IndiGo shares: Falling revenues, grim industry outlook but two brokerages are not giving a sell call

IndiGo reported a decent quarter with revenues beating our estimates by 13%, driven by 5% higher RPKs and 7% higher yields.Total income for IndiGo slipped to Rs 1,143 crore against Rs 9,786 crore in the same period last year.

InterGlobe Aviation’s share price jumped 2.9% during Friday’s trading session to trade at Rs 960 per share, despite reporting a 92% fall in revenues during the April-June quarter, just a few days back. The parent company of India’s largest private carrier, IndiGo enjoys dominance when it comes to market share in the domestic airspace. Although the airline industry has been hit hard or as ace investor Warren Buffet said ‘the world has changed for the airlines’. However, despite this change in the industry, brokerage and research firms HDFC Securities and Prabhudas Lilladher are still not advising investors to sell their holdings in IndiGo.

Total income for IndiGo slipped to Rs 1,143 crore against Rs 9,786 crore in the same period last year. This resulted in a net loss of Rs 2,844 crore crore in the April-June quarter. The airline carrier had reported a net profit of Rs 1,198 crore in the same quarter last year. InterGlobe Aviation, Ronojoy Dutta said that the industry is going through a crisis for survival. Primarily wings of IndiGo’s revenue were clipped by the lockdown where airports were shut. Company’s management has, however, informed that it has managed to scale up flight operations to 400 flights per day. With only two operational private players listed, IndiGo remains the go-to choice for exposure to the industry, analysts say.

“Amidst this uncertain backdrop, IndiGo remains better placed to withstand the downturn due to its dominant market share, a healthier balance sheet and cost reduction measures,” said HDFC Securities in a recent note. IndiGo’s current market share stands at 52.5%. HDFC Securities has an ADD rating on the stock with a target price of Rs 940, trimmed down from Rs 1,100. Shares of the private carrier have managed to gain just 9.8% from their March lows when the stock tanked 42% in a month. IndiGo informed the stock exchanges that it has resumed services to 56 domestic destinations and served 20 international destinations via charter operations during the last quarter.

With the uncertainty looming large around the sector, IndiGo is looking at other sources of revenue such as cargo and charter flights. The company has also taken up cost cutting measures both in-flight and off. Through a mix of salary cut and lay-off the company is aiming to bring employee costs down 30%. Paarth Gala, Aviation analysts at Prabhudas Lilladher said that IndiGo’s strong balance sheet with Rs  18,400 crore in cash and cash equivalents along with industry leading cost structure and strong management team will help it fare better than peers. Prabhudas Lilladher has asked investors to Accumulate the stock with a target price of Rs 960 apiece. 

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