All that you need to know about Interglobe Aviation at a glimpse

Stock Data:

Ticker	INDIGO
Exchange	BSE and NSE
Industry	Aviation

Price Performance:

Last 5 days	+6.08%
YTD	-1.74%
Last 12 months	20.02%

Why is the stock price rising?

Impressive quarterly results led to the overall rise of the stock price – The company reported the highest ever revenue which more than quadrupled on year toto INR 12,855 crores. The net loss narrowed to INR 1,064 crores  from INR 3,174.18 crore witnessed in the year-ago quarter. The company will benefit in the medium to long term from demand recovery along with capacity deployment, local and global network expansions, commodity softening, superior balance sheet, better than industry cost structure and strong management. The company is expected to deliver better results from the third quarter of the current fiscal year and hence the market is bullish about the stock.

Management Commentary:

“We reported the highest ever revenue generated by the company and thereby produced profits at an operational level. However, cost pressures on fuel and foreign exchange prevented us from translating this strong revenue performance into net profitability. While financial performance in the second quarter will be challenged by weak seasonality, the long-term revenue trend remains strong”

Ronojoy Dutta, CEO and Managing Director

Competitive advantage:

The company has a fleet of 281 aircraft including 146 new gen Airbus A320 NEOs and 35 Airbus A320 CEOs. With this, they have been able to achieve a wide network of 97 domestic destinations and 25 international destinations. A uniform fleet for each type of destination, timely service and high operational reliability has made Indigo one of the most reliable airlines in the market. It competes with other carriers like SpiceJet and AirAsia but still has a market leadership due to its low-cost structure. IndiGo is not only the most efficient low fare operator domestically but is also comparable with global low-cost airlines like Southwest. Pricing plays a major role and the low-cost model is also not easy to replicate with enough capital. 

About Interglobe Aviation Ltd:

Interglobe Aviation Ltd (Indigo) is India’s largest passenger airline operating as a low-cost carrier. Serving 97 destinations including 25 international destinations, it provides passengers with a simple, unbundled product, fulfilling its singular brand promise of providing “low fares, on-time flights, and a courteous and hassle-free service” to its customers. Since its inception in August 2006, they have grown from a carrier with one plane to a fleet of 281 aircrafts today.

Promoters (in %)	June 21	Sept 21	Dec 21	Mar 22	June 22
Consolidated Promoter Stake	74.84	74.79	74.78	74.77	74.77

Leadership in domestic segment:

As of August 2022, the company holds a ~57% market share in the domestic passenger traffic in India. It also has a significant share in the international market with ~12% per cent share of total international seat capacity to or from India. Further, IndiGo has been recognized among the most valuable and strongest airline brands worldwide, as per the Brand Finance Airlines 50 report for two consecutive years. They have ranked #43 in year 2020 and moved up 7 positions to #36 in the year 2021.

Growth factor:

A key catalyst for the growth of the company would be an increase in the travel and tourism industry. As stated by the CEO of the company – Air travel grows twice by the rate of growth of the GDP. And this can be witnessed by the figures as well since the company is now operating at the pre-COVID international levels. Indigo is present in all pre-COVID international destinations except China, Hong Kong, Myanmar and with corporate travel back on the track, the company is surely going to fare well in its revenue. Further, the number of people visiting tourist destinations are also increasing and Indigo being a low fare airline operator is their primary choice. This can also be verified as the company’s Revenue per available seat kilometer has grown by 72% Q-o-Q. Indigo is also witnessing a lot of diversion from rail traffic to air on short routes as well. 

 Meanwhile, replacement of older aircrafts is likely to improve operating efficiency in the medium term. Indigo is planning to add Airbus 321XLR aircraft by 2024 in its fleet. They are targeting two markets for them: Europe and East Asia. India has long suffered from a shortage of long-haul international airlines, despite being the third-largest aviation market globally. This meant millions of travelers taking connecting flights to reach cities in Europe and East Asia. Using the XLR, IndiGo will be able to tap into a vast base of tourists and VFR (visiting friends and relatives) markets for direct connections.

Also, the competition in the industry is increasing but capacity deployment by others is quite low. One of their major competitors (SpiceJet) has reduced capacity a lot in the recent past and that is helping the company a lot. So, the company is quite confident on the competition part wherein they believe to hold a dominant position in the market for a long time.

Our View:

The fact that 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. 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. It is projected that the fuel price would normalize by the second half of the fiscal year and hence it is the best play to capitalize on the fastest-growing Indian aviation sector at the current time. Keeping this in mind, one should bag Indigo in their portfolio only keeping a long term view.

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