MOSL: INTERGLOBE AVIATION (Neutral)-ASK growth finds solace
(INDIGO IN, Mkt Cap USD7.7b, CMP INR1423, TP INR1549, 9% Upside, Neutral)
** The Directorate General of Civil Aviation (DGCA) has extended the deadline for INDIGO to replace its A320neo aircraft fitted with unmodified Pratt and Whitney (PW) engines to 31st May'20 from 31st Jan'20 earlier. However, INDIGO will have to replace at least one engine of an aircraft with a modified PW engine by 31st Mar'20.
** According to the plan submitted by the company to the regulator, INDIGO will replace ~135 unmodified engines (up from 110 engines) by 31st May'20.
Domestic ASK growth fortified
** In Nov'19, the DGCA had directed INDIGO to ground all of its A320neo aircraft fitted with unmodified PW engines in case it fails to replace them with modified engines by 31st Jan'20.
** We believe that the extended deadline would allow INDIGO to achieve its revised ASK growth target of 22-23% for FY20. Accordingly, we revise our FY20 ASK growth estimate from 14% to 22% (in line with company guidance).
** The DGCA had earlier made it clear to preferentially replace unmodified engine aircraft with the new deliveries INDIGO takes over the coming months rather than deploying on a new/fresh schedule.
** However, the extension will also allow INDIGO to add new aircraft on new/fresh schedules. This will allow the company to make net additions in ASK growth and facilitate flying of new pilots, whose salaries were an overhang and not associated to ASKs.
Airbus delivers strong 2019 commercial aircraft performance
** INDIGO is expecting a lag in deliveries of new aircraft owing to various issues faced by Airbus with the family cabin layout of A321neo and a delay in engine deliveries from engine manufacturers (PW and CFM International).
** Airbus was able to boost production and deliveries to record highs at end-CY19 with the arrival of additional labor and last-minute holiday cancellations.
** Airbus delivery growth stood at 8% in CY19 (at 863 deliveries), with A320/321neo production boost of ~42%/65%.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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