PL Stock Report: InterGlobe Aviation (INDIGO IN) - Q2FY24 Result Update – Profitable for 4th quarter in a row - BUY

InterGlobe Aviation (INDIGO IN) - Jinesh Joshi - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs2,509 | TP: Rs2,816

Q2FY24 Result Update – Profitable for 4th quarter in a row

Quick Pointers:

§ Load factor stood at 83.3% with yield of Rs4.45.

InterGlobe Aviation (IndiGo) reported better than expected operating performance with FX adjusted EBITDAR margin of 20.2% (PLe 15.8%) led by reversal in provision of airport fees and receipt of compensation benefits from OEM’s relating to AoG. We believe IndiGo is well placed to strongly benefit from 1) capacity deployment (north of mid-teens capacity guidance remains intact for FY24E, despite escalation in engine issues at P&W), 2) network expansion in domestic as well as international markets and 3) superior balance sheet (Rs 180bn of free cash). In addition, recent decision to levy fuel surcharge in the band of Rs300-1,000 depending upon distance is expected to provide cushion to gross spreads in an environment of rising ATF prices. We broadly maintain our estimates and expect revenue CAGR of 16% over next 2 years with EBITDAR margin of 22.8%/25.1% in FY24E/FY25E. Retain ‘BUY’ with a TP of Rs2,816 (EV/EBITDAR multiple of 7.5x FY25E).

Revenue at Rs 149bn (+19.6% YoY): Passenger revenue grew to Rs130.7bn (+17.6% YoY). Load factor stood at 83.3% (PLe 84.0%) with a yield of Rs4.45. Ancillary revenue increased 20.5% YoY to Rs15.5bn. ASKM/RPKM improved 8.0%/1.4% on sequential basis to 35.3bn/29.4bn respectively.

PAT at Rs1.9bn; in black for 4 quarters in a row: Fuel CASK stood at Rs1.66 (PLe Rs1.71). Yields were lower at Rs4.45 for the quarter (PLe Rs4.40) vs Rs5.07 in 2QFY23. EBITDAR margin stood at 16.0%. However, adjusting for FX loss, EBITDAR margin stood at 20.2%. IndiGo reported a profit of Rs1.9bn (adjusted for FX loss, PAT was Rs8.1bn) as against a loss of Rs15.8bn in Q2FY23.

Key takeaways: 1) IndiGo has recently introduced 4 new domestic destinations and plans to increase its international destination count from 32 to 34. 2) The share of international ASK is expected to increase from 26% to 30% in future. 3) Capacity addition guidance remains intact at north of mid-teens for FY24E. Further, capacity ASKM is expected to increase by 25% YoY in 3QFY24. 4) Airport fees declined from 12.2bn in 1QFY24 to 9.8bn in 2QFY24 (19.5% QoQ) due to a provision reversal of Rs1.5bn.5) Supplementary rentals declined from 24.3bn in 1QFY24 to 21.2bn in 2QFY24 (12.7% QoQ) due to claims received from OEMs pertaining to AoG. 6) 40 planes are currently grounded due to P&W engine issues and the count is expected to rise from Jan-24, as and when inspections accelerate. 7) Fleet guidance of 350 planes for FY24E remains intact, with delivery of 1 plane expected each week in FY25E. 8) Load factor is lower in 3QFY24 so far, due to addition of new routes (pick-up takes 1-2 months), seasonality, and delay in festive dates. 9) As a part of mitigating measures IndiGo has retained 14 CEOs, extended lease for 36 aircrafts, and executed 2 damp leases. 11 additional damp leases will become operational in November, and leases for 12 additional CEOs will be executed from secondary market with delivery expected Jan’24 onwards.

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