InterGlobe Aviation Q2 Results Review

InterGlobe Aviation Ltd. posted a profit after tax of Rs 1.9 billion (versus our estimated net loss of Rs 9.6 billion) in Q2 FY24 driven by lower-than-expected fuel costs and supplementary rentals. Revenue passenger kilometers were at 29.4 billion. Passenger load factor was at 83.3% with available seat kilometers of 35.3 billion (establish. of 34.3 billion) and yield of Rs 4.4 (versus establish. of Rs 4.3) in Q2 FY24.

Supplemental rentals were down QoQ due to provisions of a reversal of ~Rs 1.5 billion taken by the company during Q2 FY24. Rentals are likely to rebound to Q1 FY24 levels from Q3 onwards. Currently, over 40 aircraft of IndiGo are grounded due to Pratt & Whitney engine issues. P&W has now identified a new issue with powder metal, and an incremental number of engines will be removed for inspections from January 2024 onwards, thereby hurting operating fleet further.

That being said, according to our airfare tracker, the 30-day domestic forward prices for IndiGo are up by 30% QoQ and the 15-day prices are up by 37% QoQ in Q3 FY24 to date. Management highlighted that it has made adjustments to the base fare after introducing the fuel surcharge and would continue to have it to offset the increases in aviation turbine fuel prices in the past three-four months. Demand has remained stable, with IndiGo serving 26.3 million passengers in Q2 and it is on track to raise this to 100 million in FY24 from 85 million in FY23.

To harness the expected demand growth, the company plans to increase its fleet size to 350 in FY24 from 306 in FY23, while also adding 10-15 new destinations (both domestic and international).

The long -term guidance of doubling the capacity stays intact, with the management highlighting that it would be difficult to give a number for FY25 because of the P&W-related issues. Management would prefer to wait and watch on this as of now.

Due to the outperformance in Q2 FY24, we raise our Ebitda/profit after tax estimates by 9%/13% for FY24, while keeping our FY25E broadly unchanged. While we remain positive on the industry as a whole, IndiGo would have to navigate through various challenges in the near to medium term. Reiterate ‘Neutral’ with a target price of Rs 2,800 (premised on 7.5 times FY25E enterprise value/Ebidtar).

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