MOSL: Morning India (27/November/17)- 1. InterGlobe Aviation (Temporary hiccups)-2. Siemens-3. Telecom (Next phase of growth)

MOrning India (27/November/17): 1. InterGlobe Aviation (Temporary hiccups); 2. Siemens; 3. Telecom (Next phase of growth)

Today’s top research idea

• InterGlobe Aviation: Temporary hiccups; long-term growth visible; Yet, rising oil prices a threat; maintain Neutral
  
• Engine issues impact near-term growth: Since the induction of A320 NEO planes in the fleet, INDIGO has faced frequent disruptions in operations due to technical glitches in the Pratt & Whitney engines used in these planes.
  
• Strong order book assures long-term growth visibility: Given the under-penetration in the country, domestic demand has historically followed supply and will continue to do so till a respectable penetration is reached. India's aircraft order book is extremely strong and we expect domestic capacity to grow at 16% CAGR over FY17-20 (total capacity to grow at 14% CAGR).
  
• Rising crude oil prices a threat: INDIGO’s earnings are highly sensitive to ATF prices, which are linked to crude oil prices. A 5% change in ATF price would impact FY19 EPS by ~14%. Crude oil prices have rallied more than ~20% in since September 2017. Inability to pass on the increased prices would squeeze margins for the airline.
  
• The stock trades at 15.6x FY19E EPS of INR75.4 and at 8.3x FY19E adjusted EV/EBITDAR. We value INDIGO at 14x 12-month rolling forward EPS to arrive at a September 2018E TP of INR1,291, implying 10% upside. Maintain Neutral.
  

Piping hot news

Telcos wrote off up to $50 billion due to Reliance Jio: Sunil Mittal

• Reliance Jio's prolonged free voice and data offers were a major reason for telecom companies writing off investments of up to $50 billion, said Bharti Airtel chairman Sunil Mittal, who also called out the newcomer for opposing a relief package for the debt-laden sector.