Q3FY19 result highlights
Key positives: Strong than expected qoq improvement in yields
Key negatives: High fuel costs and INR depreciation.
Impact on financials: Upgrade in FY20E earnings by 62.1% due to higher than expected yields and lower fuel cost.
Valuations & view
The improvement in IndiGo’s RASK in Q3FY19 was sharply ahead of our estimate and was led by an improvement in fares in the near term booking window of 0-15 days. We note that the pressure on fares in this booking window had been a key stress point for airlines in the preceding two quarters. Also, crude prices have declined 30.6% from peak to $60 per barrel currently from their Oct-18 peak of 86.4, the full benefit of which is likely to reflect only in Q4FY19. On the back of an improved yield outlook, we have upgraded our recommendation on IndiGo from Underperformer to Neutral. Our rating however remains constrained by a slowing domestic traffic growth environment, which can keep yields under check in a rising capacity environment. We have a revised price target of Rs1056 (based on 9.0x FY20E EBITDAR).
Interglobe Aviation Ltd. InterGlobe Aviation Limited, formerly InterGlobe Aviation Private Limited, is an India-based company engaged in operating passenger airline. The Company offers aviation, hospitality and travel related services. It operates through two geographic segments: Domestic, which includes air transportation within India, and International, which includes air transportation outside India. Its business lines include InterGlobe Air Transport, InterGlobe Aviation, InterGlobe Hotels, InterGlobe Technologies, InterGlobe Technology Quotient and InterGlobe Education. InterGlobe Technologies provides integrated information technology and business process outsourcing services. InterGlobe Technology Quotient distributes Travelport in India and Sri Lanka. It has four trademarks, namely, IndiGo Airways, IndiGo Airlines, IndiGo and IndiGo Air. It has around 96 aircrafts, and operates scheduled services to approximately 33 airports in India, with a maximum of around 593 domestic flights per day.
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