Buy InterGlobe Aviation; target of Rs 3000: Emkay Global Financial

Emkay Global Financial is bullish on InterGlobe Aviation has recommended buy rating on the stock with a target price of Rs 3000 in its research report dated September 15, 2023.

Broker Research

September 15, 2023 / 14:08 IST

Buy

Emkay Global Financial's research report on InterGlobe Aviation

The Pratt & Whitney (P&W) engine issues have aggravated, with parent company RTX Corporation expecting over 3,000 engine recalls for inspection (vs. earlier est. of over 1,200 engines). We estimate incremental impact on Indigo, under a worst-case scenario, to be 20-25 more aircraft on ground (AOG) at a time, on an average, for the next 3-4 years, from ~40 as of end of Jun-23. This implies ~20% total AOG on Indigo’s current fleet size. As per media reports, Indigo plans to add 20 A320ceos on damp lease in view of the upcoming peak travel season. We estimate damp lease margins to be ~10% lower vs. dry lease, although blended impact on net earnings is likely to be moderate at 6-7%. Indigo remains best-placed among peers to tackle the current challenges of engine issues and rising fuel prices. The upcoming travel season, as per our checks, is looking strong and expected yield recovery should offset cost pressures. We retain our BUY rating.

Outlook

We value Indigo using the DCF method, with a TP of Rs3,000/share (14.8x Mar-25E target P/E (PBT) and ~20x tax-adj. target P/E). Key risks: Adverse currency/fuel prices, recession, stake sale, and operational issues.

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