Healthy cash position, strong earnings outlook to aid this airlines stock
ASK stands for available seat kilometres. It is a measure of an airlines carrying capacity to generate revenue, taken from multiplying the available seats on any given aircraft by the number of kilometres flown on a given flight.
Interglobe Aviation, the stock of the low-cost carrier Indigo Airlines, which has run up by 48 per cent in the past 12 months, still offers room for upside, as per brokerages. This is despite the airline facing a decline in its market share for the first time in a year in October.
Analysts believe that IndiGo is on a very strong footing with continued fortification of network strength, fleet, international footprint, and balance sheet. Besides, international destination expansion and mix increase remain on track.
The domestic passenger base, or PAX, for Indigo stood at 7.91 million, up 22 per cent year-on-year (YoY) in October 2023.
According to ICRA, the increased occupancy of other airlines and the introduction of new routes have largely offset the impact of GoFirst’s bankruptcy on overall passenger traffic since May 2023.
The company in the just-concluded September quarter turned profitable, as it reported a profit of Rs 188 crore in comparison to a Rs 1,586 crore loss logged in the year-ago period. Higher revenue and other income aided the airline’s profitability but were tempered by a forex loss.
Going ahead, led by festive demand, with higher capacity utilisation, cost rationalisation, and a stable ticket price, "we expect earnings momentum to continue," brokerage firm Geojit Financial Services said.
However, the brokerage expects the company’s operations in the calendar year 2024 to bear an impact due to the phased removal of P&W engines. The company’s management aims to mitigate the risk via strategic secondary market leasing.
In 2Q, IndiGo had around mid-40s grounded aircraft and anticipates an additional 35 aircraft being grounded from 4QFY24 due to recalls by P&W attributed to various issues, including concerns related to powder metal, notes brokerage Motilal Oswal in their latest report on the aviation sector.
ICICI Securities is also bullish on the counter and has given a buy call with a target price of Rs 3,328, i.e., a significant upside of 28 per cent from the last close. The brokerage is positive on the counter as it sees the market forces of demand and supply to be favourable in the domestic aviation sector.
“Management’s guidance on volumes in FY24 remains firm (>15% growth in ASK), which is reassuring in the context of the global engine supply crisis. We factor in INR 60bn / INR 68bn PAT for FY24E / FY25E," the brokerage notes.
ASK stands for available seat kilometres. It is a measure of an airline’s carrying capacity to generate revenue, taken from multiplying the available seats on any given aircraft by the number of kilometres flown on a given flight.
Geojit Financial Services values the company at a P/E of 20x (9.0x EV/EBITDA) on FY25E with a target of Rs 3,008. Strong, healthy cash positions and a strong earnings outlook will drive the stock price higher, according to the brokerage. It has maintained a "buy" call on the stock.
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