IndiGo's robust Q4 results prompt multiple target price hikes; brokerages see up to 18% upside

IndiGo stock has zoomed 94 percent in the last on year, almost doubling investors' money.

The low-cost airline InterGlobe Aviation, doing business as IndiGo, reported above-estimate earnings for the quarter ended March 2024, prompting multiple target price hikes as analysts remain bullish.

The company posted a solid 106 percent growth year-on-year in net profit at Rs 1,894 crore, led by healthy demand for air travel, strong capacity addition, low jet fuel or aviation turbine fuel (ATF) cost, and a rise in yields, partially offset by aircraft on the ground (AoG).

IndiGo has been taking big bets by placing bulk purchase orders for aircraft/engines, helping it negotiate favorable terms with OEMs. The airline flies limited point-to-point destinations that are selected based on the attractiveness of the market.

All this has helped the company achieve the lowest cost structure in a highly competitive industry, according to Nuvama Institutional Equities.

IndiGo's revenue from operations climbed 26 percent year-on-year to Rs 17,825.30 crore in Q4FY24. The carrier's EBITDAR (earnings before interest, tax, depreciation, amortization, and rent) jumped to Rs 4,412.3 crore as against Rs 2,966.5 crore a year back, while its margin increased to 24.8 percent from 20.9 percent.

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IndiGo stock call: Buy, hold or sell?

Morgan Stanley has issued an 'overweight' call on IndiGo, raising the target to Rs 5,142 per share. According to the brokerage, the airline's Q4 EBITDA surpassed estimates by 10 percent. However, the company expects flat revenue per available seat kilometre (RASK) year-on-year, anticipating rising inflationary pressure.

IndiGo is poised for significant changes in the coming years, including the introduction of loyalty programs and business class services, along with plans for long-haul international flights, the brokerage said.

While these changes may lead to near-term cost pressures, Morgan Stanley believes the company's strategy aligns well with evolving consumer preferences.

Jefferies has maintained a 'hold' call on IndiGo but raised the target to Rs 4,150 per share. The Q4 performance was impressive, driven by a robust 7 percent year-on-year increase in yields, which offset cost pressures. Additionally, IndiGo surprised investors with plans to launch business class services by the end of the calendar year 2024.

The company continues to benefit from a constrained capacity environment, leading to favourable yield and spreads. However, Jefferies believes that the stock's stellar performance already accounts for these positive factors.

Analysts at Emkay Global highlighted that Indigo's management has guided for Q1FY25 capacity growth of 10-12 percent year-on-year each, though the AoG situation remains range-bound in the mid-70s.

RASK is expected to be flattish year-on-year in Q1FY25, whereas the carrier may feel cost pressures in FY25, especially on maintenance and airport charges.

Indigo is unveiling a tailor-made business-class offering by August 2024, and internationalization remains a key strategy, said Emkay as it retained a 'buy' rating on the stock with a target price of Rs 5,000.

"IndiGo has been delivering best-in-class performance, thereby gaining market share. Despite being largely domestic-focused, IndiGo has among the best aircraft utilization levels," said Nuvama as it maintained a 'buy' rating on the stock and raised the target price by 21 percent to Rs 5,192.

Also Read | IndiGo Q4 Results: Net profit more than doubles to Rs 1,895 cr on healthy demand for air travel

Key risks for IndiGo stock

According to Nuvama analysts, uncertainty and unpredictability of the policy/regulatory framework continue to be a concern for IndiGo. Adverse taxation structure will drive up the cost of doing business, hurting profitability.

Additionally, economic slowdown can pressure demand for corporate/leisure travel, which, in turn, would impact load factors and hence profitability given the high operating leverage structure of the airline business.

Moreover, existing airports at the Indian metros such as Mumbai, Chennai, and Kolkata running at peak capacity could prove to be bottlenecks for growth. Rising competition from the likes of Air India and higher oil prices can also be negative triggers for the carrier's stock.

Adverse currency/fuel prices, economic slowdown, stake sale, and operational issues are the key risks for the stock, said Emkay Global.

IndiGo share price performance

In the previous session, IndiGo shares closed 1.08 percent higher at Rs 4,403.00 on the National Stock Exchange (NSE). So far this year, the stock has risen nearly 48 percent, outpacing the benchmark Nifty 50 which has risen around 5.6 percent during this period.

IndiGo stock has zoomed 94 percent in the last on year, almost doubling investors' money.

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