Q3FY18 result highlights
Key positives: Higher yields led by better pricing
Key negatives: Increase in crude oil prices by ~7% in last one month.
Impact on financials: Downgrade in FY19E earnings by 2.8% due to higher fuel cost.
Valuations & view
During 9mFY18, IndiGo’s ASKM expanded by 14.8%yoy to 46.4bn and gross spreads expanded by 12.7% to Rs2.6. Over the last three months the crude price have gone up by 15.5% and the impact of this increase is likely to be passed on with a lag, especially since Q4 is a seasonally weak quarter. Due to this, IndiGo’s Q4FY18 profitability is expected to remain under pressure. However, with continued strong growth in air passenger traffic and favourable demand supply balance, we expect 23% earnings CAGR for IndiGo over FY17-20 with robust free cash generation. IndiGo trades at 7.9x FY20E EV/EBITDAR. We value IndiGo at 8.8x FY20E EBITDAR, a ~5% premium to global peers, because of IndiGo’s higher growth, superior leverage and better returns. We maintain Outperformer with a target price of Rs1,476.
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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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