Prabhudas Lilladher recommended accumulate rating on InterGlobe Aviation with a target price of Rs 995 in its research report dated Jun 03, 2020.
Prabhudas Lilladher's research report on InterGlobe Aviation
We cut IndiGo's FY21/FY22 EBITDAR by 53.9% and 14% respectively given 1) staggered removal of restrictions 2) gradual scale up of operations and 3) low consumer confidence With air traffic demand unlikely to match pre-Covid levels in the near term, IndiGo is focusing on 1) Reducing unit costs by cutting down all possible discretionary expenses 2) Efficient utilization of fleet 3) Right sizing capacity in line with demand and 4) explore new networks and revenue model. Through these initiatives, the management aims to generate additional liquidity to the tune of Rs30-40bn in the coming 9 months. With 123 less efficient A320ceos to be returned over the next 2 years and given the uncertain demand environment, we do not expect the rate of induction of fuel-efficient A320neo family to match the exit of A320ceos. We expect FY21 capacity to decline by 46% YoY while FY22 capacity is likely to be 90% of FY20 capacity. Despite the near term challenges, IndiGo continues to remain better placed than its peers and is likely to emerge stronger from the current crisis given 1) strong balance sheet with Rs203bn cash & equivalents (Rs89bn in free cash) 2) industry leading cost structure and 3) strong management team.
We value the stock at 7.5x FY22 adj. EV/EBITDAR. Maintain Accumulate with a TP of Rs995/-.
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