Fly Robin Fly! InterGlobe Aviation jumps 8% amid Go First crisis; analysts gung-ho on stock

Interglobe Aviation stock flies high: Shares of InterGlobe Aviation rallied as much as 8 per cent to hit a 52-week high of Rs 2,235.95 apiece on the BSE in the early morning trade on April 3, 2023, a day after the Wadia Group-owned air carrier Go First filed for insolvency, citing cash crunch. That apart, a sharp drop in crude oil prices in the previous session, too, aided the stock price.

At the time of writing this report, the stock traded nearly 6 per cent higher at Rs 2,193 apiece on the BSE. Go First commanded a market share of 8.9 per cent in CY22 and sudden disruption in operations is likely to benefit other players, mostly IndiGo, and raise airfares due to supply constraints," analysts note. The scrip finally ended at Rs 2,163.90, up 4.52 per cent.

Credit Suisse, in its latest report, said that GoFirst bankruptcy can benefit InterGlobe Aviation, in terms of higher market share and stronger yields in a capacity-constrained environment. Apart, lessors may allocate some GoFirst aircraft to Indigo, given a similar fleet. The global brokerage has an "outperform" rating on the stock with a target price of Rs 2,450. 

Bank of America, too, is bullish on the stock and has assigned a "Buy" rating to it. The brokerage said that GoFirst's insolvency will remove 9 per cent of the domestic supply and existing competition will struggle to replace the lost supply. It further said that the company’s growth opportunity in the Indian aviation market is not priced in at 13.5 times of FY25 earnings per share (EPS). The target price is set at Rs 2,700.

ALSO READ: State-run lenders Central Bank, BoB, IDBI Bank, among others trade in red as Go First files for bankruptcy
 

Meanwhile, in its Analyst Meeting, held in late March 2023, the company's management had said that Indigo targets a twofold increase in size and scale by CY30. Growth level is on a high base and the last 16-year achievement could now be attained in half the time (i.e. within only 7- 8 years). India remains a high-potential market, as it has ~700 commercial passenger aircraft vs 4,000 in China currently. India’s requirement is 1,100 passenger planes by CY27, it said. 

Another takeaway from the meet was - "Indigo’s nearly 500 aircraft order book places it much ahead of its peers, in terms of delivery schedule. New players are seeking more planes. Indigo is extending some leases, to 8 years from 6, while going for wet-lease, etc. Global interest rates have gone up, but airline leases are more reflective of 5-10-year yields, which are relatively more stable."

WATCH | What led to Go First's downfall

Besides, a COVID-scare at the end of Dec'22 subsided by Jan-23, leading to robust pax in Feb-Mar ’23. Pax stands for the number of passengers carried by an airline. Seasonally-lower ticket prices/yields have also supported demand in Q4. Yield drop is slightly more enhanced this time around, as Q3 yield was quite high; yield would remain strong vs pre-pandemic. Lower costs may lead to yield adjustment; Q1FY24 should be strong, though.

Considering these, Emkay Global, in its report, dated March 24, 2023, said "While capacity and pax guidance is in line with our assumptions, the guidance of net-fleet addition of 46 in FY24 is better than our 30-35 p.a. assumption and points to Indigo’s robust position, even amid delivery & engine concerns. We reiterate BUY, with a TP of Rs 2,600/share."