilal Oswal. 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.

The airline is further enhancing its international travel and working relentlessly to adjust schedules to reassure customers, the brokerage highlighted as it reiterated its 'neutral' rating on the stock with target price of Rs 4,130, based on 8.5x Sep’26E EV/EBITDAR.

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