Domestic aviation industry buoyed by 11% YoY growth in passenger traffic in November: Sharekhan recommends 'Buy' on InterGlobe aviation

Indian aviation industry has received a much-needed shot-in-the-arm with 11.1 per cent year-on-year jump in domestic passage traffic in November. On the month-on-month basis the rise was a steady 2.4 per cent.  

Brokerage firm Sharekhan has initiated coverage on InterGlobe Aviation (Indigo) with 'Buy' and DCF (Discounted Cash Flow)-based March-24 target price of Rs 2,560. 

The stock was trading at Rs 2,063.20 on the NSE at around 2 pm on Tuesday and was up by Rs 36.10 or 1.78 per cent. 

While Indigo’s market share should cool down from the current highs of 57 per cent as Tata Group ramps up and other smaller/new players also add capacity, it would remain in the formidable 47 per cent range in the long term, the brokerage firm noted. 

Indigo, with its cost leadership, is well-poised to play the competition, as current yields hover at all-time highs. While prevailing supply constraints can add to near-term pressure, smaller/new players would see greater impact. Indigo with its robust cash position and market leadership, would have better negotiation power over lessors and suppliers. 

SpiceJet shares were trading flat at Rs 41.25. 

Industry Outlook 

Sharekhan estimated domestic pax traffic to cross pre-Covid levels (141mn in FY20) by FY24 (at 165mn) and clock 12 per cent CAGR in FY24-30, implying 2.1x of real GDP growth (vs 1.8x in FY10-20).  

Fuel cost pressure to subside, as geopolitical conditions drive current ATF prices, it said. "Our Brent estimate of USD85/75 in FY24/25+, on the back of subsiding geopolitical issues with reduction in ATF refining-marketing margins, implies lower fuel costs for Indian airlines.". 

Know how individual airline companies fared during the month   

Interglobe Aviation which runs its airline operations under Indigo brand, witnessed a M-o-M fall in its market share to 55.7 per cent from 56.7 per cent. The passenger load factor went up from 82.1 per cent to 86.9 per cent (MoM).  

SpiceJet’s market share climbed from 7.3 per cent to 7.5 per cent (MoM). The passenger load factor went up from 88.1 per cent to 92 per cent (MoM).   

There has been no change in the market share of Air India. It stands at 9.1 per cent. The passenger load factor went up from 82.7 per cent to 85.7 per cent (MoM).    

Go First share went up from 7 per cent to 7.5 per cent (MoM). The passenger load factor went up from 86.7 per cent to 91.3 per cent (MoM).   

Vistara increased its market share from 9.2 per cent to 9.3 per cent (MoM). The passenger load factor went up from 85.5 per cent to 91.7 per cent (MoM).  

Interglobe Aviation shares today gained in an otherwise lackluster market and were trading at Rs 2,063.20 on the NSE, up by Rs 36.10 or 1.78 per cent. 

(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)