IndiGo share price may rally 37% as airline trims Q1 losses; analysts see reason to board this aviation stock

InterGlobe Aviation, the parent company of IndiGo, reported a consolidated net loss of Rs 1,064.26 crore for the April-June quarter. The net loss narrowed from Rs 3,174.18 crore witnessed in the year-ago quarter. IndiGo stock was trading flat on Thursday morning but analysts see reasons to board this low-cost airline stock as a drop in crude oil and increasing airline traffic bode well for the aviation giant with a mammoth share of India’s domestic sky. So far in 2022, IndiGo share price is down 1.79% to now trade at Rs 1,977 per share.

Result at a glance

Also Read: InterGlobe Aviation April-June quarter loss narrows to Rs 1,064 crore

Should you buy, sell or hold?

Kotak Securities: BUY | Upside potential: 37%

Analysts at Kotak Securities said that Indigo’s spreads will go up in a stable to declining crude environment. “The fact the demand beyond metro-to-metro (domestic, international) is buoyant will only enhance Indigo’s scope to leverage coverage, pick routes and accelerate improvement in the spread,” they added. During the quarter, IndiGo’s fuel cost shot up 392% from the year-ago period. Growth is also expected to continue to be healthy for long for an underpenetrated country like India where only the top 7% of the population flies. Kotak Securities has increase their EPS estimate by 1-4% and pinned a fair value of Rs 2,710 at 19X two-year forward earnings. “On a two-year forward basis, our spread estimate is Rs0.44 per ASK,” they added. The fair value price suggests an upside of 37%.

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Reliance Securities: BUY | Upside potential: 29%

The brokerage firm said that it expects a strong revival in the air passenger traffic over the next 2 years and factors 35% CAGR in ASK over FY22-FY24E and an improvement in EBITDA margin by 2,370bps over FY22-FY24E. “We believe that INDIGO’s strong cash position would help in sustaining its market share along with pricing power, going forward, which would drive its overall profitability. Rising Yield, pricing discipline and falling crude prices would support turnaround despite other cost inflation,” analysts said. They project fuel prices to normalise by the second half of the fiscal year. “It is the best play to capitalize on the fastest-growing Indian aviation sector. We reiterate our BUY rating on INDIGO and maintain the Target Price of Rs2,550,” Reliance Securities added. The target price suggests a 29% upside.

Motilal Oswal: Neutral | Upside potential: 2%

Motilal Oswal has questioned the sustainability of IndiGo while pinning a neutral rating on the stock. “Despite the near-term challenges, INDIGO will take additional pre-emptive measures. However, the resurgence of airlines (Air India and SJET), the upcoming Akasa Air, and the established JETIN will reduce INDIGO’s market share going forward,” they said. Motilal Oswal has pinned a target price of Rs 2006 per share on the aviation stock.